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


                                                     FORM 20-F


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

                                                        OR

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
         SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
         FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

                                                        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 1.0 Dutch guilder per share    
                               Title of Class



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                                           Exhibit Index Appears on Page

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



                              None                               
                        Title of Class


Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close February 28,
1999:  6,351,780

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]



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 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 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.


                                                      PART I



Item 1.           Description of Business

         Unless the context  indicates  otherwise,  all references herein to the
"Company" include ICTS, its consolidated  subsidiaries  (including Huntleigh USA
Corporation  as of January 1, 1999, and Procheck  International  B.V. (the Dutch
affiliate of ICTS).

         ICTS International N.V. (the "Company" or "ICTS") is a leading provider
of enhanced aviation security services,  and provides such services primarily to
the European  operations of the major U.S.  carriers.  The  Company's  principal
service in this category is the  implementation of passenger risk evaluation and
classification   procedures,   generally   described  as   "advanced   passanger
screening."  The Company  also  provides in the U.S.  airport  services  such as
pre-departure  screening,   skycaps,  wheelchair  attendants,   agents,  guards,
janitorial  personnel,  maintenance,  ramp and shuttle services.  The Company is
also  engaged in security  consulting,  training  and  auditing for airlines and
airports and in the provision of other security services.

Background

         The threat to the security of civil aviation,  which has created demand
for services such as those provided by the Company,  initially began to manifest
itself in the late  1960's in the form of  skyjacking.  Soon  thereafter,  civil
aviation in general,  and airports and airlines in particular,  emerged as prime
targets for  terrorist  activities,  mainly due to their  vulnerability  and the
relative ease of attack. In the 1970's and 1980's,  terrorist  activity expanded
to include ground attacks on airport  runways or inside  terminal  buildings and
the use of explosive devices to

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destroy  aircraft in flight.  The most notorious  incident of this kind involved
the successful effort of terrorists to plant an explosive device in Pan American
Flight 103, which exploded over Lockerbie, Scotland in December 1988. This event
led to an increase in aviation  security efforts  throughout the world. In spite
of such increased  security efforts,  threats to civil aviation do not appear to
be diminishing in frequency, geographic scope or intensity in the 1990's.


         Although  efforts continue to develop more  sophisticated  machinery to
detect explosive devices contained in passenger luggage and cargo, the threat of
terrorist  activity  has not  been  curtailed  by such  efforts.  The  increased
technical  sophistication,   and  the  improvement  in  technique,  of  would-be
terrorists continue to pose serious challenges to security. The Company believes
that the optimal manner to counter  terrorist  activity is through a combination
of interpersonal evaluation and screening of passengers combined with the use of
advanced equipment for passenger and baggage device detection.

         The  technique of screening  passengers  was  initially  conceived  and
designed in the early  1970's by the  security  departments  of El Al  (Israel's
national  airline) and  Ben-Gurion  International  Airport  (Israel's  principal
airport) in response to threats and acts of terror against  Israeli  passengers,
airplanes  and  airports.   The  Company  was  established  by  certain  of  the
individuals who actively participated in the design and provision of security to
El Al and Ben-Gurion  International Airport. These individuals were the first to
introduce  passenger risk  evaluation and  classification  ("advanced  passenger
screening")  to  commercial  airlines  other than El Al. The first major project
undertaken  by the  Company  was the design and  implementation  of an  enhanced
security  system for  American  Airlines in Europe in 1986.  The outcome of this
project  was the first  fully  written  and  documented  International  Security
Program of American  Airlines,  which  introduced  the  Company's  Risk Analysis
through  Profiling System ("RAPS") method. In 1987, TWA commissioned the Company
to design and implement a security system for, and perform the required services
at, approximately 20 TWA stations in Europe. The Company performed such services
for TWA until 1992, when TWA established its own subsidiary to provide  security
services for TWA and other carriers.  Following the destruction of Pan Am Flight
103 over Lockerbie, Scotland in December 1988, numerous additional international
air carriers,  including Pan Am, became customers of the Company. With the onset
of the Gulf War crisis in early 1991, the market for the Company's  services had
been clearly established.


         Since its inception, the Company has developed and adapted its
techniques and methodology to the changing needs of the airline

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industry.  Many of the Company's services are designed to enable its airline and
airport  clients to comply with the security  requirements  imposed upon them by
regulatory authorities.  During the 1990's, the United States government adopted
legislation  and  administrative  mandates  which  expanded  the  demand for the
Company's  services in Europe.  In April 1996,  the United States  enacted a new
anti-terrorism law which, among other things, mandates that foreign air carriers
flying to and from  airports in the United  States  adhere to security  measures
identical to those required of U.S. airlines serving the same airports.  In July
1996, as an initial  response to the explosion of TWA Flight 800, the FAA issued
a "security  directive,"  applicable to all international flights originating in
the United States,  which requires the  implementation  of certain passenger and
cargo  classification  and  verification  procedures  similar  to  some  of  the
profiling  procedures  included in RAPS. In addition,  the Gore  Commission  was
established in late 1996 to evaluate current aviation security procedures and to
recommend additional measures.

Strategy

         The Company  historically  has focused on providing  aviation  security
services to the European  operations  of the major U.S.  airlines.  However,  in
response  to the growth  which it expects  in the demand for  aviation  security
services such as those  provided by the Company,  the  Company's  strategy is to
pursue certain opportunities and participate in certain industry trends which it
believes may lead it to significant growth. These opportunities include:

                  1. internal growth by participating in the general increase in
air travel.  The Company intends to achieve this by servicing current clients at
additional  locations,  by  servicing  new  clients  at  both  existing  and new
locations,  and by offering other aviation  related  services to its current and
new customers;

                  2.  expansion  into the U.S.  market by  acquiring  in January
1997,  an 82.5%  interest in Service  Service,  Inc.  ("SSI"),  a  Chicago-based
company  providing  passenger  check-in  services to American Airlines at O'Hare
Airport.  As of  January  1, 1999,  the  Company  acquired  an 80%  interest  in
Huntleigh  USA  Corporation  ("Huntleigh").  On February 25,  1999,  the Company
acquired the remaining 17.5% of SSI so that it became a 100% subsidiary.

                  3.  development of  technology-based  products and services by
focusing on the penetration of the Advanced Passenger Screening System (formerly
referred to as the "Automated  Profiling System";  "APS") into the market and by
seeking to create within the Company the technological  ability to diversify the
range of products  and services it provides to its  clients.  During  1997,  the
Company expanded the implementation of the APS. During 1997 and

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1998 , the Company  entered into five year contracts  with several  airlines for
the  installation  and  operation  of the  APS  for  use in all of the  carriers
European operations.


                  4.  acquisitions of  complementary  and related  businesses by
targeting  businesses  similar to its current  business,  businesses  engaged in
passenger handling (including check-in,  baggage processing and certain customer
service activities), and aviation station management companies, as well as other
security  and  safety-related  businesses.  Factors to be  considered  in making
acquisitions  would  include  current  geographic   presence  at  the  locations
involved,  the degree to which the  business  to be acquired  provides  services
complementary  to those currently  provided by the Company and  opportunities to
leverage the Company's customer base through cross-selling; and


                  5.  geographic  expansion,  both  in  its  principal  area  of
operation (in Western Europe) and elsewhere throughout the world, in addition to
the United  States.  Due to the  volume and growth of air  traffic in Europe and
current USA and UK security  regulations,  the Company expects Western Europe to
continue to be a large market for the Company's services in the near future. The
Company  believes  that demand for its services  exists in nations such as those
comprising  the former Soviet Union and that such demand will  increase  pending
further  development of such entities'  political and economic systems. In April
1997 and December 1997, the Company began providing airline security services in
Tblisi,  Georgia and Alma Alta,  Kazakhstan,  respectively.  A further expansion
occurred during 1998 into Stockholm, Sweden and Shannon and Dublin, Ireland.

         The major market trends which the Company is seeking to exploit include
(i) outsourcing and single vendor contracts and (ii) privatization. Air carriers
are actively seeking to outsource  activities not directly related to their core
business, such as security,  passenger check-in, cleaning, catering and aircraft
maintenance. In June 1996, the Company entered into a three-year contract with a
major U.S.  airline  (terminable  by either  party for any reason  upon 90 days'
written  notice),  pursuant to which the Company will supply  enhanced  aviation
security  services to all of such airlines  existing  locations in Europe (other
than The Netherlands and Sweden). In March and August 1997 and August, 1998, the
Company   entered  into   five-year   contracts  with  other  airlines  for  the
installation  and operation of its APS program for use in all of those carrier's
European  operations.  In certain European markets,  there is a trend toward the
privatization of security services for airports,  which have been  traditionally
provided  by  local  and/or  federal  government   entities.   The  Company  has
capitalized  on its expertise in the provision of security  services in order to
bid on such privatization tenders. This trend


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is illustrated by the  privatization of certain security services at airports in
Belgium,  France, Germany and The Netherlands.  In this regard, in January 1996,
following a competitive  bidding  process,  the Company,  through FIS GmbH,  was
awarded a  five-year  contract  by the German  government  to  provide  security
services at the Hamburg Airport. In October 1997, FIS GmbH was awarded a similar
contract for a term of 63 months involving the Saarbrucken Airport. In addition,
in November  1996,  a  subsidiary  of the Company was  selected as a provider of
electronic luggage screening operations at London Gatwick Airport-South Terminal
and London Stansted Airport; such operations commenced in January 1997.

         Notwithstanding these developments,  there can be no assurance that the
trend toward privatization of services will not diminish or even be reversed. In
addition,  the trend by airlines  to select a single  vendor to provide all or a
large part of their required aviation  security services may not continue;  even
if it does continue, there can be no assurance that the Company will be selected
as the single vendor to provide such services.  The  realization of any of these
negative  outcomes  could  have a  material  adverse  effect  on  the  Company's
business, results of operations or financial condition.


Services Provided


Advanced Passenger Screening

         The principal service currently  provided by the Company to its airline
clients is the  implementation of RAPS, a set of sophisticated  procedures which
seek  to  identify  a  potential  threat,  before  it  materializes,  through  a
methodology  of risk  evaluation  and  classification  of  passengers.  The risk
evaluation   and   classification   is  effected  by  a  comparison  of  various
characteristics  of a specific passenger to a preset standard of characteristics
of a potential  aggressor by means of  interviewing,  document  verification and
behavior  analysis.  RAPS results in the  classification of the vast majority of
passengers as low risk,  thereby  enabling more scrutiny to be focused on higher
risk  passengers.  Since RAPS entails the  identification  of potential  threats
through  recognizable  patterns,  the Company believes that it provides a better
and more  practical  response  to such  threats  than  certain  other  available
alternative  security  measures (such as simple guard  positioning or a complete
body and baggage  search of each  passenger).  In  addition,  by focusing on the
primary  risks,  the  Company  considers  RAPS  to be  more  cost-effective  and
passenger-friendly than other available alternative security measures.



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         The concept of risk  analysis  through APS has been utilized in various
forms by certain U.S.  carriers  since 1986. In 1995,  the FAA mandated that all
U.S.  carriers  adopt a uniform  methodology of risk analysis  through  advanced
passenger  screening  at all of  their  "high-risk"  stations.  Previously,  the
Netherlands  security  authorities had adopted such  methodology as the standard
for enhanced flight-related security for airlines subject to their authority. In
April 1996, the United States enacted an anti-terrorism  law which,  among other
things,  mandates  that foreign air carriers  flying to and from airports in the
United States adhere to security  measures  identical to those  required of U.S.
airlines serving the same airports.  In July 1996, as an initial response to the
explosion of TWA Flight 800, the FAA issued a "security  directive,"  applicable
to all international  flights  originating in the United States,  which requires
the   implementation   of  certain  passenger  and  cargo   classification   and
verification  procedures similar to some of the profiling procedures included in
RAPS.

         The Company  believes  that it is  recognized  for its  expertise  with
regard to the RAPS method and its implementation. Although competitors implement
procedures  similar to those which are  included in RAPS,  the Company  believes
that its expertise with respect to screening procedures is substantially greater
than that of its competitors. The Company's expertise allows it to (i) adapt and
customize  the  method to the need of the  client  and the  criteria  of various
authorities (for example,  the FAA or UK DOT), (ii) effectively  train personnel
in the procedures and requirements associated with RAPS, and (iii) supervise the
proper implementation of the method by such personnel.


Consulting, Auditing and Training

         The Company  provides  consulting  services to airlines  and  airports,
which  do not  currently  constitute  a  significant  portion  of the  Company's
revenues. The Company's consulting services include recommending the adoption of
specified security procedures,  developing recruitment and training programs for
clients  to  hire  necessary   security   personnel  and  working  with  airport
authorities   to  ensure  that  such  clients  comply  with   applicable   local
requirements.  In August  1997,  the Company  purchased a 37%  interest in Demco
Consultants Ltd.  ("Demco"),  a privately-held  firm based in Israel. In January
1998,  the Company  sold 18% of these  shares  reducing  its  holdings to 19% of
Demco's shares. Demco is engaged in the design,  planning and implementation of,
and  provides  consulting  services  with  respect  to,  emergency  systems  and
contingency procedures for government agencies and large organizations.

         The Company provides certain security auditing services for

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airlines and airports.  These services include  evaluation and audit of existing
security measures,  testing security procedures through exercises and drills and
the recommendation of measures to improve security procedures.

         The Company  frequently trains airline employees in profiling and other
security  measures.  Such  training  consists of  extensive  courses and written
training  manuals.  The Company has also been  engaged by clients to develop and
establish internal training programs.

Other Services

         Operation of Checkpoints.  The Company operates security checkpoints at
airports.  Although  the  Company's  personnel  who provide such  services  work
closely with local authorities,  which may be armed, neither the Company nor any
of its  personnel  is  engaged,  nor does the  Company  intend  to engage in the
future, in any armed services.

         Travel  Documents  Verification.  Many countries hold the carrier of an
arriving  passenger  responsible  for the  validity  of the  passenger's  travel
documentation (including,  for example, the passenger's passport, visa and entry
permit). In these countries, the airline is subject to fines and other penalties
in the event that a passenger  it carried is found,  at the port of entry,  with
invalid or insufficient travel documentation. The Company was the first to offer
a service which consists of verification  of the travel  documents of passengers
to ensure  compliance  with the  requirements  of the authorities at the port of
entry.

         Baggage Reconciliation. The Company's baggage reconciliation service is
designed  to ensure  that each piece of luggage on an  aircraft  is matched to a
passenger on that aircraft.

         Operation of  Electronic  Equipment.  The Company has been  retained by
certain of its  airline  and  airport  clients to operate  electronic  equipment
(including  x-ray screening  machines and manual  devices)  designed to identify
weapons and explosives  carried by passengers or secreted in their luggage.  The
Company  believes  that the market for such  services  is  rapidly  growing,  as
certain European  countries are expected to require 100% screening of luggage in
the near future. In November 1996, a subsidiary of the Company was selected as a
provider  of  electronic   luggage   screening   operations  at  London  Gatwick
Airport-South Terminal and London Stansted Airport, such operations commenced in
January 1997.

         Cargo Classification Control.  The Company utilizes the
expertise that it has gained through passenger profiling to

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evaluate and classify  commercial cargo transported on passenger  airlines.  The
Company  expects an  increased  demand for this service as  international  trade
increases.

         General Security  Services.  The Company also provides general security
services  not  related to  aviation  (e.g.,  design and  overall  management  of
security systems and security guards) to various  institutional  clients such as
banks,  retail chains and universities in the United States,  the United Kingdom
and France.  Pursuant to an agreement with an affiliate of ICTS, the Company may
not provide  general  security  services in Latin America,  Turkey or the former
Soviet Union.

         Huntliegh. As of January 1, 1999 the Company acquired 80% of the issued
and  outstanding  shares of Huntleigh and has an option to acquire the remaining
20% at an agreed upon price formula.  Under certain circumstances the Seller has
the right to require the Company to purchase  the  remaining  20%.  For the year
ended December 31, 1998 Huntleigh had revenues of  approximately  $44.3 million.
Huntleigh is one of the USA's leading  providers of airport  passenger  terminal
services and is the only  provider in the industry  that  dedicates its business
almost solely to airport services.


         Huntleigh  provides nine separate  services at 46 airports in 28 states
of the U.S.  Within each service are specific job  classifications.  As more and
more airlines continue to outsource many of the services they once provided, the
Company  believes  that the number  and type of  services  Huntleigh  offers may
increase.

These services currently include:

o        Pre-departure Screening
o        Skycap Services
o        Wheelchair Attendants
o        Agent Services
o        Guard Services
o        Janitorial Services
o        Maintenance
o        Ramp Services
o        Shuttle Service

Pre-departure Screening

         The  goal of a  pre-departure  screener  is to  prevent  or  deter  the
carriage of any explosive,  incendiary device,  weapon or other dangerous object
into the sterile area of an airport concourse and aboard the aircraft.

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Skycap Services Provider

         A skycap performs two basic services in assisting passengers with their
luggage.  Located at the curbside of the check-in at airports,  skycaps check-in
passengers'  luggage and meet security  requirements  established by the Federal
Aviation  Administration  to profile  passengers.  The skycap is responsible for
checking the baggage to the passenger's final  destination.  Skycaps also assist
arriving passengers with transporting luggage from the baggage carousel to their
transportation or other designated areas.

         Skycaps also may operate  electric  carts for  transporting  passengers
through the airport and transport  checked baggage from the curbside check-in to
the airline counter. One unusual job duty of skycaps is termed Concierge Service
and involves a skycap  monitoring the baggage carousel to ensure that passengers
do not remove  luggage that does not belong to them. In many  airports,  skycaps
perform  positive  claim at the  baggage  claim area by  checking  to see if the
passenger's  baggage  tags match those on the luggage to ensure that a passenger
is removing his or her own luggage from the claim area.


Wheelchair attendants

         Wheelchair  attendants  transport  passengers  through  the  airport in
airline-owned  wheelchairs.  Working  closely with the  attendants  are dispatch
agents who monitor  requests and  assignments  for  wheelchairs and dispatch the
attendants as needed.

Agent Services

         Agent  services  include  Passenger  Service  Representative,   Baggage
Service,  Priority  Parcel,  Cargo  and  Express  Check-in.  Though a  Huntleigh
employee, an agent is an actual representative of the airlines.


Guard Services

         Guard  services  involve  manning  positions  to  guard  secure  areas,
including the aircraft itself.

Janitorial Services

         A growing service for Huntleigh is the cabin cleaning of aircraft. This
service has expanded to include cleaning of portions of the airport as well.

Maintenance

         In one airport,  Huntleigh  provides workers to maintain equipment used
in service.


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Ramp Services

         Ramp  services  involve  the actual  aircraft.  It  includes  directing
aircraft  into the  arriving  gate and from the  departing  gate,  cleaning  the
aircraft,   conducting  cabin  searches,  stocking  supplies  and  de-icing.  An
interline  baggage service involving moving luggage from one airplane to another
is also a ramp service.

Shuttle Service

         Huntleigh is responsible  for shuttling  airline crews from their hotel
to the aircraft.


         Huntleigh's customers are the airlines themselves. If an airline is the
sole occupant of a concourse or a terminal in which Huntleigh  provides service,
Huntleigh has an exclusive contract with that airline.  If more than one airline
shares a concourse or terminal,  Huntleigh maintains a contract with the host or
"custodian"  airline and bills  services to each  airline  based on its share of
passenger boardings.

         Contracts  are awarded as part of a bid process.  Contracts  may have a
time period of  duration  or may be  indeterminate  length.  In most  instances,
either  party can cancel  with 30 days  notice.  Labor  market  conditions  at a
particular  airport  location may require  Huntleigh to increase its prices,  at
which time an airline may put the contract out for alternative bid.


Restrictions on Company Operations

         In certain  cases,  the Company is restricted in its  operations by the
terms of agreements that ICTS has entered into with its affiliates.

         On October 9, 1991, the Company entered into a joint venture  agreement
with respect to Procheck  International B.V., its Dutch affiliate  ("Procheck").
Pursuant to this agreement, the Company may not provide security services in The
Netherlands other than through Procheck.  Although in December 1997, the Company
sold its minority  interest in ICTS (Asia Pacific) Ltd.  ("ICTSAP"),  its former
Hong Kong  affiliate,  the Company  remains  restricted  by the terms of a joint
venture  agreement which prohibits the Company from providing  security services
in Southeast Asia.

         Until June 30,  1995,  the  Company  was not a party to any  agreements
restricting  its ability to provide  consulting,  training  and  security-design
services  in the  general  security  field.  As of July  1,  1995,  the  Company
transferred to its affiliate,  ICTS Global  Security  (1995) Ltd.  ("ICTS Global
Security"),  for no  consideration,  its activities,  know-how and goodwill with
respect

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to such  services,  along  with a right to use the  name  "ICTS"  in  connection
therewith.  ICTS Global Security is an Israeli company majority-owned by Leedan.
There  were no  assets  or  liabilities  transferred  in  connection  therewith.
Pursuant to the terms of its arrangements with ICTS Global Security, the Company
may not provide general security services in Latin America, Turkey or the former
Soviet  Union,  and ICTS  Global  Security  may not  provide  aviation  security
services  anywhere in the world or general security  services in Western Europe.
In addition,  the Company and ICTS Global Security agreed that each company will
offer the  other  company  the  right to  participate  in any  general  security
services project in North America which it may obtain.


Airline and Airport Customers

          The Company's three largest airline customers based on revenue in 1998
collectively,  accounted for  approximately 44% of the Company's  revenues.  Any
cessation or termination  by any such customers of their present  contracts with
the Company, or reduction in the value of such contracts,  could have a material
adverse  effect on the Company's  business.  The Company has over 120 clients in
over 80 locations world-wide.

         The Company's  largest airport customer is Hamburg Airport (through the
German Ministry of the Interior),  which accounted for  approximately 11% of the
revenues of the Company in 1998.

         In  addition,  from time to time,  the Company is engaged in  providing
enhanced  aviation  security  services and in providing  training and consulting
services to third parties.


         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),
anyone 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  (especially  those involving the
ability of U.S.  carriers to land at foreign  airports) or economic or political
instability in the areas where the Company operates could have an adverse effect
on the Company's  business,  results of operations or financial  condition.  For
example,  the Company currently  provides services at several airports in states
of 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


                                                        13

<PAGE>



in the political environment in the former Soviet Union.


         The financial  condition of the Company's  airline clients is likely to
have a material  impact  upon the nature and extent of the  services  which such
airlines procure from  independent  suppliers and the prices which such airlines
will be willing to pay for such  services.  In  addition,  consolidation  in the
airline industry may result in the Company gaining or losing contracts. Finally,
financial difficulties of airlines,  whether temporary or permanent,  regardless
of the cause of such financial  difficulties,  may cause such airlines to either
partially or completely cease  operations,  or may result in such airlines being
forced to seek protection  under bankruptcy and similar  statutes.  Any of these
events could have a material adverse effect on the Company's  business,  results
of operations or financial condition.


Marketing and Sales


         The Company maintains long-standing relationships with its U.S. airline
clients.  It has  provided  services  to most of the major  U.S.  airlines.  The
provision  of  services to U.S.  clients  required  the  Company to  establish a
presence in the numerous  destinations  of such  airlines.  This resulted in the
Company establishing and conducting operations in most of the important European
international  airports,  a factor which the Company views as an advantage  over
competitors  who lack such an  international  infrastructure.  As  opportunities
develop in the United  States,  the Company  intends to establish  operations at
locations where the Company will provide services.


         Matters of airline security are, in most cases, the  responsibility  of
each airline's headquarters.  Accordingly, marketing and customer relations with
airlines  are  assumed  and   coordinated  by  ICTS  and  not  by  each  of  its
subsidiaries.  Overall  framework  contracts  are  negotiated  by ICTS  with the
airline at the airline  headquarters  level. Fees are determined  separately for
each airport, with the input of the local management of the relevant subsidiary.
The performance of the contract in each separate location is then assumed by the
applicable subsidiary. In addition, the subsidiary may supply ancillary services
that are beyond the scope of the framework  contract.  The subsidiary  bills the
client directly and collects the fees due for all of the services it provides.

         The Company's contracts with its airline clients usually have a term of
one to three years and are normally subject to termination by the airline at any
time with or without cause upon 90 days' prior notice. The contracts between the
Company, through FIS GmbH, and the German Ministry of the Interior,  relating to
the

                                                        14

<PAGE>



Hamburg airport and the Saarbrucken  airport,  for a term of 5 years  commencing
January 1996 and 63 months commencing October 1997, respectively, are subject to
termination  upon 90 days'  prior  notice.  There  can be no  assurance  that an
existing client will not decide to terminate or fail to renew a contract.

Product Development

         The  Company is engaged on an ongoing  basis in efforts to improve  and
further  develop  the RAPS  method and to adapt it to the  varying  needs of the
clients.  These  improvements  are  intended  to achieve  faster  processing  of
passengers by shortening  screening  procedures,  which result in cost reduction
and  improvement  of  passenger   service  without   jeopardizing  the  client's
compliance with its required standards of security. Cost reduction and passenger
service are both  valued as  extremely  important  components  by the  Company's
clients.  The Company strives to maintain the quality and level of the expertise
of its  personnel,  through (i) periodic  courses and training  programs for its
security agents and supervisors,  (ii) the provision of professional material to
its managers,  (iii) the  performance of audits,  exercises and tests,  (iv) the
publishing of standards and manuals,  and (v) the provision of information as to
current terrorist activity and security threats.


         The Company has  developed  the APS in a joint venture in which each of
the Company,  the Company's Dutch affiliate and A.M.S. (as hereinafter  defined)
holds a one-third  interest.  In  connection  with the  Company's  commitment to
provide loans and  guarantees  to A.M.S.  (as  hereinafter  defined) and to John
Bryce  Systems  Ltd.,  the Company  was  granted  options to acquire up to a 63%
equity  interest in such  entities.  The Company  presently  uses APS to analyze
flight and passenger  information to help screen airline  passengers in a faster
and more efficient manner. In October 1996, the first commercial installation of
APS took place at Schiphol  Airport in The Netherlands  with the approval of the
FAA. In March and August 1997, the Company entered into five-year contracts with
several  airlines for the  installation  and operation of APS in those carriers'
European  operations.  The Company intends to market APS to aviation  clients on
behalf of the joint venture under an exclusive  marketing  arrangement  with the
joint  venture.  The Company  believes  that APS may provide the Company  with a
significant  competitive  advantage.  However,  there can be no assurance either
that APS will be  successfully  implemented or that it will be utilized by other
airlines as a part of their security procedures.


                                                        15

<PAGE>
Competition


         The Company  operates in a competitive  international  environment  for
enhanced  security  services.  The factors  which  enable the Company to compete
successfully are its expertise and reputation in the marketplace, its ability to
serve a client in  numerous  international  locations  and the  prices  which it
charges for its services. In the 1980's, the Company faced no competition in the
enhanced  security   services  market.   This  allowed  the  Company  to  attain
professional  recognition,   develop  strong  client  relationships  with  major
airlines  and  airport  authorities  and  establish  a physical  presence  in 29
European airports.

         Huntleigh competes with numerous other companies in the US market, many
of whom have greater resources, financial and other than Huntleigh.

         The growth of the market for  enhanced  airline  security  services has
attracted  competition.  The Company is  currently  aware of the  following  two
principal competitors:


         Aviation Defense International, Inc. ("ADI") is a subsidiary
of Argenbright Holding, Ltd.  ADI has been active in the security
field mostly in the U.S. and began in 1991 to extend its activities
to Europe.  ADI provides security services in Europe principally to
several major carriers in the UK, France, Germany, Austria and
Poland.


         International  Aviation  Security,  Inc., a wholly-owned  subsidiary of
TWA, provides  security  services in Europe  principally to TWA and, to a lesser
extent, to two other U.S. airlines.

         Numerous other companies  provide aviation security services other than
profiling  and  consulting  to airlines in almost all of the airports  where the
Company operates.  In general,  basic aviation security  operations attract more
intense  competition  and generate  lower  profit  margins  than  profiling  and
consulting services.

         Some international airports in European countries (for example,  France
and Germany) have privatized certain segments of their security operations.  The
Company  believes  that  other  international  airports  may  privatize  certain
segments of their security operations in the near future,  although there can be
no assurance  that such trends will not  diminish or even be reversed.  Turn-key
contracts for the provision of aviation  security  services other than profiling
and  consulting  awarded as a part of such  privatization  processes  tend to be
large  scale and  long-term  and  attract  competitors  which are local or large
international providers. Although privatization bids do not require expertise in
RAPS, the Company believes it is able to compete for such projects

                                                        16

<PAGE>



on the basis of its overall  reputation in the security field and its experience
in managing large numbers of personnel at airports.

         In October 1993, FIS GmbH was selected to perform a "pilot project" for
the  privatization  of security at German  airports  and, in January  1996,  was
subsequently  awarded a five-year  contract to perform security  services at the
Hamburg airport.  This was the largest single contract awarded in the process of
privatization  of  security  services  at  airports  undertaken  by  the  German
authorities.  In October  1997,  FIS GmbH was  awarded a  five-year  contract to
perform security services at Saarbrucken  Airport in Germany.  In November 1996,
another  subsidiary  of the  Company was  selected  as a provider of  electronic
passenger  and luggage  screening  operations  at London  Gatwick  Airport-South
Terminal and London Stansted Airport.

Employees

         The Company, excluding Huntleigh, employs approximately 2,500 people on
a regular basis.  During summer months,  when the Company's  business  reaches a
seasonal high, approximately 200 additional employees are added. During the "off
season," the Company selects and trains these seasonal  employees.  Although the
Company  experienced  a one-day  work  stoppage at certain of its  locations  in
France in June 1997,  such work stoppage did not have a material  adverse impact
on the Company's  operations or financial  condition,  and the Company  believes
that its relationships with employees are generally good.


         Huntleigh  has more than 4,000  employees,  of which  approximately  43
percent are pre-departure screeners, approximately 34 percent perform skycap and
wheelchair services.  The remaining employees are divided among the other listed
services. Of these employees, 870, or 22 percent, are unionized in 16 locations.
Most of these union employees are skycaps,  however,  screeners are unionized in
Pittsburgh,  Pennsylvania and Providence, Rhode Island. Management believes that
labor relations are good at all locations.



                                                        17

<PAGE>
Regulatory Matters


         Certain  of  the  Company's   clients,   which  together   represent  a
significant  portion  of  the  Company's   revenues,   are  subject  to  various
regulations  imposed by the FAA, the United  Kingdom  Department of  Environment
Transportation  and  Region(the  "UK DETR")  immigration  authorities in various
other  countries  as  well  as  various  local  and  federal   agencies  holding
jurisdiction  in the areas  serviced.  The FAA  regulations  cover all  security
aspects of passenger handling,  baggage handling and aircraft security,  as well
as  the  training  systems  utilized  in  connection  therewith.   The  UK  DETR
regulations relate to all security aspects of baggage handling, freight handling
and employee background checks. Various immigration authorities impose a fine on
airlines  in the event  that  passengers  carried by such  airlines  do not have
proper travel documentation.


         The  Company  is  subject  to  random   periodic  tests  by  government
authorities with regard to the  professional  level of the services and training
which it  provides,  including  adherence  to FAA  regulations  relating  to all
aspects of passenger handling, baggage handling and aircraft security and to the
training systems utilized,  and UK regulations  relating to baggage handling and
employee  background  checks.  Any failure to pass such a test may result in the
loss of a contract or a license to perform  services and would also be likely to
have an adverse effect on the reputation of the Company.

         In numerous  airports in which the Company operates  (including most of
the major  international  airports in Western  Europe),  a license to operate is
required  from the airport  authority.  Such  licenses are usually  issued for a
period of 12 months and are renewable. Some airport authorities limit the number
of licenses they issue. The Company currently has a license to operate in all of
the major  international  airports in Western  Europe  where such  licenses  are
required.  However,  the loss of, or failure to obtain,  a license to operate in
one or more  airports  could result in the loss of, or the  inability to compete
for, a major contract.

Exchange Rate Fluctuations

         Substantially  all of the  Company's  revenues in fiscal year 1998 were
received,  and  substantially  all of its operating costs were incurred,  in non
U.S.  currencies.  The Company  generally retains the funds which it receives in
the locations  and in the  currencies  in which such funds are paid.  Thus,  the
Company's working capital  resources are generally kept in a substantial  number
of different  (primarily  Western  European)  currencies.  Because the Company's
financial statements are presented in U.S.

                                                        18

<PAGE>



dollars, any significant  fluctuation in the currency exchange rates between the
Western  European  currencies  and the U.S.  dollar  will  affect the  Company's
results of operations and its financial condition.  In the last quarter of 1998,
the Company  entered  into  currency  hedging  transactions  in order to protect
against currency fluctuations.

Non-Core Business Investments

         During 1998,  the Company  purchased  300,000 shares of Common Stock of
Pioneer Commercial Funding  Corp.("Pioneer") from Leedan for a purchase price of
$2.50 per  share.  Pioneer  is a sister  corporation  through  common  ownership
through Leedan.  Pioneer is a mortgage  warehouse  lender  providing  short-term
financing to small and medium sized mortgage bankers.

                  In March 1997, the Supervisory Board of the Company authorized
the Company to allocate $5 million, representing the approximate net proceeds to
the  Company  from the sale in 1996 of its  investment  in  Maman,  to  non-core
investment  opportunities.  The Company has  invested  certain of these funds as
follows:

         During  1997,  the Company  procured  bank  guarantees  of various debt
obligations of a third party,  arising from such party's  trading in commodities
in Eastern Europe. The Company's fees for procuring these guarantees, which were
contingent on the results of said trading, totaled $291,000. Commencing December
28, 1997, a new agreement was signed by the parties which replaced the foregoing
contingent fee arrangement with an annual fee of 2.5% of the guaranteed  amounts
outstanding  from time to time.  On December 31, 1997 these  guarantees  totaled
$3,236,000,  which is being reduced by $100,000 each month starting  January 31,
1998, and will be released in full by December 27, 1999, subject to an option of
the third party to require that such guarantees be extended to June 30, 2000. On
December 31, 1998, the guarantees totaled $2,291,000.

                  In August 1997, the Company,  as part of a group consisting of
Leedan Systems and Properties  Enterprises (1993) Ltd., Rogosin  Development and
Holdings Ltd. and Pioneer  Commercial Funding Corp., each an affiliate of Leedan
(the  "Leedan  Group"),  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  6.16%  equity
interest in Bilu, the Company contributed $187,000 and has guaranteed $2,905,000
of debt obligations of Bilu.


                                                        19

<PAGE>
Insurance

         As a provider of security services,  the Company faces potential claims
in the event of any successful  terrorist  attempt in  circumstances  associated
with the  Company.  Any such claim could have a material  adverse  effect on the
financial position and results of operations of the Company and on the Company's
ability to conduct  its  business.  Any such claim could also be for amounts far
exceeding  the  financial  capability  of the  Company.  The  Company  maintains
insurance coverage against such potential  liabilities with Lloyd's underwriters
in London, including (i) third-party aviation liability coverage of $150 million
for any one occurrence and in the aggregate,  (ii) third-party general liability
coverage of $10 million for any one claim and in the  aggregate and (iii) errors
and omissions coverage of $10 million for any one claim.


Item 2.           Description of Properties

         Each of the Company's offices and other operating  facilities is leased
pursuant to an arrangement, entered into in the ordinary course of its business,
which can be replaced without any material consequence to the Company.

         Huntleigh  owns no real  estate but rents  space from  airlines  or the
airport authority for airport offices at airports or off-site locations. In many
cases, Huntleigh is given the office space. At present, Huntleigh rents space in
18 cities. For its corporate office located at 10332 Old Olive Street Rd. in St.
Louis,  Huntleigh  rents a 4,000  square foot  building  owned by Sandy and Bill
Glassman,  former  owners of  Huntleigh.  Huntleigh  pays  $5,000 per month plus
property taxes, maintenance and insurance. The lease expires April 30, 2002.

Item 3.           Legal Proceedings

         The  Company  is not  currently  engaged  in  (or,  to  its  knowledge,
threatened with) any material legal proceedings.


Item 4.           Control of Registrant

         Leedan, through wholly-owned subsidiaries,  owns approximately 35.5% of
the issued and  outstanding  Common  Shares.  Mr.  Ezra Harel and members of his
family own, either directly or indirectly,  approximately 52% of the outstanding
shares of Leedan  and may be deemed to  control  such  company.  The  balance of
Leedan's  outstanding  shares  are held by the public and traded on the Tel Aviv
Stock Exchange. Accordingly, Leedan and Mr. Harel may be able to appoint all the
directors of ICTS and control the affairs of ICTS.

                                                        20

<PAGE>

         The  following  table  sets forth  certain  information  regarding  the
beneficial ownership of the Common Shares of ICTS, as of the date of this Annual
Report, by each person who is known by ICTS to own beneficially more than 10% of
the outstanding Common Shares:


                         Amount of Shares                          Percent of
                         Beneficially Owned                        Class Owned

Leedan...................    2,255,000                               35.5%
Ezra Harel...............   2,530,0001                               39.8%
Directors and Executive
  Officers as a Group....   3,537,4002                               55.6%
  (11 persons)

1 For purposes of U.S.  Securities laws, Mr. Harel may be deemed to beneficially
own  Leedan's  Common  Shares by reason of his  control of Leedan.  This  amount
includes  275,000  Common Shares owned by Mr. Harel and 2,255,000  Common Shares
owned by Leedan.

2 Includes (a)  2,255,000  Common  Shares held by Leedan and (b) 437,400  Common
Shares  issuable upon the exercise of options  granted to certain  directors and
executive  officers of the Company which have vested or which become exercisable
within 60 days.




                                                        21

<PAGE>

Item 5.           Nature of Trading Market.

         The Common Shares have been quoted on the NASDAQ  National Market under
the symbol "ICTSF" since June 26, 1996. The following table sets forth,  for the
periods indicated,  the high and low last reported sale prices for the Company's
Common Shares:

                                                      High            Low

         Fourth Quarter 1996....................     $13.000          $9.125
         First Quarter 1997.....................     $12.000          $7.500
         Second Quarter 1997....................      $8.875          $6.500
         Third Quarter 1997.....................     $11.125          $7.125
         Fourth Quarter 1997....................     $11.500          $7.125
         First Quarter 1998.....................      $8.625          $6.4375
         Second Quarter 1998....................      $8.375          $6.25
         Third Quarter 1998.....................      $7.375          $5.125
         Fourth Quarter 1998....................      $6.375          $3.8125

         On March 15, 1999, the last reported sale price of the Company's Common
Shares as reported by Bloomberg  Business News was $3.6875 per Common Share.  As
of March 1,  1999,  the  Company  had 21  shareholders  of record.  The  Company
believes  it has more than 1700  beneficial  shareholders  in the U.S.  There is
currently no trading market for the Company's Common Shares outside the U.S.


Item 6.           Exchange Controls and Other Limitations Affecting
                  Security Holders.

         The Company does not expect to pay dividends in the foreseeable future.
To the extent that  dividends are  distributed  by the Company,  such  dividends
would be ordinarily  subject under Netherlands tax law to withholding tax at the
rate of 25%.  Share  dividends  would also be subject  to  Netherlands  dividend
withholding tax, unless certain conditions were met under Netherlands tax law.
See Item 7 - "Taxation - Netherlands Taxes."

         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.



                                                        22

<PAGE>

Item 7.           Taxation

         The following discussion is of a general and summary nature only and is
not  intended to be, nor should it be  considered  to be, legal or tax advice to
any particular  shareholder.  Accordingly,  prospective investors should consult
their  own tax  advisors  with  respect  to the  specific  tax  consequences  of
receiving  dividends  from the  Company or  disposing  of their  Common  Shares,
including, in particular, the effect of any foreign, state or local taxes.

Netherlands Taxes

         The following is a summary of Netherlands tax  consequences to an owner
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 non-Netherlands tax laws.

Netherlands Dividend Withholding Tax

         ICTS does not expect to pay dividends in the foreseeable future. To the
extent that dividends are distributed by ICTS, such dividends  ordinarily  would
be  subject  under  Netherlands  tax  law to  withholding  tax at a rate of 25%.
Dividends include distributions in cash or in kind,  constructive  dividends and
redemption and liquidation  proceeds in excess of, for Netherlands tax purposes,
recognized  paid-in  capital.  Share  dividends are also subject to  Netherlands
dividend withholding tax, unless distributed out of the paid-in share premium of
ICTS as recognized for Netherlands tax purposes.

         A non-resident  Shareholder can be eligible for a reduction or a refund
of  Netherlands  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,  Netherlands dividend withholding tax 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

                                                        23

<PAGE>



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 Netherlands
dividend withholding to 15%, unless such U.S. Treaty Shareholder has a permanent
establish ment in The Netherlands to which the Common Shares are attributable.

         Generally,  no Netherlands dividend withholding tax applies on the sale
or disposition  of Common Shares to persons other than ICTS or its  subsidiaries
or affiliates.

Netherlands Income Tax and Corporate Income Tax

         A non-resident  Shareholder  will not be subject to Netherlands  income
tax and corporate  income tax with respect to dividends  distributed  by ICTS on
the Common  Shares or with  respect to capital  gains  derived  from the sale or
disposal of Common Shares, 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  Netherlands  tax code 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
International  N.V.  may  belong  to  the  substantial   interest.   Nonresident
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.

                                                        24

<PAGE>

         The above paragraph  concerning  substantial interest holders refers to
tax  legislation  which  became  effective  January 1, 1997 and January 1, 1998.
Special  rules may apply to  non-resident  Shareholders  who owned a substantial
interest or deemed  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.

Netherlands Net Wealth Tax

         A  non-resident  Shareholder  who is an  individual  is not  subject to
Netherlands  net wealth tax with respect to the Common Shares,  provided (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. Corporations are not subject to Netherlands net wealth tax.

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

         A gift or inheritance of Common Shares from a non-resident  Shareholder
will not be subject to Netherlands gift,  inheritance tax, and transfer tax upon
gift or death 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  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 Netherlands citizen at the time of
the gift or death; and

         (c) for purposes of the tax on gifts, the non-resident  Shareholder has
not been a resident of The Netherlands at any time

                                                        25

<PAGE>
during the twelve months preceding the time of the gift.


Item 8.           Selected Financial Data

         The following table sets forth selected  financial data for the Company
for the five  years  ended  December  31,  1998.  The  selected  financial  data
presented  below for each of the five fiscal years in the period ended  December
31, 1998 have been derived from the financial  statements of the Company,  which
have been audited by Shachak Peer Reznick & Co. and  Paardekooper  & Hoffman for
the two fiscal  years ended  December  31,1994 and 1995,  and audited by Shachak
Peer Reznick & Co.,  which at January 1999 merged with Kesselman & Kesselman for
the three fiscal  years ended  December  31,  1996,  1997 and 1998.  Kesselman &
Kesselman  is a member  of  Pricewaterhouse  Coopers  International  Limited,  a
company  limited by guarantee  registered in England and Wales. As the Company's
holding company  structure was created in 1994, and the Company sold 55% of ICTS
GmbH in 1994,  the  financial  data for 1994,  1995 and 1996 are  presented on a
consolidated  basis, and ICTS GmbH is presented on the equity method.  Effective
July 1, 1997, the Company had reacquired 100% control of ICTS GmbH. Accordingly,
the financial data for ICTS are presented on a  consolidated  basis for 1997 and
1998,  except that ICTS GmbH is  presented  on the equity  method for the period
ending June 30, 1997 and on a consolidated basis thereafter. The information set
forth below for 1994, 1995, 1996,1997 and 1998 is qualified by reference to, and
should be read in conjunction  with, the financial  statements and related notes
and "Management's  Discussion and Analysis of Financial Condition and Results of
Operations" in this Annual Report.



                                                        26

<PAGE>
<TABLE>
<CAPTION>
<S>     <C>    <C>    <C>    <C>    <C>    <C>
                   U.S. $ in Thousands (except per share data)
                                                                                   The Company (1) (2) (3)
                                                                                   Year Ended December 31,

                                                          1994                1995               1996            1997          1998
                                                          ----                ----               ----            ----          ----




Statement of Operations Data:
Revenues.........................................              $23,738            $29,826           $38,943        $53,798   $64,130
Costs of revenues.............................                  20,810             25,061            32,610         45,016    54,109
                                                                ------             ------            ------         ------   ------
Gross profit......................................               2,928              4,765             6,333          8,782    10,021
Amortization of goodwill....................                       127                164               154            321       485
expenses.........................................                2,764              2,967             4,099          5,994     6,838
                                                               -------            -------             -----          -----     -----
Operating income (loss).....................                        37              1,634             2,080          2,467    2,698
Financial (expenses) income, net.........                        (306)              (296)               381          3,589     (490)
Other income (expense), net...............                          27                (9)             4,547            226     (703)
                                                               -------             ------             -----            ---      ----
Income (loss) before income taxes and  equity
in results of affiliates...............                          (242)              1,329             7,008          6,282     1,505

Income taxes....................................                  (37)              (339)             (449)        (2,357)     (837)
                                                               -------           --------            ------        -------    -----
Income (loss) before equity in results of                                                                                    
affiliates..........................................             (279)                990             6,559          3,925      668
Equity in results of affiliates, net.........                     (91)                123               205            121      214
                                                               -------            -------             -----            ---     ----
Net income (loss)(3)..........................                 $ (370)            $ 1,113            $6,764         $4,046    $ 882
                                                               =======            =======            ======         ======    =====
Net income (loss) per share...................                                    $  0.28             $1.35          $0.62    $0.14
                                                                                  =======             =====          =====    =====
Net income (loss) per share - fully diluted....                $(0.09)            $  0.28             $1.33          $0.61    $0.14
                                                               =======            =======             =====          =====    =====
Weighted average number of shares
outstanding....................................                  4,000              4,000             4,994          6,566     6,498
                                                               =======            =======             =====          =====    ======
Adjusted Weighted average number of shares                                                                                    
outstanding...........................                           4,024              4,024             5,098          6,681     6,517
                                                               =======            =======             =====          =====     =====




                                                          1994            1995          1996            1997          1998
                                                          ----            ----          ----            ----          ----
Balance Sheet Data:

Cash and cash equivalents......................          $ 1,344         $1,899        $16,366          $13,699    $11,273
Time deposits and marketable securities.......                --           --            8,888            3,301      5,300
Working Capital (deficit).........................        (2,340)          (943)        23,535           15,905     14,622
Total Assets..........................................    11,608         13,908         41,947           45,719     53,832
Short-term bank debt and current maturities
of long term debt................................          1,115          1,563            780            2,264      4,225
Long-term debt, net...............................           402            237            250            1,607      6,174
Retained earnings (deficit).......................          (370)           743          7,507           11,553     12,435
Shareholders' equity...............................        2,497          3,946         30,073           30,132     30,899


(1)      See Note 1 to financial statements as to operations and basis of presentation.
(2)      See Note 2(h) to financial statements as to principles of consolidation.
         For the years ended  December 31, 1994,  1995 and 1996,  the  financial
         statements of the Company show ICTS GmbH on the equity method as 55% of
         such company was sold in 1994.  For 1997,  the financial  statements of
         the Company show ICTS GmbH on the equity  method for the period  ending
         June 30, 1997 and on a consolidated basis thereafter as, effective July
         1, 1997, the Company had reacquired control over ICTS GmbH.
(3)      ICTS has paid no cash dividends to date on its Common Shares.
</TABLE>
                                                                 27

<PAGE>


         Item 9.           Management's Discussion and Analysis of
                           Financial Condition and Results of Operations.


                  The  financial  information  with  respect to the  Company for
1994,  1995,  1996,  1997  and 1998  which is  included  in this  Annual  Report
describes the  consolidated  operating  results and the  consolidated  financial
condition of the Company for such periods.

         General

                  No single currency  accounts for a predominant  portion of the
Company's  revenues,  expenses,  other assets or liabilities.  A majority of the
Company's  cash  balances are held in United States  Dollars.  In order to avoid
over-emphasizing  any of the  currencies  in which it operates,  the Company has
selected the United States dollar as the reporting currency for its consolidated
financial  statements.   ICTS  and  each  of  its  subsidiaries  and  affiliates
separately  record  their  transactions  in  the  currency  of  their  locality,
translating  their assets and  liabilities  into  dollars at the  exchange  rate
prevailing  on the  respective  balance  sheet dates and  translating  revenues,
expenses,  gains and losses into  dollars at the average  exchange  rate for the
relevant period. In general, the Company's results of operations, as reported in
U.S.  dollars,  may be affected by fluctuations  between the U.S. dollar and the
currencies of the Western  European  countries in which the Company derives most
of its revenues and incurs most of its expenses.

                  The Company's  revenues are primarily affected by the rates it
charges,  the number of flights it services and the number of billable  hours of
service provided.  The rates which the Company is able to charge at any location
are primarily affected by competitive  conditions at such location.  In general,
competition  tends to be more  intense  (with a  consequent  negative  impact on
rates) at the airports  where the Company is most active.  However,  inasmuch as
the Company  generally  serves more  customers and services more flights at such
airports,  it is generally able to operate there more efficiently through higher
utilization of its employees and facilities.

         Corporate Income Taxes

                  Each  subsidiary  of ICTS is subject to taxation  according to
the tax rules applying 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.  ICTS  receives from its
subsidiaries and  affiliates(with  the exception of ICTS 1994 (USA) Inc. and the
Company's  Israeli  subsidiary)  management  fees and/or royalty  payments under
license  agreements  by which ICTS  provides  such  companies  with a license to
utilize the expertise of ICTS. The




                                                        28

<PAGE>



payment of the royalties by such  subsidiaries and affiliates to ICTS is subject
to corporate  income tax in the  Netherlands  and  withholding  taxes at varying
rates according to the country of  incorporation or residency of such subsidiary
or affiliate.

                  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  Netherlands  corporate  income tax 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 in its  jurisdiction  of  incorporation  or residence and
(iv) for  non-European  Community  subsidiaries  or  affiliates  or for European
Community  subsidiaries  or  affiliates  in which ICTS owns less than 25% of the
nominal paid-in capital,  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)  of  entities  related  to  ICTS  or  assets  of such
entities). The Company currently fulfills these requirements.  Consequently, all
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 is
exempt from Netherlands corporate income tax.


         Results of Operations

                  The following  table sets forth for the periods  indicated the
relationship (in  percentages) of selected items of the Company's  statements of
income to its total revenues.
<TABLE>
<CAPTION>
<S>                                                                                             <C>      
                                                                            Year Ended December 31,      

                                                                       1996         1997       1998
                                                                       ----         ----       ----

         Revenues...................................................   100.0%       100%       100%
         Cost of revenues............................................   83.7        83.7       84.4
                                                                       -----        ----        ----

         Gross profit.................................................  16.3        16.3       15.6
         Selling, general and administrative expenses..........         10.5        11.1       10.7
         Operating income .............................................   5.3       4.6         4.2
         Net income ................................................... 17.4%       7.5%       1.4%
                                                                        ====       ======      ====

</TABLE>

         Year Ended December 31, 1998 Compared to Year Ended December 31, 1997.


Revenues:  Revenues in the year ended December 31, 1998 increased
by 19.2%  as compared to the year ended December 31, 1997.  This

                                                                 29

<PAGE>



increase  ($10.3  million)  is  attributable  to  increased  revenues  from both
existing  and new airline  customers.  Revenues  increased  $0.5  million,  $1.9
million  and  $3.6  million   respectively  from  the  Company's  three  largest
customers.   A  portion  of  this   increase  is  attributed  to  the  Company's
consolidation of FIS GmbH which was effective July 1, 1997.

Gross Profit. Gross profit is defined as revenues less costs directly related to
the provision of services 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  margin  decreased in the year ended  December 31, 1998 as
compared to the year ended  December 31, 1997 by 0.7%.  Part of this decrease is
related to start-up costs with respect to the opening of new locations  (Dublin,
Shannon,  Stockholm) and new facilities for airlines.  In addition,  the Company
incurred  start-up costs to get the APS system  operational.  Increased wages in
the UK also affected gross profit margins.

         Selling,  General and  Administrative  Expenses.  Selling,  general and
administrative  expenses as a  percentage  of revenues  decreased by 0.5% in the
year ended December 31, 1998 as compared to the year ended December 31, 1997. In
dollars  there  was an  increase  of  $844,000.  Such  increase,  resulted  from
additional expenses of approximately  $486,000 attributable to the consolidation
of FIS GmbH as of July 1, 1997. Other general expenses were incurred in order to
facilitate growth, part of which is expected to be realized during 1999.

         Financial  (Expenses)  Income,  Net.  Financial  (expenses) income, net
includes  interest  income  (net  of  interest  expense)  and  foreign  currency
translation gains or losses. Financial income, net also includes adjustments due
to the  impact of  exchange  rate  differences  on  financial  instruments.  The
decrease  of  approximately  $4.1  million is mainly  attributable  to a loss of
approximately  $1.1  million  due to the  impact  of  accounting  principles  on
exchange rate  differences,  as a result of the weakening of the U.S.  dollar in
European  markets,  compared with the gain of $2.7 million recorded during 1997.
The Company has made efforts to limit the currency  losses by financial  forward
and hedging transactions.

         Income on cash deposits have  slightly  decreased  primarily due to the
interest  decrease in the  financial  markets from  approximately  6% in 1997 to
approximately 4.5% at the end of 1998.


                                                                 30

<PAGE>



         Other Income (Expense), Net. Other expenses for the year ended December
31,  1998  consist of  approximately  $410,000 of  write-off  of  investment  in
computerized  systems  for the  training  of  manpower.  An amount  of  $122,000
expenses was recorded in connection  with an  unsuccessful  attempt to acquire a
ground handling company operation in the UK. In addition,  an amount of $166,000
was accrued as a success fee for the Huntliegh acquisition.

         During the year ended December 31, 1997 net income  attributable to the
Company's  disposition of its interest in ICTSAP, the Company's former Hong Kong
affiliate, of $352,000 was offset by losses on sale of fixed assets of $126,000.

         Income Taxes. The Company's  consolidated  effective income tax rate in
the year ended  December  31,  1998 was 55.6% as  compared  to 37.5% in the year
ended December 31, 1997. The main reason for the relatively  high tax percentage
is the increase in earnings  before tax of  subsidiaries in countries where high
tax rates are levied i.e. Germany and Italy,  while the tax rate of subsidiaries
which incurred losses, were lower, i.e. Austria and the Netherlands.

         With respect to fiscal year 1997, the effective income tax rate for FIS
GmbH, was 60.0%, while the proceeds of the Company's  divestiture of ICTSAP were
tax exempt.  Furthermore,  approximately $1 million of income taxes for the year
ended  December  31,  1997  is  attributable  to the  effect  of  exchange  rate
differences,  as  discussed  above in  Financial  (Expenses)  Income,  Net.  The
Company's  effective tax rate will also vary from period to period  depending on
the breakdown of earnings and losses among the various  operating  subsidiaries,
the amount of management fees and royalties paid to ICTS by its subsidiaries and
affiliates,  the  treatment of such items by the relevant  tax  authorities  and
income tax effects deferred from prior periods.

Equity in Results of Affiliates,  Net. Equity in results of affiliates, net, for
the year ended December 31, 1998, includes the Company's share of the profits of
its  Dutch  affiliate,  Procheck  International.  Compared  with the net  equity
results  of the year  ended  December  31,  1997,  which  included(i)  its Dutch
affiliate,  (ii) its Israeli affiliate,  subsequent to the Company's acquisition
of a 37%  interest in such company in August,  1997 and (iii) FIS GmbH,  for the
period  January 1, 1997 until such company's  consolidation  with ICTS effective
July 1, 1997. In December 1997, the Company sold its interest in ICTSAP.  Equity
in results of affiliates, amounted to $121,000.

         Net Income.  As a result of the foregoing, the Company's net
income decreased by approximately $3.1 million in 1998, from

                                                                 31

<PAGE>



approximately $4.0 million in the year ended December 31, 1997.


         Year Ended December 31, 1997 Compared to Year Ended December 31, 1996.

                  Revenues:  Revenues  in  the  year  ended  December  31,  1997
increased by $14.9 million as compared to the year ended December 31, 1996. This
increase is attributable in part to the Company's consolidation of ICTS GmbH and
its wholly-owned  subsidiary,  FIS GmbH,  effective July 1, 1997. As a result of
such  consolidation,  the $6.6 million in revenues earned by ICTS GmbH,  through
such subsidiary, during the period July 1, 1997 to December 31, 1997 is included
in the  Company's  revenues.  The  increase is also  attributable  to  increased
revenues from both existing airline  customers and certain new airline customers
and increased  revenues from  non-airline  customers.  Revenues  increased  $2.9
million,  $2.0 million and $1.5 million,  respectively  from the Company's three
largest  customers,  portions of which are attributable to the  consolidation of
ICTS GmbH and FIS GmbH.

                  Gross  Profit.  Gross profit is defined as revenues less costs
directly  related to the  provision  of  services  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 margin did not change in the year ended  December
31, 1997 as compared to the year ended December 31, 1996.

                  Selling, General and Administrative Expenses. Selling, general
and  administrative  expenses as a percentage of revenues  increased 0.6% in the
year ended  December  31, 1997 as compared to the year ended  December 31, 1996.
Such  increase,  representing  increased  selling,  general  and  administrative
expenses of  approximately  $1.9  million,  consisted  primarily  of  additional
expenses of  approximately  $500,000  attributable to the  consolidation of ICTS
GmbH as of July 1, 1997, expenses incurred in adding and relocating personnel to
the Company's Netherlands  headquarters and the headquarters of ICTS USA (1994),
Inc., the wholly-owned U.S. subsidiary of the Company,  expenses attributable to
increased  costs of compliance  with  reporting  requirements  on account of the
Company's  first full year of being publicly  traded since its June 1996 initial
public  offering and,  generally,  due to increased  costs  attributable  to the
Company's expanded operations.

                  Financial (Expenses) Income, Net.  Financial (expenses)
income, net includes interest income (net of interest expense) and
foreign currency translation gains or losses.  Financial income,

                                                                 32

<PAGE>



net also includes  adjustments due to the impact of exchange rate differences on
financial  instruments.  The increase in financial income,  net of approximately
$3.2  million from the year ended  December 31, 1996 to the year ended  December
31, 1997 is attributable  primarily to income of approximately  $2.7 million due
to the impact of the  exchange  rate  differences,  primarily as a result of the
strengthening  of the U.S.  dollar in overseas  markets,  and  approximately  $1
million income representing interest on bank deposits.

                  Other Income  (Expense),  Net. Other income for the year ended
December 31, 1997  consists  primarily of  approximately  $352,000 of net income
attributable  to the  Company's  disposition  of its  interest  in  ICTSAP,  the
Company's  former Hong Kong  affiliate.  The  decrease in other  income,  net of
approximately  $4.321 million for the year ended December 31, 1997,  compared to
the year ended December 31, 1996, is  attributable  primarily to a non-recurring
transaction in fiscal year 1996. In November  1996, the Company  disposed of its
interest in Maman Cargo Terminal & Holding  ("Maman"),  realizing  other income,
net of approximately $4.65 million from such transaction.

                  Income Taxes. The Company's  consolidated effective income tax
rate in the year ended  December  31,  1997 was 37.5% as compared to 6.4% in the
year ended  December  31,  1996.  Such  effective  income tax rate  increase  is
primarily  attributable to the treatment of certain  non-recurring  transactions
which  reduced the  effective  income tax rate for the year ended  December  31,
1996.  The  proceeds  of the  sale of the  Company's  Maman  investment  in 1996
(described  above)  were tax  exempt.  Additionally,  in fiscal  year 1996,  the
Company  realized a tax  benefit  due to a  reversal  of a  valuation  allowance
relating to the  Company's  Israeli  subsidiary.  Without  giving effect to such
transactions,  the Company's  consolidated effective income tax rate in the year
ended December 31, 1996 would have been 37.1%. With respect to fiscal year 1997,
the effective  income tax rate for ICTS GmbH,  was 60.0%,  while the proceeds of
the Company's divestiture of ICTSAP were tax exempt. Furthermore,  approximately
$1 million of income taxes for the year ended December 31, 1997 is  attributable
to the effect of exchange  rate  differences,  as  discussed  above in Financial
(Expenses)  Income,  Net. The  Company's  effective tax rate will also vary from
period to period  depending  on the  breakdown  of earnings and losses among the
various operating subsidiaries, the amount of management fees and royalties paid
to ICTS by its subsidiaries  and affiliates,  the treatment of such items by the
relevant tax authorities and income tax effects deferred from prior periods.

                  Equity in Results of Affiliates, Net.  Equity in results

                                                                 33

<PAGE>



of affiliates,  net, for the year ended December 31, 1997,  includes ICTS' share
of the  profits  of  (i)  its  Dutch  affiliate,  (ii)  its  Israeli  affiliate,
subsequent  to the  Company's  acquisition  of a 37% interest in such company in
August,  1997 and (iii)  ICTS GmbH,  for the  period  January 1, 1997 until such
company's  consolidation with ICTS effective July 1, 1997. The carrying value of
ICTS'  share in ICTSAP  was  written  down to $0 as of  December  31,  1995.  In
December  1997,  the Company sold its  interest in ICTSAP.  Equity in results of
affiliates,  net  amounted to $121,000 in the year ended  December  31, 1997 and
$205,000 in the year ended December 31, 1996.

                  Net Income.  As a result of the  foregoing,  the Company's net
income decreased by approximately  $2.8 million in 1997, from approximately $6.8
million in the year ended December 31, 1996 to approximately $4.0 million in the
year ended December 31, 1997.


                  Liquidity and Capital Resources

         The  Company's  principal  cash  requirement  is the  payment of wages.
Employees  are  typically  paid  during  the first ten days of the month for the
preceding month,  while payments from customers are generally received within 30
days of the date of invoice.  Working capital is financed primarily by cash from
operating  activities and, as necessary,  by short-term  borrowings.  Due to the
seasonality  of  the  Company's  business,   working  capital  requirements  are
relatively higher during the summer months. For 1997 and 1998, net cash provided
by  operations  was  $3,318,000  and  $117,000,  respectively.  Considering  the
prospective growth of the Company, additional working capital was needed.


         In 1998 the Company's investing activities consisted of the purchase of
equipment,  representing capital expenditures of $511,000, and the investment in
the  transactions  discussed  below.  The Company's  current  primary sources of
short-term  liquidity  and  capital  resources  are  cash  flow  from  operating
activities  and  short-term  credit  facilities of  approximately  $3.7 million.
During 1998,  the Company  increased its long term loans by $5.0 million for the
purpose of financing the acquisition of Huntleigh U.S.A. Corporation,  which was
realized on January  6,1999.  After  finalizing the  divestment of ICTSAP,  $1.0
million was received by the Company in 1998.

         Another cash outflow  transaction during 1998 was the repurchase of the
Company's  shares in the amount of $1.2 million.  The Company was  authorized by
its shareholders to expand up to $6,500,000 to repurchaser  shares of its common
stock in the open market at prices not to exceed $10.00 per share.



                                                                 34

<PAGE>



         The Company currently funds its activities with operating cash flow and
bank  borrowings  at the  subsidiary  level,  as well as the  short-term  credit
facilities  referred  to above.  There are no material  commitments  for capital
expenditures.


         The  Company  believes  that  current  cash  balances,  cash  flow from
operating  activities  and its bank  facilities  should  be  sufficient  to fund
continued  expansion and to meet all its anticipated  cash  requirements  for at
least the next 12 months.


                  Strategic Investments

                  In January  1997 the Company  purchased  an 82.5%  interest in
Service Service, Inc. ("SSI") for approximately  $700,000.  SSI, a Chicago-based
company  provides  passenger  check-in  services to American  Airlines at O'Hare
Airport.  On February 25, 1999, the Company  acquired the remaining 17.5% of SSI
so that it became a 100% subsidiary.

                  In April  1997,  the  Company  acquired  5% of FIS GmbH  which
resulted  in the  Company  owning  50% of the  outstanding  equity  in FIS GmbH.
Subsequently,  effective July 1, 1997, the Company acquired the remaining 50% of
FIS GmbH. As a result of these transactions, effective July 1, 1997, the Company
became the owner, directly and indirectly, of 100% of the equity of FIS GmbH.


                  In August 1997,  the Company  acquired 37% of the  outstanding
shares of Demco for  approximately  $1.2  million.  In 1998,  the  Company  sold
slightly less than half of 18% Demco shares.  Demco, a privately-held firm based
in  Israel,  is engaged  in the  design,  planning  and  implementation  of, and
provides   consulting  with  respect  to,  emergency   systems  and  contingency
procedures for government agencies and large organizations.


                  In  November  1997,  the  Company  entered  into the series of
transactions  discussed  below with John Bryce Systems Ltd. and A.M.S.  Advanced
Maintenance  Systems Ltd.  ("A.M.S." and, together with John Bryce Systems Ltd.,
"John  Bryce"),  Israeli  companies  under  common  control.  John  Bryce  is an
Israel-based software specialist with a focus on the aviation industry.  Each of
the Company, the Company's Dutch affiliate and A.M.S. holds a one-third interest
in the APS. In the initial  transaction,  in return for providing a guarantee of
$225,000  of  obligations  of John Bryce and a payment of $25,000 to John Bryce,
the  Company  acquired  exclusive  marketing  rights for an  airline  operations
control system and an aircraft maintenance management system developed by A.M.S.
The Company  subsequently  made a commitment to provide up to $2.915  million of
loans  to John  Bryce.  Of such  $2.915  million,  the  Company  has made a $2.5
million, four-year loan to John Bryce and,

                                                                 35

<PAGE>



in lieu of  providing  $200,000 of the  $415,000 of  additional  loans which the
Company had committed to provide to John Bryce, has guaranteed  $200,000 of debt
of John Bryce. In connection with such commitment,  in November 1997 the Company
acquired, for $500,000, a ten-year, interest-free bond of John Bryce with a face
value at  maturity  of $1.062  million.  The  Company  has also  been  granted a
four-year option to purchase a 51% equity interest in John Bryce for an exercise
price of $2.915 million (the "John Bryce Option").  Furthermore, under the terms
of the bond  purchase  agreement,  the previous  holders of such bond have "put"
options  which may,  under certain  conditions,  require the Company to purchase
their respective equity interests in John Bryce,  representing 24% of the equity
of John Bryce (12% of the equity after giving effect to the exercise of the John
Bryce Option) for up to $850,000 and the Company has a "call" option to purchase
such  interests  for  up  to  $1.05   million.   The  loans  and  the  bond  are
collateralized  by a second priority  floating lien on John Bryce's  assets.  In
connection with the foregoing, commencing November 1997, the Company is entitled
to minority  representation on the Board of John Bryce and,  commencing  January
1999, for so long as the Company's  loans to John Bryce are  outstanding  and/or
the John Bryce  Option is in effect and  unexercised,  the Company will have the
right to appoint the majority of the Board of John Bryce.

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


         New Accounting Standards

                  The Financial  Accounting  Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting  Comprehensive Income" ("SFAS
No. 130"),  which requires  entities,  other than  not-for-profit  entities,  to
include  details of  comprehensive  income that arises in the  reported  period.
Comprehensive  income  consists of net income or loss for the current period and
other comprehensive income - income,  expenses, gains and losses that bypass the
income  statement and are reported  directly in a separate  component of equity.
That statement is effective for the Company's fiscal years ending after December
31,  1997.  In June 1997,  the FASB issued  Statement  of  Financial  Accounting
Standards  No.  131,  "Disclosures  about  Segments of  Enterprises  and Related
Information"  ("SFAS No. 131"), which is effective for the Company's fiscal year
ending December 31, 1998. That statement changes the way public companies report
information   about  segments  of  their  business  in  their  annual  financial
statements and requires them to report

                                                                 36

<PAGE>



selected segment information in their quarterly reports. The sole
effect of the adoption of SFAS No. 130 and SFAS No. 131 is the
obligation imposed on the Company to comply with the new disclosure
requirements provided thereunder.

         Other Matters


                  The Company is in the  process of  identifying  operating  and
application  software  problems  related to the year 2000.  The only  production
related  computer  based  system that the Company uses are x-ray  machines.  The
Company has been advised by the  manufacturers  of those  machines that they are
Y2K ready.  The Company  began its 2000 project in August 1998 and expects to be
in full compliance by September  1999. The Company has budgeted  $50,000 for its
year 2000  project.  The  Company  has  received  confirmation  from most of its
suppliers and customers as to their Y2K readiness. The Company also outsources a
number of  administrative  functions to companies who have  confirmed  their Y2K
readiness.  The Company  does not have any  central  systems or main frames that
could be affected by the Y2K issue.  While the Company  expects to resolve  year
2000 compliance issues substantially  through normal replacement and upgrades of
software,  there can be no  assurance  that  there will not be  interruption  of
operations or other limitations of system functionality or that the Company will
not incur substantial costs to avoid or remedy such limitations.  Any failure to
effectively monitor, implement or improve the Company's operational,  financial,
management  and  technical  support  systems,  or any  failure by a  significant
customer  of the  Company  to  effectively  resolve  such  customer's  year 2000
compliance  issues,  could  have a  material  adverse  effect  on the  Company's
business and results of operations.

         On January  1,1999 the Euro was  introduced  in  several  countries  in
Europe.  Since the Company has three  years to convert its  accounting  systems,
management   information  systems,   billing  and  related  financial  reporting
programs, the Company has established a policy of reviewing what other companies
are doing to  implement  the changes  required  for the Euro  introduction.  The
Company does not expect that when the Company  changes over its  accounting  and
other systems to accommodate  Euro reporting and  information  retrieval that it
will experience any significant  problems in doing so and that the cost to do so
will not be material.



                  Item 10.          Directors and Officers of Registrant.

                  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

                                                                 37

<PAGE>
corporate  affairs  and  recommending  that the  shareholders  adopt the  annual
financial  statements  of ICTS.  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.  Non-executive  officers are
appointed by and serve at the pleasure of the Management Board.

                  The members of the Supervisory Board are Boaz Harel,  Savinoam
Avivi,  Natenel  Rotem,  Michael  Barnea,  Gerald Gitner and Amos  Lapidot.  The
members of the Management  Board are Lior Zouker and Ezra Harel. The Supervisory
Board currently has two committees,  an Audit Committee,  whose members are Amos
Lapidot,  Savinoam Avivi,  Michael Barnea and Gerald Gitner,  and a Compensation
Committee,  whose members are Ezra Harel,  Gerald Gitner and Michael Barnea. The
Audit  Committee  is  responsible  for  overseeing  the  Company's   accounting,
reporting  and  financial  control  practices.  The  Compensation  Committee  is
responsible for overseeing director and executive officer compensation plans and
arrangements.

                  The  Articles of  Association  of ICTS provide for one or more
members  of the  Management  Board and one or more  members  of the  Supervisory
Board,  but do not provide for a maximum  number of members of such boards.  The
number of members of the  Management  Board and the  Supervisory  Board is to be
determined  by the  general  meeting  of  shareholders.  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.
         Directors and Executive Officers

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

         Ezra Harel........48     Member of the Management Board
         Boaz Harel........35     Member of the Supervisory Board
         Savinoam Avivi....60     Member of the Supervisory Board
         Michael Barnea....43     Member of the Supervisory Board
         Natenel Rotem.....69     Member of the Supervisory Board
         Gerald Gitner ....53     Member of the Supervisory Board
         Amos Lapidot .....64     Member of the Supervisory Board
         Lior Zouker.......50     Member of the Management Board and
                                   Chief Executive Officer
         Yoav Navon .......48     Member of the Management Board, Chief
                                   Operating Officer and Vice
                                   President- Business Development
         Joseph Yahav .....42    Vice President- International
         Ranaan Nir........50    Chief Financial Officer, Vice
                                  President-Finance, and Treasurer
         M. Albert Nissim..65    Secretary

                  Ezra  Harel  is the  controlling  shareholder  of  Leedan,  an
investment  holding  company  whose  shares  are  listed  on the Tel Aviv  Stock
Exchange. Mr. Ezra Harel has been the Vice Chairman of the Board of Directors of
Rogosin  Enterprises  Ltd.,  an  affiliate  of Leedan  ("Rogosin"),  since 1994.
Rogosin  is one of the  largest  independent  manufacturers  of tire cord in the
world.  He has also served as Chairman of the Board of Directors of Dash 200+ (a
company  involved with the  conversion of Boeing 747 aircraft from  passenger to
cargo  use) since  1991 and of Tuffy  Associates  Inc.  (an  automotive  service
franchise company) since 1993. Mr. Ezra Harel is the brother of Mr. Boaz Harel.

Boaz Harel has been the  Managing  Director of Leedan  since 1993.  From 1991 to
1993,  he  was  founder  and  the  Managing  Director  of  Mashik  Business  and
Development Ltd., an engineering  consulting company.  Since September 1996, and
in addition to his capacity as the Managing  Director of Leedan,  Mr. Boaz Harel
has  relocated to New York and serves as the Chairman of ICTS USA (1994),  Inc.,
the  wholly  owned U.S.  subsidiary  of the  Company,  and in this  capacity  is
responsible  for the  business  development  of the Company in the U.S. Mr. Boaz
Harel is the  Chairman  of  Pioneer  Commercial  Funding  Corp.  ("Pioneer"),  a
publicly-traded  mortgage  warehouse  lender,  serving  in such  capacity  since
November 1996.  Pioneer is an affiliate of Leedan. Mr. Boaz Harel is the brother
of Mr. Ezra Harel.

                  Savinoam  Avivi is currently a Member of the  Executive  Board
and Vice  President of Koor  Industries  Ltd.  ("Koor"),  having served in those
capacities since 1988. Mr. Avivi also serves as a director of Home Centers (DVI)
Ltd., a company  publicly traded in Israel and an affiliate of Koor, and various
subsidiaries of Koor. Koor is publicly traded on the New York and Tel Aviv Stock
Exchanges and is the largest industrial conglomerate in Israel.

                  Michael Barnea has been a senior executive and a member of the
Board of Directors of Leedan since 1994.  From 1991 to 1994, he was a partner at
the law offices of Zellermayer, Pelossof in Tel Aviv, Israel.

                  Gerald Gitner from 1991 to 1992,  was the Vice Chairman
of the Tribeca Corp. From 1992 until 1998 he was Chairman of Avalon

                                     38

<PAGE>




Group, Ltd., an investment banking firm and President of Avalon Securities Ltd.,
its affiliate and an NASD member broker-dealer.  Since 1993, he is a director of
Trans World Airlines,  Inc. In February,  1997, he was appointed to serve as CEO
and Chairman of Trans World Airlines, Inc. He served as CEO until March, 1999.


                  Amos Lapidot is a Lieutenant  General (reserve) in the Israeli
Defense Forces and has served in the past as  Commander-in-Chief  of the Israeli
Air Force.  Mr. Lapidot has been a Special  Assistant to the Israeli Ministry of
Defense since 1988. He has also been a director of El Al since 1995.


                  Nateniel  Rotem served as Managing  Director of Tower Air from
September 1986 until September 1996.


                  Lior Zouker has been the Chief Executive  Officer and a member
of the  Management  Board of ICTS since  January 1, 1996.  From 1994 to 1995, he
functioned as Chief Operating Officer of ICTS  International  B.V. and from 1991
to 1993, he served as Executive Vice President of ICTS Holland B.V.

                  Yoav Navon has been the Chief Operating Officer of the Company
since January 1, 1996 and Vice President,  Business  Development since September
1996.  From August 1994 to  December  1995,  he was a  consultant  on  corporate
development to certain affiliates of Leedan Business Enterprise Ltd.,  including
ICTS International B.V. From 1992 to 1994, he was self-employed and from 1991 to
1992,  he was the General  Manager of Modular Ltd., a subsidiary of Malibu Ltd.,
an Israeli  publicly-traded  company in the modular home construction  business.
From 1993 to the  present,  Mr.  Navon has been a director  of Tuffy  Associates
Corp., a franchise  company  affiliated with Mr. Ezra Harel.  Since August 1996,
Mr.  Navon has been a director of, and from time to time  provides  advisory and
management  services to, Leedan and certain of its affiliates.  Mr. Navon became
Chairman of John Bryce Systems Ltd., effective January 1, 1998.

                  Joseph  Yahav has been Vice  President,  International  of the
Company  since  August  1995.  From  1991  to  1995,  he  was  Director  of  the
Professional Department of the Company.

                  Ranaan  Nir From  1994 to 1998,  Mr.  Nir  served as the Chief
Financial  Officer of Netagco Holding B.V., a Dutch  corporation  engaged in the
manufacture of agricultural machinery.


                  M. Albert Nissim has served as Secretary of the Company
since January 1994.  Mr. Nissim also serves as President of ICTS
USA (1994), Inc.  From 1994 to 1995, he functioned as the Managing


                                                                 39

<PAGE>




Director of ICTS International B.V. and from 1990 to the present,
he has been Vice President and a director of Tuffy Associates
Corp., a franchise company affiliated with Mr. Ezra Harel.  Mr.
Nissim is also a Managing Director of Leedan International Holdings
B.V., an affiliate of Leedan and the largest shareholder of the
Company.  Mr. Nissim is the President of Pioneer Commercial Funding
Corp., serving in such capacity since January 1997.


         Employment Contracts

                  On December 28, 1995,  the Company  entered into an employment
contract  with Lior  Zouker,  its Chief  Executive  Officer  and a member of its
Management  Board,  pursuant to which the Company agreed to employ Mr. Zouker in
those  capacities for a 30 month term. The contract was extended on November 25,
1997,  effective January 1, 1998, for a period of three years.  Pursuant to such
contract,  Mr.  Zouker  agreed to relocate his  residence  to Amsterdam  and, in
connection therewith,  has obtained the requisite Dutch work permit. Pursuant to
such  contract,  Mr.  Zouker is  entitled to a bonus  which is  calculated  as a
percentage of net income.

                  During 1998,  the Company  entered into an oral  understanding
with Mr. Ezra Harel for his services to the Company.

         Item 11.          Compensation of Directors and Officers.

                  The  aggregate  direct  remuneration  paid to all  persons who
functioned  as  directors  and  officers  of the  Company  during the year ended
December 31, 1998 was approximately  $1.2 million.  This figure does not include
business expenses reimbursed to such persons. This figure includes approximately
$16,000,  which was set aside or  accrued  to  provide  pension,  retirement  or
similar benefits. This figure also includes a bonus paid to Mr. Lior Zouker, the
Company's Chief Executive Officer.

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



                                                                 40

<PAGE>



         Item 12.          Options to Purchase Securities from Registrant or
Subsidiaries.

                  In 1995,  ICTS  adopted a share  option plan (the "1995 Equity
Incentive  Plan")  pursuant to which  600,000  Common  Shares were  reserved for
issuance  upon the exercise of options to be granted to  employees,  consultants
and members of the Supervisory  Board of the Company.  The Supervisory  Board of
ICTS has established a Compensation  Committee  consisting of Ezra Harel, Gerald
Gitner and Michael  Barnea to  administer  such option plan.  Such  committee is
empowered,  among other things,  to designate the optionees,  dates of grant and
the exercise  price of options.  The options will be for one to five-year  terms
and  will be  non-assignable  except  by the laws of  descent.  The  grantee  is
responsible  for all  personal  tax  consequences  of the grant and the exercise
thereof.

                  As of the date of this Annual Report, ICTS has granted options
to purchase  599,700 Common Shares,  of which options to purchase 462,400 Common
Shares have been granted to all directors and executive  officers of the Company
as a group,  at exercise prices ranging from $6.50 to $10.75 per share under the
1995 Equity Incentive Plan. These options vest over various terms,  ranging from
immediately to five years.  Outstanding options expire at various times, but not
later than December 2002.

                  In addition to options granted or reserved for grant under the
1995 Equity  Incentive  Plan,  during 1995 the Company also  granted  options to
purchase 108,000 Common Shares at $7.00 per share to an unaffiliated  consultant
as partial  consideration for his assistance in connection with the planning for
the Company's initial public offering.

         Item 13.  Interest of Management in Certain Transactions.

                  During 1998,  the Company  purchased  300,000 shares of Common
Stock of Pioneer Commercial Funding  Corp.("Pioneer") from Leedan for a purchase
price  of $2.50  per  share.  Pioneer  is a sister  corporation  through  common
ownership through Leedan.

                  During 1998, the Company sold to ICTS Global  Security,  B.V.,
an affiliated company, for $565,000 18% of the shares of Demco.

                  During 1998,  the Company  made loans to four  officers of the
Company aggregating $60,000.

                  During 1998, the Company entered into an oral agreement
with Mr. Ezra Harel, a member of the Management Board, for his

                                                                 41

<PAGE>



services to the Company.

                  During  1998,  the  Company  accrued  $166,000 to be paid as a
success fee to three officers of the Company,  in the  aggregate,  in connection
with the Huntliegh acquisition.

                  During 1997, an affiliate of Leedan  provided the Company with
services  relating to certain  short-term  investments made by the Company,  for
which such affiliate received fees aggregating $136,000.

                  In connection  with the  acquisition by the Company of 100% of
the equity of ICTS GmbH and its wholly-owned subsidiary,  FIS GmbH in July 1997,
the  Company  paid to each of Ezra  Harel and  Leedan a fee of  $150,000  and to
Michael  Barnea,  a fee of $40,000,  in  consideration  for investment  advisory
services rendered.

                  In connection  with the  acquisition  by the Company of 37% of
the equity in Demco in August 1997,  the Company paid Leedan a fee of $50,000 in
consideration for investment advisory services rendered.

                  In August 1997, the Company,  as part of a group consisting of
Leedan,  Rogosin Development and Holdings Ltd. and Pioneer, each an affiliate of
Leedan (the "Leedan Group"),  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  6.16%  equity
interest in Bilu, the Company contributed $187,000 and has guaranteed $2,905,000
of debt obligations of Bilu.

                  In connection with the Company's investment in John Bryce, the
Company paid Leedan a fee of $200,000  and, to an affiliate of Leedan,  a fee of
$30,000, in consideration for investment advisory services rendered.

                  In connection  with the Company's  divestiture of its interest
in  ICTSAP in  December  1997,  the  Company  paid  Leedan a fee of  $25,000  in
consideration for investment advisory services rendered in connection therewith.

                  During   1996,   Leedan   provided   loans  to  the   Company.
Approximately $30,000 of interest pursuant to such loans was paid by the Company
to Leedan in 1996. Commencing July 1996, there were no such loans outstanding.

                  ICTS has  granted  to  Leedan  the  right to  demand  on three
occasions the registration of the Common Shares that Leedan owns,  provided that
such demands may not be made more than once in any

                                                                 42

<PAGE>



twelve-month  period.  The first registration will be at the expense of ICTS and
the two subsequent  registrations will be at the expense of Leedan and any other
selling shareholders.  In addition, Leedan, Ezra Harel and Lior Zouker will have
the right to have their shares  included in future  registration  statements  of
ICTS.  All  such  registration   rights  are  subject  to  customary  terms  and
conditions.


                  In 1996,  the Company  entered into a  consulting  arrangement
with K-Mart to provide certain  security  services.  Pursuant to such consulting
arrangement,  Avalon Group,  Ltd.,  an investment  banking firm for which Gerald
Gitner, a director of the Company, previously served as Chairman, is entitled to
a commission equal to 7.5% of the consulting fees payable to the Company.


                  Leedan provided ICTS advice and assistance with respect to the
structuring and  implementation  of the IPO and the Offering.  The out-of-pocket
expenses incurred by  representatives  of Leedan in providing such services were
paid directly by the Company.

                  During 1996 the Company paid four officers of the Company fees
of $110,500 in the aggregate in consideration  for investment  advisory services
rendered in connection with the Offering.

                  Shortly  after the  acquisition  of the  Company  by Leedan in
January 1994,  Leedan  granted to each of Messrs.  Ezra Harel and Lior Zouker an
option to  purchase up to 20% of the shares of ICTS owned by Leedan.  Mr.  Harel
subsequently  transferred  one-half of his option (relating to 10% of the shares
of ICTS held by  Leedan)  to Mr.  Amichay  Wine.  Immediately  prior to the IPO,
Messrs.  Harel,  Zouker  and  Wine  exercised  the  options  described  in  this
paragraph.

                  In August 1996, TWA and the Company  entered into an agreement
whereby the Company would provide security  services with respect to TWA flights
departing  from Paris,  France.  Such  agreement may be terminated  upon 90 days
notice.  Such agreement was negotiated on an arm's-length basis and provides for
fees payable to the Company at market rates.  Mr. Gerald Gitner, a member of the
Supervisory  Board of ICTS,  is  currently  the Chief  Executive  Officer  and a
director of TWA.  Mr.  Gitner did not  participate  in the  negotiation  of such
agreement in any manner.

                  During October and November  1996, the Company  acquired a 20%
interest in Maman Cargo Terminal & Handling ("Maman"), a publicly-traded Israeli
company  engaged in the business of cargo handling for Ben-Gurion  Airport.  The
Company sold such  interest on November 24, 1996 to a third party which became a
stockholder in Maman after the Company acquired its position. In connection with
such  transaction,  the Company agreed not to purchase  shares of Maman for five
years from the date thereof.  The sale of such interest resulted in a net profit
of  approximately  $4.65 million to the Company.  In connection  therewith,  the
Company paid to each of

                                                                 43

<PAGE>



Ezra Harel and Leedan a fee of $300,000 in consideration for investment advisory
services  rendered  by each of them in  connection  with  such  transaction.  In
addition,  with respect to the Maman  transaction,  the Company paid to Mr. Lior
Zouker a bonus of $131,000  which was earned by Mr.  Zouker  pursuant to certain
provisions of his employment agreement which provide for bonus payments based on
net profits of the Company.

                  On December 31, 1996,  effective as of September 1, 1996,  the
Company's  wholly-owned U.S.  subsidiary,  ICTS USA (1994), Inc. entered into an
employment agreement with Boaz Harel, a brother of Ezra Harel, pursuant to which
the  subsidiary  employed Mr. Harel as Chairman for a one-year term during which
Mr. Harel  received  approximately  $124,000 in  compensation.  Said contract is
automatically  renewable  for  successive  one-year  terms unless  terminated by
either party on 90 days' notice.

                                     PART II


         Item 14.          Description of Securities to be Registered.

                  Not applicable.


                                    PART III


         Item 15.          Defaults Upon Senior Securities.

                  Not applicable.


         Item 16.          Changes in Securities and Changes in Security for
Registered Securities.

                  Not applicable.



                                     PART IV


         Item 17.          Financial Statements

                  The Company has elected,  pursuant to instruction G(c) to Form
20-F, to provide financial statements pursuant to Item 18.


                                                                 44

<PAGE>



         Item 18.          Financial Statements

                  See Item 19(a).


         Item 19(a)  Financial Statements
                  Page


                                                                 45

<PAGE>

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


         ICTS INTERNATIONAL N.V.


         Report of Independent Auditors
         Consolidated Financial Statements:
         Balance Sheets as of December 31, 1998 and 1997
         Statements of Operations for the years ended  December  1998,  1997 and
         1996  Comprehensive  Income Statement of  Shareholders'  Equity for the
         years ended December 31, 1998,  1997 and 1996  Statements of Cash Flows
         for the years ended December 31, 1998, 1997 and 1996 Notes to Financial
         Statements




       Procheck International B.V.

      Report of Independent Auditors
      Financial Statements
      Balance Sheets as of December 31, 1998 and 1997
      Statements of Operations for the years ended December 1998,  1997 and 1996
      Statement of  Shareholders'  Equity for the years ended December 31, 1998,
      1997 and 1996  Statements  of Cash Flows for the years ended  December 31,
      1998, 1997 and 1996 Notes to Financial Statements


</TABLE>

         Item 19(b)  Exhibits

         1.    Articles of Association of the Company.*

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


         * 23.1 Consent of Kesselman & Kesselman
         * 23.2 Consent of PriceWaterhouseCoopers N.V. 

         *        Filed herewith.


                                                        46

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




                                INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




      F-2        Report of Independent Auditors................................
                 Consolidated Financial Statements:
      F-3        Balance Sheets as of December 31, 1998 and 1997..............
      F-4        Statements of Operations and Comprehensive Income for the years ended December 1998, 1997 and 1996
      F-5        Statements of Changes in Shareholders' Equity for the years ended December 31, 1998, 1997 and 1996......
      F-6        Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996.............................
    F-7-F-24     Notes to Financial Statements................................



                 Procheck International B.V.
      F-25        Report of Independent Auditors..............................
                  Financial Statements
      F-26             Balance Sheets as of December 31, 1998 and 1997........
      F-27             Statements of Operations for the years ended December 1998, 1997 and 1996...............................
      F-28             Statement of Shareholders' Equity for the years ended December 31, 1998, 1997 and 1996..................
      F-29             Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996...............................
   F-30-F-38           Notes to Financial Statements...........................................................................








                                                              F-1

<PAGE>




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. and its subsidiaries ("the Company") as of December 31, 1998
and  1997,   and  the  related   consolidated   statements  of  operations   and
comprehensive income, Changes in Shareholders' equity and cash flows for each of
the years ended December 31, 1998, 1997 and 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a fair basis for our opinion.

In our opinion,  the financial  statements referred to above, present fairly, in
all material respects,  the consolidated financial position of the Company as of
December  31, 1998 and 1997,  and the  consolidated  results of its  operations,
changes in  shareholders'  equity and its cash flows for each of the years ended
December 31, 1998,  1997 and 1996,  in  conformity  with  accounting  principles
generally accepted in the United States.




Ramat Gan, Israel                                                    Kesselman & Kesselman
March 15, 1999                                                       Certified Public Accountants (Isr.)




                                          F-2

<PAGE>




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

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

                                                                                 1998              1997
                                                                            --------------     -------------
                                  ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 2d).........................................$..11,273          $  13,699
Time deposits  and  marketable securities (Note 3) .........................    5,300              3,301
Accounts receivable - trade.................................................   10,454              8,627
Short-term loans and current maturities (Notes 4, 7and 9)                       1,080              1,043
Other current assets........................................................    1,965              1,967
                                                                            --------------     -------------
Total current assets........................................................   30,072             28,637
INVESTMENTS:
Investments in affiliates (Note 6)..........................................    1,156              2,000
Other investments (Note 7).................................................   .10,276              3,621
                                                                            --------------     -------------
                                                                               11,432              5,621
PROPERTY AND EQUIPMENT (Note 8):
Cost.......................................................................    .3,771              3,286
Less - accumulated depreciation.............................................    1,817              1,386
                                                                            --------------     -------------
                                                                                1,954              1,900
LONG-TERM RECEIVABLE,
net of discount and current maturities (Note 9).............................      176                163
DEFERRED INCOME TAXES (Note 16)............................................     1,367                657
GOODWILL, net of accumulated amortization of $1,435 in 1998 and $872
in 1997 (Note 2g).........................................................      8,582              8,542
OTHER ASSETS AND DEFERRED CHARGES................................                 249                199
                                                                               10,198              9,398
                                                                            --------------     -------------
Total assets..............................................................   $ 53,832           $ 45,719  
                                                                            ==============     =============

                   LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank debt (Note 10)..............................................$  3,663           $  1,987
Current maturities of long-term debt (Note 12)..............................     562                277
Accounts payable - trade..................................................     1,421              1,516
Accrued expenses and other liabilities (Note 11)............................   9,804              8,952
Total current liabilities...................................................  15,450             12,732
                                                                            --------------     -------------
LONG-TERM DEBT, net of current maturities (Note 12).....................       6,174              1,607
ACCRUED SEVERANCE PAY (Note 13)............................................    1,309              1,248
Total long-term liabilities.................................................   7,483              2,855
                                                                            --------------     -------------
COMMITMENTS  AND CONTINGENT LIABILITIES  (Note 14)
SHAREHOLDERS' EQUITY:
Share capital:
Common  shares,  par  value - NLG 1 per  share,  17,000,000  shares  authorized;
6,569,480 issued and outstanding shares in 1998 and
1997........................................................................   3,564              3,564
Additional paid-in capital..................................................  19,090             19,090
Retained earnings...........................................................  12,435             11,553
Cumulative other comprehensive loss.........................................  (2,968)            (4,075)
                                                                              32,121             30,132
Treasury stock, 209,400 common shares, at cost,........................       (1,222)               -

                                                                              30,899             30,132
Total liabilities and shareholders' equity..................................$ 53,832           $ 45,719
                                                                            ==============     =============

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

                                       F-3

<PAGE>

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


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

                                                                               1998              1997               1996
                                                                          --------------     -------------      -------------

Revenues..................................................................$  64,130          $  53,798           $38,943
Cost of revenues..........................................................   54,109             45,016            32,610
                                                                          --------------     -------------      -------------
Gross profit..............................................................   10,021             8,782              6,333
Amortization of goodwill..................................................      485               321                154
Selling, general and administrative expenses..............................    6,838             5,994              4,099
                                                                          --------------     -------------      -------------
Operating income..........................................................    2,698              2,467             2,080
Interest income...........................................................    1,149              1,253               520
Interest expense..........................................................     (533)              (396)             (402)
Exchange rate differences.................................................   (1,106)             2,732               263
Other income (expense), net (Note 15)....................................      (703)               226             4,547
                                                                          --------------     -------------      -------------
Income before income taxes and equity in results of affiliates............    1,505              6,282             7,008
Income taxes (Note 16)....................................................     (837)            (2,357)             (449)

                                                                          --------------     -------------      -------------
Income before equity in results of affiliates.............................      668              3,925              6,559
Equity in results of affiliates, net (Note 6).............................      214                121                205
Net income.................................................................$    882         $    4,046           $  6,764
Other comprehensive income (loss):
   Translation adjustments................................................    1,830             (4,035)              (769)

   Unrealized gains (losses) on marketable securities.....................     (723)                 20                 -
Other comprehensive income (loss)                                             1,107              (4,015)              (769)
Comprehensive income                                                       $  1,989         $        31          $   5,995

                                                                          ==============     =============      =============
Earnings per common share  - basic (Note 2j)...............................$   0.14         $      0.62          $    1.35


                                                                          ==============     =============      =============
Earnings per common share - diluted (Note 2j).......................       $   0.14         $     0.61           $    1.33


                                                                          ==============     =============      =============


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



                                         F-4
<PAGE>




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

                                                                                       Accumulated
                                                                                          Other
                                                         Additional       Retained     comprehensive
                      Share capital                       paid-in          Earnings          income         Treasury
                         Common           Amount           capital                            (loss)         stock            Total
                         shares
                       -----------      -----------     -------------     ----------
Balance at January 1,
 1996                     4,000,000      $   2,063     $     431           $  743      $     709          $     -         $   3,946

Changes during 1996:
 Initial Public Offering..1,500,000            878         7,322                                                              8,200
 Second Public Offering...1,065,000            621        11,311                                                             11,932

 Comprehensive Income:
  Net income............                                                     6,764                                            6,764
  Other comprehensive income:
   Translation adjustments...                                                               (769)                              (769)
 Comprehensive Income                                                                                                         5,995

Balance at 
 December 31, 1996........6,565,000         3,562          19,064            7,507           (60)                  -         30,073

Changes during 1997:
 Stock options exercised.. .. 4,480            2               26                                                               28

 Comprehensive Income:
  Net income................                                                 4,046                                            4,046
  Other comprehensive income:
   Translation adjustments.............                                                    (4,035)                           (4,035)
      Unrealized gains on marketable
      securities..............................                                                 20                                20

 Comprehensive Income                                                                                                            31

Balance at December 31, 1997...6,569,480     3,564           19,090         11,553          *(4,075)                 -       30,132

Changes during 1998:
 Common stock repurchased.....  (209,400)                                                                        (1,222)     (1,222)

 Comprehensive Income:
  Net income...................                                                882                                              882
  Other comprehensive income:
   Translation adjustments......                                                             1,830                            1,830
      Unrealized losses on marketable
      securities...............                                                              (723)                             (723)

 Comprehensive Income                                                                                                         1,989
Balance at December 31, 1998...6,360,080    $3,564         $19,090         $12,435         $*(2,968)       $  (1,222)       $30,899
                         ===========      ===========     =============     ==========      ==============   =========== ===========

* Comprises as follows:


                                                                                 December 31, 

                                                                            1998              1997    

Cumulative translation adjustments                                        (2,265)          (4,095)
Cumulative unrealized gains (losses) on marketable securities             (703)            20
                                                                          (2,968)          (4,075)
                                                                          ===========      ============


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


                                         F-5
<PAGE>




ICTS INTERNATIONAL N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(US $ in thousands)


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

                                                                        1998             1997      1996
                                                                     ----------      ---------    ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income for the year..............................................$   882         $   4,046    $  6,764

Adjustments   to  reconcile  net  income  to  net  cash  provided  by  operating
activities:

Depreciation and amortization........................................    938             680            423
Deferred income taxes................................................   (628)          1,207           (115)
Increase in accrued severance pay....................................     1              177            138
Loss (gain) on sale of equipment ....................................     3               2             (6)
Gain on sale of investment in affiliate ...........................       -             (352)             -

Realized loss (gain) on marketable securities and exchange rate
  loss (gain) on loans ..............................................   118           (1,339)        (4,661)   

Write off of loans                                                      410             -                 -
Imputed interest income..............................................    (8)           (16)             (62)
Equity in results of affiliates......................................  (214)           (121)           (188)
Changes in assets and liabilities:
Accounts receivable..................................................(1,513)         (1,076)         (2,473)
Other current assets................................................    195            (305)           (399)
Long-term debt.....................................................                      -             (178)
Accounts payable.....................................................   (94)           (224)             667
Accrued expenses and other liabilities..............................    461             639            1,273
                                                                     ----------      ------------   -------------
Net cash provided by operating activities............................   551           3,318            1,183
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of time deposits and marketable securities..................(5,300)         (7,025)           (8,874)
Purchase of short-term investments..................................    -                -            (16,605)
Proceeds from sale of short-term investments........................  3,233           12,906           21,614
Other investments....................................................(6,945)          (3,491)               -  
Purchase of equipment................................................  (511)            (682)             (552)
Short-term loans......... ...........................................  (600)          (1,036)               -  
Collection on short-term loans............ .......................... 1,436              332                -  
Acquisitions net of cash acquired (*)................................   (38)          (4,214)               -  
Proceeds from sale of investment in affiliates......................     -               89                 -  
Investments in affiliates............................................  (205)           (1,769)             13
Collection on long-term receivable...................................     -               217             219
Proceeds from sales of equipment.....................................    54                39              34
Decrease (increase) in other assets..................................   (45)               51            (131)
                                                                     ----------      -------------     -------------
Net cash used in investing activities...............................  (8,921)          (4,583)         (4,282)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of shares...................................................    -               -             18,780
Stock option exercise................................................    -               28               -  
Repurchases of common shares......................................... (1,222)             -               - 
Proceeds from long-term borrowings...................................  5,056            188               204
Payments on long-term borrowings.....................................   (289)          (592)             (141)
Increase (decrease) in net borrowings under short-term bank facilitie  1,543          1,397              (798)
                                                                     ----------      -------------     -------------
Net cash provided by financing activities...........................   5,088          1,021             18,045
EFFECT OF FOREIGN CURRENCY EXCHANGE RATES ON CASH
AND CASH EQUIVALENTS.................................................    856         (2,423)              (479)
                                                                     ----------      -------------     -------------
Increase (decrease) in cash and cash equivalents..................... (2,426)        (2,667)             14,467
Balance of cash and cash equivalents at beginning of year             13,699         16,366               1,899
                                                                     ----------      -------------     -------------
Balance of cash and cash equivalents at end of year..................$11,273       $ 13,699        $      16,366
                                                                     ==========      =============     =============

Supplemental disclosures of cash flow activities: Cash paid during the year for:
Interest.............................................................$   346       $    227        $         188
Taxes on income......................................................$ 1,235       $  1,119        $         290
                                                                     ==========      =============     =============
Supplemental disclosures of non-cash investing and financing activities:

Deferred income taxes due to offering costs, credited to additional paid $ -       $     -         $        1,908
in capital                                                           ==========      =============     ============

Non-cash offering costs..............................................   $  -       $      -        $           556
Non-cash costs of short-term investments............................. ..$  -       $      -        $           357
Conversion of current liabilities to long-term debt.....................$  -       $      780      $             -
                                                                     ==========      =============     =============
Selling of an investment in affiliate for US dollar loan ............   $ 565      $        -      $             -   
                                                                     ==========      =============     =============
(*) Acquisitions, net of cash acquired (divestitures, net of cash sold) (Note 5)
Assets and liabilities of the subsidiaries at date of acquisition (sale):
Working capital, excluding cash and cash equivalents.................$ (129)        $ (1,781)
Property, equipment and investments.................................    (22)             889
Other investments....................................................    -               133
Other assets.........................................................    -                89
Long-term liabilities................................................    -              (816)
Accrued severance pay................................................    -              (150)
                                                                     ----------
                                                                      (151)           (1,636)
Liability assumed....................................................   -               (330)
Decrease in long-term receivable.....................................   -               (691)
Increase in other investments                                          189                -
Excess of cost over fair value upon acquisition......................   -               6,871
Cash sold and cash paid for acquisitions, net of cash acquired.......$ 38             $ 4,214
                                                                     ==========      =============

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


                                       F-6
<PAGE>




                                                  ICTS INTERNATIONAL N.V.
                                               NOTES TO FINANCIAL STATEMENTS
                                                    (US $ in thousands)
NOTE 1 - GENERAL

a.  Operations

     ICTS  INTERNATIONAL  N.V.  ("ICTS"),  its  subsidiaries and affiliates (all
referred to herein as "the Company") is a leading provider of enhanced  aviation
security services.  The Company primarily serves the Western European operations
of the major US carriers.  The Company's principal service is the implementation
of passenger risk evaluation and classification procedures,  generally described
as  "Advanced  passengers  screening."  The Company is also  engaged in security
consulting, training and auditing for airlines and airports and in the provision
of other security services.

     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  (20% of  which  is owned
indirectly by each of Mr. Ezra Harel and Mr. Lior Zouker) conducted the business
in which the Company is currently engaged. In connection with the acquisition of
the Company by Leedan  Business  Enterprise  Ltd.  ("Leedan"),  as of January 1,
1994, ICTS HOLLAND's  interest in its  subsidiaries  and affiliates  (other than
three  insignificant  subsidiaries) was transferred to ICTS  International  B.V.
("ICTS  International"),  which became an indirect  wholly-owned  subsidiary  of
Leedan.  As of January 1, 1996,  ICTS acquired all of the assets and assumed all
of the liabilities of ICTS  International in exchange for shares of common stock
which would result in its owning  4,000,000 shares of common stock. As discussed
in Note 1b below,  the  January  1,  1996  exchange  was  treated  similar  to a
recapitalization.

b.  Basis of Presentation

     The cost of the acquisition at January 1, 1994 of $2,494, which was paid by
Leedan to ICTS HOLLAND, has been "pushed down" to the financial statements.

     Since the  recapitalization  of January 1, 1996 was among  companies  under
common  control,  the  assets,  liabilities  and  operating  results  have  been
presented  in  the  accompanying  consolidated  financial  statements  at  ICTS'
carrying  value,  as if the  recapitalization  had  occurred as of the date ICTS
acquired the operations (January 1, 1994) as described above.

C. Definitions

       1.  Subsidiaries  are  companies  which are  controlled  by ICTS  through
majority voting ownership.
     2.Affiliates are companies  which are not  subsidiaries,  in which ICTS has
         voting  rights  giving  significant  influence  over the  operating and
         financial  policies of these  companies.  Investments in affiliates are
         accounted for by the equity method.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

     The  preparation  of financial  statements  in  conformity  with  generally
accepted  accounting  principles,  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.

  The significant  accounting  policies,  applied on a consistent  basis, are as
follows:

a.  Financial statements in US dollars

     The  accompanying  financial  statements  have been  prepared in US dollars
("dollar"  or  "$").   Substantially  all  of  the  revenues  of  ICTS  and  its
subsidiaries are received,  and  substantially  all of their operating costs are
incurred,  in  local  currencies.  The  functional  currencies  of ICTS  and its
subsidiaries are the local currencies in which each such entity operates.  Their
financial  statements  are  translated  into US dollars in  accordance  with the
principles set forth in Statement of Financial Accounting Standards ("SFAS") No.
52. Assets and liabilities of the Company are translated  from their  respective
currencies to U.S dollars at year-end  exchange rates.  Income and expense items
are translated at average exchange rates during the year.



                                         F-7
<PAGE>




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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

a.  Financial statements in US dollars (continued)
Gains or losses resulting from translation are included as a separate  component
of other comprehensive income.  Cumulative translation adjustments are reflected
in a  separate  component  of  shareholders'  equity,  under  "cumulative  other
comprehensive loss". Thus, any significant  fluctuation in the currency exchange
rates between the Western European  currencies and the US dollar will affect the
Company as follows: balances which are denominated in US dollars will affect the
result of operations but will have no effect on the financial position; balances
which are denominated in Western  European  currencies will affect the Company's
financial  position and will have no effect on its result of  operations.  As of
December 31, 1998 and 1997, most of the Company's  current assets are kept in US
dollars.
     Under the laws of The  Netherlands,  dividends may be paid in any currency.
Although ICTS does not presently  intend to pay or declare cash dividends on its
common shares in the foreseeable  future, in the event that such a cash dividend
is  declared,  ICTS  intends  to pay it in US  dollars,  which is the  Company's
reporting currency.

b.  Derivatives
ICTS enters into forward  exchange and  currency  option  contracts to hedge its
deposits,  which  are  denominated  in US  dollars.  Gains  and  losses on these
contracts  are  recognized  in income  commensurate  with the results from those
assets;  balances  receivable  or payable in  respect  of such  derivatives  are
included  in  the  balance  sheets  among  current  assets  or  liabilities,  as
appropriate.  Cash flows from  derivatives  are  recognized in the statements of
cash flows together with results from the hedged item.

The net  premiums  received for  currency  options are  presented in the balance
sheets among accrued  expenses and other  liabilities  and credited to financial
income over the term of the options.

c.  Revenue recognition
Revenue is recognized upon rendering of service.

d.  Cash equivalents
     The  Company  considers  all  highly  liquid  investments,   which  include
short-term  bank deposits (up to three months from date of deposit) that are not
restricted  as to  withdrawal  or use,  short-term  government  bonds  and other
marketable government debentures, the period to maturity of which did not exceed
three months at time of investment, to be cash equivalents

e.  Marketable securities
    1. Marketable securities
         Marketable  securities and other  investments,  which are classified as
    available-for-sale  securities,  are stated at market value.  The difference
    between the market value of those securities and their cost is recorded as a
    separate  component  of  other  comprehensive  income.   Governmental  bonds
    held-to-maturity are carried at amortized cost.

    2. Other investments
    Investments  in a less  than a 20% -  owned  privately-held  companies,  are
stated at cost.

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


                                                                        Years
Equipment and facilities.....................................          4 - 10
Vehicles.....................................................          4 - 5
Rented property..............................................            23
Office furniture and equipment................................         5 - 10



                                 F-8
<PAGE>




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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

g.       Goodwill

     Goodwill  represents the excess cost of acquired  businesses  over the fair
value of their  identifiable  net  assets,  at  acquisition  dates.  Goodwill is
amortized by the  straight-line  method  primarily  over 20 years,  based on the
businesses  established  position in their  industries.  Management  reviews the
valuation  and  amortization  of  goodwill,  on an ongoing  basis,  to determine
possible impairment,  by comparing the carrying value to the non-discounted cash
flows of the related  assets.  Should the  company  determine  that  goodwill is
impaired, it will adjust the goodwill to reflect the fair value at that time.

h.  Principles of consolidation:

1. The consolidated  financial  statements  include the accounts of ICTS and its
subsidiaries.  Significant  inter-company  accounts and  transactions  have been
eliminated.

2. As discussed  more  thoroughly in Note 5, in July 1997 the Company  increased
its ownership in its German  affiliate to 100%. As a result,  commencing July 1,
1997, the Company has  consolidated  the accounts of the German  company.  Until
that date,  the  results of the German  affiliate  were  included  on the equity
method.

i.  Investments in affiliates
      Investments in affiliates are accounted for by the equity method.

j.  Earnings per share

     Earnings per share (EPS) are presented  according to SFAS No. 128. Earnings
per common share (basic EPS) are computed  based on the weighted  average shares
outstanding  during each year and giving  retroactive  effect for the  4,000,000
shares  and the  recapitalization  of the  Company  described  in Note 1, net of
treasury stock.  Earnings per common share (diluted EPS), are computed by taking
into account the dilutive effect of the stock options described in Note 21.

k.  Income taxes

     Income taxes are created in accordance  with SFAS No. 109,  "Accounting for
Income  Taxes" which  requires  recognition  of deferred  income taxes under the
asset and liability  method.  Deferred tax assets and liabilities are recognized
for the  estimated  future tax effects  attributable  to  temporary  differences
between income tax bases of assets and liabilities and their reported amounts in
the financial statements, and to tax loss carryforwards. Measurement of deferred
tax  liabilities  and assets is based on provisions of the enacted tax laws, and
deferred tax assets are reduced, if necessary, by the amount of tax benefits the
realization of which is not considered likely, based on available evidence.

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

l.  Fair value of financial instruments

     Based on borrowing rates currently  available to the Company for bank loans
with similar terms and  maturities,  the fair 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  valuation  risk
(principally  consisting  of  cash  and  cash  equivalents,  time  deposits  and
marketable   securities,   accounts   receivable  and  accounts   payable)  also
approximates fair value. Certain financial  instruments,  included in short-term
loans and other investments, do not have quoted market prices and accordingly, a
reasonable  estimate of fair market  value could not be made  without  incurring
excessive  costs.  However,  the Company  believes  that, by reference to stated
interest rates, the fair value of the assets would not differ significantly from
carrying value.


                              F-9
<PAGE>




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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

l.  Fair value of financial instruments (continued)


The  Company  guarantees  debts of third  parties  (Notes 7 and 14).  Due to the
absence of any market for these  financial  instruments,  the  Company  does not
believe it is practicable to estimate their fair value.

m. Treasury stock

   Common  shares   repurchased   by  ICTS  are  presented  as  a  reduction  of
"shareholder's equity", at their cost to ICTS, under "treasury stock".

n. Comprehensive income

In 1998,  the Company  adopted SFAS No. 130  "Reporting  Comprehensive  Income",
which was issued in June 1997.  SFAS No. 130 requires the  reporting and display
of  comprehensive  income  and its  components.  In  addition  to net income the
comprehensive  income of the Company  includes two items of other  comprehensive
income: foreign currency translation adjustments and unrealized gains and losses
on available-for-sale marketable securities.

NOTE 3 - TIME DEPOSITS AND MARKETABLE SECURITIES

Time deposits and marketable securities are comprised of the following:

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

                                                                                             1998                   1997
                                                                                        ---------------        --------------
Time deposits, US dollar-denominated....................................................$     4,674            $   2,218
Governmental bonds, held to maturity....................................................         39                  181
Marketable securities...................................................................        587                  902
                                                                                        ---------------        --------------
                                                                                        $   5,300              $   3,301
                                                                                        ===============        ==============

As of December 31, 1998 time deposits of $74 and  governmental  bonds of $39 are
pledged as collateral for the Company's  obligations  to a lessor;  in addition,
time  deposits  of $4,600  and  marketable  securities  of $580 are  pledged  as
collateral for short-term loans and third party bank guarantees.

NOTE 4 - SHORT-TERM LOANS AND CURRENT MATURITIES


Comprised of the following:

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

                                                                       1998                     1998                  1997
                                                                                          ----------------        -------------
US dollar denominated short-term loans                           
    A.M.S. Advanced Maintenance Systems Ltd. ("A.M.S";
       Note 7)                                                            7%               $    103                -

    Related company                                                                             100                -
    Non-negotiable promissory notes                                       -                     -                 1,043
                                                                                                203               1,043
Current maturities of long-term loans and receivable                                            877                 -
                                                                                          $   1,080               $ 1,043
                                                                                          ================        =============


                                     F-10


<PAGE>

                  NOTE 5 - TRANSACTIONS REGARDING CERTAIN SUBSIDIARIES

a.       In  November  1994,  ICTS  sold  55% of ICTS  Consultants  on  Targeted
         Security GmbH (ICTS GmbH) for $1,277.  During April and July 1997, ICTS
         reacquired the 55% interest in ICTS GmbH for $6,052. The purchase price
         exceeded  the  fair  value  of 55% of the net  assets  of ICTS  GmbH by
         $5,692, which was allocated to goodwill.  The operating results of ICTS
         GmbH  have  been  included  in  the  Company's  consolidated  financial
         statements since July 1, 1997.
b.       On  January  15,  1997,  the  Company,   through  its  US  wholly-owned
         subsidiary,  acquired  82.5%  of  the  outstanding  shares  of  Service
         Service, Inc. ("SSI"), an Illinois corporation,  for $543. The purchase
         price  exceeded  the fair  value of 82.5% of the net  assets  of SSI by
         approximately $450, which was allocated to goodwill.
c.       As of January 1998, ICTS sold 100% of  Trainsoft Ltd., an Israeli subsidiary, to A.M.S. for $189.
d.       As to an acquisition of a subsidiary in January 1999 - see Note 23.

NOTE 6 - INVESTMENTS IN AFFILIATES

Investments are comprised of the following:                                                         December 31,
                                                                                          --------------------------------

                                                                                              1998                  1997
                                                                                          -------------        --------------
Investment in 49% of Procheck International B.V. (PI) (1997 - 46.6%), including
unamortized
goodwill of  $206 and $151 for  December 31, 1998 and 1997,                               $       339          $       268
respectively...................................................................
Investment in 37% of Demco Consultants Ltd., including unamortized goodwill
   of  $771 (a)................................................................                    -                 1,162  
Investment in 33% of a joint venture (b).......................................                   817                  570
                                                                                          $     1,156          $     2,000
                                                                                          =============        ==============
(a.) In August 1997, the Company acquired 37% interest in Demco Consultants Ltd.
("Demco"),  a privately-held  company based in Israel,  for $1,199. The purchase
price exceeded the fair value of 37% of the net assets of Demco by approximately
$805, which was allocated to goodwill.  In January 1998, the Company sold 18% of
Demco  to a  related  company  for  its  carrying  value -  $565.  As a  result,
commencing  January 1, 1998, the Company ceased to account for the investment in
the remaining 19% of Demco by the equity method,  and this  investment is stated
at cost and is included as other investments (Note 7).

(b) In 1997, the Company,  together with its affiliate PI and A.M.S, have signed
an agreement to set up a joint venture in which each party has 33% interest. The
joint  venture  has not  been  established  yet.  Accordingly,  such  investment
represents amounts invested by the Company.


Equity in results of  affiliates  included  in the  consolidated  statements  of
operations, is comprised of the following:


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

                                                                                 1998               1997               1996
                                                                            --------------      -------------      -------------
Procheck International B.V.   ...........................................   $    214           $     96           $     145

Demco Consultants Ltd.   ................................................         -                 (20)                 -
ICTS Consultants on Targeted Security GmbH (Note 5) ......................        -                  45                 60
                                                                            $    214           $    121           $    205
                                                                            ==============      =============      =============
Equity in results of affiliates is shown net of amortization of goodwill.

Set forth below is summarized financial data of Procheck  International B.V. and
ICTS Consultants on Targeted Security GmbH:

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

Procheck  International B.V.                                                     1998               1997
----------------------------                                                                            
                                                                            --------------      -------------
Balance Sheet Data:
Current assets..........................................................    $     889         $       772
Non-current assets......................................................          118                 88
Current liabilities.....................................................          738                608
Shareholders' equity.............................................                 270                252



                                      F-11
<PAGE>




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

NOTE 6 - INVESTMENTS IN AFFILIATES (continued)

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

                                                                                 1998               1997               1996
                                                                            --------------      -------------      -------------
Operating Data:
Revenues................................................................    $   1,910               1,438          $   1,768
Gross profit............................................................          710                 345                477
Net income..............................................................          471                 227                319


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

ICTS Consultants on Targeted Security GmbH                                       1997               1996
Operating Data: (*)
Revenues................................................................    $  12,850              $14,200
Gross profit............................................................        2,257                2,057
Net income..............................................................          373                  256

(*) As mentioned in Note 5, in July 1997, the Company  increased its interest in
ICTS GmbH to 100%.  Revenues,  gross  profit and net income from January 1, 1997
through June 30, 1997 amounted to $6,396, $1,125 and $175, respectively.

NOTE 7 - OTHER INVESTMENTS

Other investments are comprised of the following:

                                                                                     December 31,

U.S. dollar-denominated loans:                                                   1998               1997
                                                                            --------------
 John Bryce (a)
    Bearing 7.5% interest..............................................      $  3,302          $  2,734
    Bearing 6.0% interest..............................................           191           
    Bonds..............................................................           547               547
                                                                            --------------
                                                                                4,040             3,281
 Related company (b)                                                              465               -
                                                                                4,505             3,281
 Less-current maturities                                                         (869)              -
Total U.S. dollar-denominated loans (*)                                         3,636             3,281
Cash held for acquisition of 80% of Huntleigh Corporation and acquisition
costs (Note 23)................................................                 5,434                 -
Investment in 5.4% of Pioneer Commercial Funding Corp. (c).........               189                 -
Investment in 19% of Demco Consultants Ltd. ................................      639                 -
Investment in 9.3% of Bilu Investments Ltd. (1997 - 6.0%) (d).......              302                187
Severance Pay fund..........................................................       76                153
                                                                            $  10,276           $  3,621
                                                                            ==============      =============

                      (*) The  loans and bonds  mature  in the  following  years
after December 31, 1999:


2000......................................................................  $    829                 
2001......................................................................     2,172
2002......................................................................        46
2003 .....................................................................        54
2004 and thereafter ......................................................       535
                                                                          $    3,636
                                                                          ==============




                                       F-12
<PAGE>




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


NOTE 7 - OTHER INVESTMENTS (continued)

(a) In 1997 and 1998, ICTS lent $2,915 to A.M.S.  Advanced  Maintenance  Systems
Ltd.  and John Bryce  Systems  Ltd.,  Israeli  companies  under  common  control
(hereinafter together - "John Bryce"). ICTS also acquired,  for $500, a ten-year
zero-coupon  bond of John Bryce,  with a face value at maturity of $1,062.  ICTS
has also been  granted a four-year  option to purchase a 51% equity  interest in
John Bryce for an exercise price of $2,915. Furthermore,  under the terms of the
bond purchase  agreement,  the previous  holders of such bond have "put" options
which may, under certain  conditions,  require ICTS to purchase their respective
equity  interests in John Bryce,  representing  24% of the equity of John Bryce,
for up to $850.  ICTS also has a "call" option to purchase such interests for up
to $1,015.  Since the shareholder was under  liquidation and  receivership,  the
above-  mentioned  agreements  were  granted  court  approval.  Regarding  legal
proceedings in connection with ICTS' option, see Note 14.

The loans and the bond are  collateralized by a second priority floating lien on
John Bryce's  assets.  Through  December 31, 1998, ICTS was entitled to minority
representation on the Board of Directors of John Bryce. Commencing January 1999,
for as long as the loans to John Bryce are  outstanding  or the above  option of
ICTS is in effect and unexercised, ICTS has the right to appoint the majority of
the Board of Directors of John Bryce.

Costs of $281 related to the agreements,  have been reported as part of the loan
and bond balances. Interest of $159 was incurred during 1998.

The $191 loan is the result of the sale of Trainsoft Ltd. (Note 5).

The $465 loan to related company is the result of the sale of Demco. (Note 6).

In March 1998, ICTS acquired 5.4% of Pioneer Commercial Funding Corp.  (Pioneer)
from Leedan  International  Holding  B.V, a subsidiary  of Leedan.  Pioneer is a
publicly held company which  securities are traded on NASDAQ.  ICTS acquired the
shares for $750,  which was the market  value on that  date.  Management  of the
Company is of the opinion that the decrease in the market value of these shares,
which occured since their  acquisition  is temporary.  The shares are restricted
under Rule 144 of the Security and Exchange Commission.

Bilu is a privately held company based in Israel.  ICTS acquired the shares from
Rogosin  Development  and Holding  Ltd.  ("Rogosin")  an  affiliated  company of
Leedan.  Rogosin and Leedan  held  another 24% in Bilu.  In January  1998,  ICTS
acquired  additional 3.3% in Bilu Investments Ltd. ("Bilu") for $95. In addition
to the  above-mentioned  investments,  ICTS  has  guaranteed  $2,905  of  Bilu's
obligations,  out of this  amount $ 1,800 was given on  behalf of  Leedan's  and
Rogosin's share.

NOTE 8 - PROPERTY AND EQUIPMENT
a. Property and equipment are summarized as follows:

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

                                                                                             1998                   1997
                                                                                        ---------------        --------------
Cost
Equipment and facilities................................................................$   1,017              $    908
Vehicles................................................................................      340                   299
Rented property.........................................................................      938                   942
Office furniture and equipment..........................................................    1,476                 1,137
                                                                                          ---------------        --------------
                                                                                            3,771                  3,286
Less - accumulated depreciation.........................................................   (1,817)                (1,386)
                                                                                        $   1,954              $   1,900
                                                                                        ===============        ==============

b. Depreciation  expense totalled $ 466, $ 386 and $ 225 in 1998, 1997 and 1996,
respectively.


                                     F-13
<PAGE>




c. A portion of the Company's  equipment is pledged as collateral to secure bank
loans.  The rented property is rented to third parties pursuant to long-term and
short-term   leases.  The  rented  property   collateralizes   three  mortgages,
denominated in DM, the balance of which is US $827 at December 31, 1998.

NOTE 9 - LONG-TERM RECEIVABLE

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

                                                                                             1998                   1997
                                                                                        ---------------        --------------
A restructured trade receivable, denominated in French francs:
    Receivable before discount..........................................................$      241             $      225
    Less discount.......................................................................       (58)                   (62)
                                                                                        ---------------        --------------
    Receivable, net of discount.........................................................       183                    163
    Less current maturities.............................................................        (7)                    -    

                                                                                        $      176               $    163
                                                                                        ===============        ==============

The receivable is non-interest bearing;  accordingly,  interest has been imputed
at a 5% discount rate. The receivable as of December 31, 1998 mature in the year
2003 and thereafter.

NOTE 10 - SHORT-TERM BANK DEBT
Short-term  bank debt classified by currency and interest rates is summarized as
follows:

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

                                                                       1998                     1998                  1997
                                                                -------------------       ----------------        -------------
ICTS
 US dollars (US$)............................................        6.2%-7.5%            $    3,361              $    1,925
 Other.......................................................          -                         113                      -
Subsidiaries
 British pounds (GBP)........................................         9.0%                        92                      -
 US dollars (US$)...........................................                                      -                       60
 Other.......................................................         -                           97                       2
                                                                                          $    3,663               $    1,987
                                                                                          ================        =============

 Pursuant the agreement  with the bank,  ICTS has  undertaken not to transfer or
charge  more  than  50% of its  assets  on  consolidated  basis.  ICTS  has also
undertaken further covenants,  including maintenance of certain financial ratios
and other  restrictions  (inter-alia as to the minimum of tangible net worth, as
defined by the agreement,  and its ratio to total assets),  as stipulated by the
agreement.

NOTE 11 - ACCRUED  EXPENSES  AND OTHER  LIABILITIES  Accrued  expenses and other
liabilities are summarized as follows:

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

                                                                                             1998                   1997
                                                                                        ---------------        --------------
Payroll and related liabilities................................................         $   6,866              $   5,600
Taxes to government institutions, including taxes currently payable............             1,908                  2,462
Related parties................................................................               219                    161
Accrued expenses and other.....................................................               811                    729
                                                                                        $   9,804              $   8,952
                                                                                        ===============        ==============




                                        F-14
<PAGE>




NOTE 12 - LONG-TERM DEBT Long-term debt is summarized as follows:

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

                                                                                             1998                   1997
                                                                                        ---------------        --------------
Banks and financial institutions..............................................       $    5,930                $      928
Others........................................................................              806                       956
                                                                                                               --------------
                                                                                          6,736                     1,884
Less-current maturities......................................................              (562)                     (277)
                                                                                        $ 6,174               $     1,607
                                                                                        ===============        ==============

Long-term debt classified by currency and interest rates is as follows:

                                                                 Interest rate
                                                                    as of
                                                                December  31,                        December 31,
                                                                                         ------------------------------------
                                                                       1998                   1998                   1997
                                                                -------------------      ---------------        ---------------
ICTS
 US dollars (US$)...............................................      6.25%*            $     5,000            $      -
Subsidiaries
 US dollars (US$)...............................................       7.0%                     310                    355
 Italian lire (LIT)                                                    7.0%                     433                    518
 German marks (DEM).............................................       5.2%                     827                    789
 British pounds (GBP)...........................................   10.06% - 11%                 126                    188
 Other..........................................................                                 40                     34
                                                                                              6,736                  1,884
Less-current maturities.........................................                               (562)                  (277)
                                                                                         $    6,174             $    1,607
                                                                                         ===============        ===============
       *The interest is determined on basis of LIBOR with the addition of a margin of 1%.

The long-term debt matures in following years after December 31, 1999:

2000.............................................................                    $    1,342
2001.............................................................                         1,347
2002.............................................................                         1,230
2003............................................................                          1,513
2004 and thereafter.............................................                            742
                                                                                     $    6,174
                                                                                     ===============

The $5,000  long-term bank loan received by ICTS is secured by a negative pledge
agreement with a bank.  Pursuant to that  agreement,  ICTS has undertaken not to
create or permit to exist any pledge or charge or any security interest over any
of its present or future assets or services.  ICTS has also  undertaken  further
covenants,   including   maintenance  of  certain  financial  ratios  and  other
restrictions  (inter  alia - as to the minimum of  shareholders'  equity and its
ratio to total assets), as stipulated by the agreement.


                                        F-15
<PAGE>




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

NOTE 13 - ACCRUED SEVERANCE PAY


     The Company provides for severance pay liability  pursuant to either law or
custom.  The  liability  is computed  on the basis of the latest  salary and the
period of employment.


NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES

a.    The Company leases  premises under  long-term  leases,  in most cases with
      renewal  options.  Rental  expense for the years ended  December 31, 1998,
      1997 and 1996 was $1,300, $1,164, and $806, respectively.

   Future  minimum lease  payments under  long-term  leases,  as of December 31,
1998, are as follows:

1999.................................................................$931
2000..................................................................554
2001..................................................................418
2002..................................................................286
2003..................................................................185
                                                                 $  2,374
                                                                 ==========

b.  Restrictions  on operations:  The Company is restricted in its operations by
the terms of an agreement  with an  affiliate.  Pursuant to the  agreement,  the
Company may not provide security services in The Netherlands, other than through
the  affiliate.  Pursuant  to the  terms of its  arrangement  with  ICTS  Global
Security (1995) Ltd.  ("Global  Security"),  the Company may not provide general
security  services in Latin America,  Turkey or the former Soviet Union.  Global
Security may not provide  aviation  security  services  anywhere in the world or
general security services in Western Europe. In addition, the Company and Global
Security have agreed that each company will offer the other company the right to
participate in any general  security  services project in North America which it
may obtain.  Global Security is an Israeli company majority owned by Leedan. The
Company  is also  restricted  by the terms of a joint  venture  agreement  which
prohibits the Company from providing security services in Southeast Asia.

c. Effective January 1, 1998, the Company extended the employment  contract with
its Chief Executive  Officer and a member of its Management  Board, for a period
of three  years.  The contract is  automatically  renewable  for one-year  terms
unless  terminated  by  either  party  with 90 days'  notice.  Pursuant  to such
contract,  the  Chief  Executive  Officer  is  entitled  to a  bonus,  which  is
calculated as a percentage of net income.

As a provider of security  services,  the Company faces potential  claims in the
event of any successful terrorist attempt, in circumstances  associated with the
Company.  Any such claim may also be for amounts  far  exceeding  the  financial
capability of the Company. The Company maintains insurance coverage against such
potential liabilities with an insurance Company.

e. In 1997,  the Company  guaranteed  various debt  obligations of a third party
arising from its trading in  commodities in Eastern  Europe.  The Company's fees
for these  guarantees  were  contingent  upon the  results  of the  trading.  On
December  28,  1997,  a new  agreement  was signed  between the  parties,  which
replaced the  contingent  fees with a 2.5% annual fee. On December 31, 1997, the
guarantees totaled $3,236, which was to be reduced by $100 each month,  starting
January 31, 1998,  and to be released in full by December 27, 1998. In 1998, the
guarantee was reduced by $1,000 and the Company  guaranteed  additional $55. The
third party  called one of two options it had,  to extend the  guarantees  until
December 27, 1999. On December 31, 1998 the guarantees totaled $2,291. The third
party has a successive option to call for the then outstanding  guarantees to be
extended until June 30, 2000.


                                        F-16
<PAGE>




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

NOTE 14 - CONTINGENT LIABILITIES AND COMMITMENTS (continued)

f. ICTS guaranteed $200 in debt obligations of John Bryce.

g.    In August 1997,  ICTS signed an agreement  with John Bryce,  which granted
      ICTS to  exclusive  marketing  rights  for an airline  operations  control
      system and an aircraft  maintenance  management  system  developed by John
      Bryce.  In  consideration  for these rights,  ICTS paid John Bryce $25 and
      guaranteed $225 in obligations of John Bryce.

As  mentioned  in Note 7, ICTS  guaranteed  $2,905 in debt  obligations  of Bilu
Investments Ltd.

i.    In 1998,  the  liquidator of one of John Bryce's  shareholders  and others
      commenced a transaction that, upon completing,  might nullify ICTS' option
      to purchase its interest in John Bryce (Note 7). ICTS sought an injunction
      to  prevent  that  move in the Tel-  Aviv  District  Court and then in the
      Israeli  Supreme  Court.  Based  on  its  legal  counsel's  advice,  ICTS'
      management   is  of  the  opinion  that  its  arguments  and  claims  have
      substantial  legal  basis.  As a  security  for the  temporary  injunction
      granted by the Israeli Supreme Court, in said proceedings, ICTS provided a
      bank  guarantee  of NIS  1,020  (approximately  $250),  to cover  possible
      damages, if any, to the defendants.


NOTE 15 - OTHER INCOME (EXPENSE)

Other income (expense) is comprised of the following:


                                                                                 Year ended December 31,

                                                                      1998                   1997                   1996
                                                                -----------------      -----------------      -----------------
Realized gain from sale of short-term investment (a)............$       -              $       -              $   4,652
Realized gain from sale of investment in affiliate (b)                  -                      352                    -
Write off of loans (c) .........................................      (410)                     -                     -

Other expenses..................................................      (293)                  (126)                 (105)
                                                                  $   (703)            $      226              $  4,547

                                                                =================      =================      =================

a.  I  November  1996 ICTS sold its 20%  interest  in Maman.  Cargo  Terminal  &
    Handling Ltd. ("Maman"),  a publicly held Israeli company,  purchased during
    October and November 1996. ICTS has committed to refrain from purchasing any
    shares in Maman for a period of 5 years.

    In January  1997,  the Company made a loan of $1,036 to its  affiliate  ICTS
    (Asia  Pacific) Ltd.,  denominated  in Hong Kong dollars,  bearing 9% annual
    interest.  The loan was to be repaid on or before  January 2000. In December
    1997, the Company sold its share,  together with the  above-mentioned  loan,
    including  accrued  interest  of  $114,  to the  major  shareholder  of that
    affiliate,  for $1,634. As a result of this sale, the Company recorded a net
    gain of $352.

    c. In 1998, ICTS made four loans, amounting to $411 to its former subsidiary
    Trainsoft  Ltd.  ("Trainsoft")  (Note 5). The loans were  denominated  in US
    dollars,  and bore 6%  annual  interest.  Each of the loans was to be repaid
    after twelve  months.  The Company's  management  decided to write off these
    loans  due  to  Trainsoft's  financial  position  and  the  absence  of  any
    collateral.



                                        F-17
<PAGE>




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

NOTE 16- INCOME TAXES

Each  subsidiary  of ICTS is  subject  to  taxation  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,  country of  incorporation  or
residency of the payer.

a. The components of the provision for income taxes are as follows:

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

                                                                       1998                     1997                  1996
                                                                -------------------       ----------------       ---------------
Current taxes...................................................$   1,465                 $   1,150              $     564
Deferred taxes..................................................     (628)                    1,207                   (115)
                                                                $     837                 $   2,357              $     449
                                                                ===================       ================       ===============

b. The components of deferred tax assets are as follows:

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

                                                                                             1998                   1997
                                                                                        ---------------        --------------
Carry forward losses ..................................................................   $  1,214              $      87
Public offering costs (*)..............................................................        -                      431
Severance pay..........................................................................        200                    208
Other..................................................................................        139                    113
                                                                                        ---------------        --------------
                                                                                             1,553                    839
Valuation allowance....................................................................        -                      (27)
                                                                                        ---------------        --------------
                                                                                         $  1,553               $     812
                                                                                        ===============        ==============
Presented in the balance sheets as follows:
Among other current assets.............................................................  $   186                $    155
As a non-current asset ................................................................    1,367                     657
                                                                                         $ 1,553                $    812
                                                                                        ===============        ==============
(*) The  public  offering  costs are tax  deductible.  The  deferred  taxes were
credited to additional paid-in capital.

Income (loss) before taxes on income is composed as follows:

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

                                                                        1998                    1997                  1996
                                                                 ------------------       ----------------       ---------------
The Company and subsidiary in Holland                            $ (1,436)                $ 4,035                $  5,313

Subsidiaries outside of Holland                                     2,941                   2,247                   1,695
                                                                 $  1,505                 $ 6,282                $  7,008

                                                                 ==================       ================       ===============
d. Taxes on income included in the income statements:

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

                                                                        1998                    1997                  1996
                                                                 ------------------       ----------------       ---------------
       Current:
           In The Netherlands                                    $       28               $          5           $   (25)
           Out of  The Netherlands                                    1,437                      1,145               589
                                                                      1,465                      1,150               564
       Deferred:
           In The Netherlands                                          (612)                     1,173                65
           Out The Netherlands                                          (16)                        34              (180)
                                                                       (628)                     1,207              (115)
                                                                 $      837                $     2,357            $  449
                                                                 ==================       ================       ===============
                                        F-18
<PAGE>

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

NOTE 16- INCOME TAXES (continued)

e. The  Company's  effective  income  tax  rate  differs  from  The  Netherlands
statutory rate of 35% due to the following:

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

                                                                        1998                    1997                  1996
                                                                 ------------------       ----------------       ---------------

Income before taxes and equity in results of affiliates........  $    1,505               $    6,282             $  7,008
                                                                 ==================       ================       ===============
Statutory tax rate.............................................         35%                      35%                   35%
                                                                 ==================       ================       ===============
Expected tax at statutory rate.................................        527                      2,199                2,453
Reconciliation for earnings taxed at different rates............       206                        231                   56
Expenses not deductible for tax purposes, principally
goodwill...................................                            205                        182                  154
Non-taxable income (1996 - principally capital gain)                  (115)                      (231)              (1,805)
Reversal of valuation allowance.................................       (27)                        -                  (347)
Other...........................................................        41                        (24)                 (62)
Income taxes.....................................................$     837               $      2,357             $    449
                                                                 ==================       ================       ===============

NOTE 17 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
The Company operates in Europe, the United State of America and other countries,
giving rise to exposure to market risks from changes in foreign  exchange rates.
The Company utilizes derivative financial instruments to reduce those risks, nor
it hold or issue financial instruments for trading purposes.

At December  31,  1998,  the company had  outstanding  currency  options for the
purchase of $ 5 million  for German  marks and for the selling of $1 million for
German Marks,  and forward  exchange  contracts for the purchase of 14.9 million
German marks for US Dollars.

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.

At December 31, 1998 and 1997, accounts receivable from three customers amounted
to 32% and 38%,  respectively.  For the years ended December 31, 1998,  1997 and
1996,  sales  to  major  customers  (constituting  10% or more of the  Company's
consolidated  revenues) amounted to 44%, 41% and 40% of revenues,  respectively,
as set forth below:


                                                                         Year ended December 31,
                                                            -------------------------------------------------
                                                                1998               1997                 1996
                                                            --------------      ------------        --------------
                                                                      (% of consolidated revenues)

Customer A................................................       17%                18%                  18%
Customer B................................................       16%                14%                  15%
Customer C................................................       11%                 9%                   7%

The Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of cash and cash equivalents,  trade accounts receivable,
short-term  loans (Note 4),  long-term loans (Note 7) and long-term  receivables
(Note 9). The Company  places its cash and cash  equivalents  and time  deposits
with high credit quality institutions. The Company provides normal trade credit,
in the normal 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.  The Company guarantees debts of third parties,
as discussed in Notes 7 and 14. Regarding these guarantees, the Company does not
believe exposure to loss is likely.


                                        F-19
<PAGE>




                                                 ICTS INTERNATIONAL N.V.
                                        NOTES TO FINANCIAL STATEMENTS (continued)
                                                   (US $ in thousands)
NOTE 17 - FINANCIAL  INSTRUMENTS AND RISK MANAGEMENT  (continued) 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
(especially  those  involving  the  ability  of US  carriers  to land at foreign
airports)  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 in the former Soviet Union.

NOTE 18 - SEGMENT INFORMATION

The Company adopted in 1998 FAS131, "Disclosures about Segments of an Enterprise
and  Related  Information",  which was  issued  in June  1997 by the  FASB.  The
Company's operations involve a single business segment,  providing personnel and
consulting services in aviation and general security.

a.  Geographic information
  The following is a summary of revenues and long-lived assets by geographic area:
    1) Revenues - attributed to countries based on location of customers:


                                                                    Year ended December 31,
                                                        -------------------------------------------
                                                             1998              1997              1996
                                                         ------------      ------------      -------------

Germany                                                      $ 12,839           $ 6,630      $       -
 France                                                        14,018            12,744             12,845
United Kingdom                                                 17,757            16,087             11,060
Italy                                                           5,218             4,751              3,611
Other                                                          14,298            13,586             11,427
Total                                                        $ 64,130          $ 53,798           $ 38,943
                                                         ============      ============      =============

    2) Most of the Company's long-lived assets are located in Germany.

b. As to the Company's major customers, see Note 17.

NOTE 19 - RELATED PARTY TRANSACTIONS

a. Revenues received and expenses incurred from related parties are as follows:

                                                                                          Year ended December 31,
                                                                              ------------------------------------------------
                                                                                   1998                 1997               1996
                                                                              ---------------      --------------      ------------
Revenues...........................................................           $      61            $     223           $       336
Cost of revenues...................................................           $      13            $      38           $        49
Selling, general and administrative expenses.......................           $      68            $     517           $       418
                                                                              ===============      ==============      ============
Expenses due to investment in Maman (Note 14)......................           $       -            $      -            $       731
                                                                              ===============      ==============      ============
Interest expense...................................................           $       -            $     136           $        50
Interest income....................................................           $       -            $     (96)          $        -
Offering expenses..................................................           $       -            $       -           $        52

                                                                              ===============      ==============      ============


                                        F-20

<PAGE>




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

NOTE 19 - RELATED PARTY TRANSACTIONS (continued)

b.  Balances with related parties are as follows:

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

                                                                                   1998                 1997
                                                                              ---------------      --------------
Accounts receivable..................................................         $     215          $       227
Short term loans ....................................................         $     100          $        -

Other investments....................................................         $     465          $         -

Accrued expenses and other liabilities...............................         $     219          $       161
                                                                              ===============      ==============

c   Leedan  provides  the  Company  with  certain  management,   administrative,
    consulting  and advisory  services,  as well as advice and  assistance  with
    respect to potential acquisition  transactions and investor relations.  Such
    services are provided on an ad hoc basis as authorized  by the  unaffiliated
    members of the ICTS's  supervisory  board. In 1997, the Company paid $591 to
    Leedan and its affiliate for such services.

d.  In 1996, the Company, through a subsidiary,  entered into a verbal agreement
    with  another  company,  according  to  which  this  company  receives  7.5%
    commissions out of a portion of the income from a general security  project.
    One of the unaffiliated  members of the supervisory board of ICTS was, until
    1998, a major shareholder of the above-mentioned company.

e.  Under an option agreement entered into concurrently with the purchase of the
    Company by Leedan in 1994, two related parties, each of whom own 20% of ICTS
    HOLLAND (Mr.  Ezra Harel and Mr. Lior  Zouker) were each granted  options to
    purchase 20% of the shares of the Company owned by Leedan for the price paid
    by  Leedan  for  the  Company  plus  8%  interest   from  January  1,  1994.
    Subsequently,  Mr. Ezra Harel transferred half of his option to an unrelated
    third party.  Immediately  prior to the  consummation  of the initial public
    offering, those options were exercised.

f. In 1997, the Company paid $190 to related parties for assistance  provided by
    them in connection with the purchase of 55% of ICTS GmbH (Note 5).

g. Regarding  options  granted by ICTS to Mr. Lior Zouker,  the Chief  Executive
    Officer, see Note 21.

h.  Regarding  interest  income on loan to ICTS (Asia Pacific) Ltd., see Note 15
(b).

 Regarding acquisitions of investments from Leedan and its affiliate see Note 7c
and 7d.

j.  In 1998,  the Company  paid $90 to Mashik  Research & Systems  for  Business
    Development  Ltd.,  a  subsidiary  of  Leedan,  for  its  assistance  in the
    Huntleigh purchase (Note 23).

k.  As  mentioned in note 7,  commencing  January  1999,  ICTS have the right to
    appoint majority of the Board of Directors of John Bryce. See Notes 3, 5, 6,
    7 and 14 as to transactions with John Bryce.

l.  Regarding  guarantees  given in the benefit of related  parties - see Note 7
(d).



                                        F-21
<PAGE>




                                                 ICTS INTERNATIONAL N.V.
                                        NOTES TO FINANCIAL STATEMENTS (continued)
                                   (US $ in thousands, except share and per share data)

NOTE 20 - EARNINGS PER SHARE

The  following  table shows the  computation  of basic and diluted  earnings per
share:

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

                                                                     1998               1997               1996
                                                                --------------      -------------      -------------
BASIC EARNINGS PER SHARE COMPUTATION

Net income..................................................  $       882            $    4,046      $      6,764
Weighted average common shares outstanding .................    6,497,688             6,565,747         4,994,167
Basic earnings per share....................................  $      0.14            $     0.62      $       1.35
                                                                ==============      =============      =============

DILUTED EARNINGS PER SHARE COMPUTATION

Net income.................................................   $       882            $   4,046       $      6,764
                                                                ==============      =============      =============

Weighted average  common shares outstanding ................    6,497,688               6,565,747      4,994,167
Incremental common shares from stock options - calculated
under the treasury method.........                                 19,652                 115,493        104,755
                                                                -----------            -----------   -------------
Adjusted weighted - average common shares                       6,517,340               6,681,240      5,098,922
Diluted earnings per share..................................  $      0.14            $       0.61     $     1.33
                                                                ==============      =============      =============

Options,  granted under Share Option Plan (Note 21), to purchase  256,500 shares
of  common  stock at  exercise  price  between  $7.5 to $10.75  per  share  were
outstanding  during 1998.  Options to purchase  42,000 shares of common stock at
$10.75 per share were  outstanding  during 1997 and 1996.  The options  were not
included in the  computation of diluted  earnings per share due to the fact that
the options'  exercise  price was greater  than the average  market price of the
common shares.  The options,  which expire on different  dates,  but in no event
later than July 2002, were still outstanding at December 31, 1998.

NOTE 21 - STOCK OPTIONS
Pursuant  to a Share  Option  Plan of 600,000  options,  since 1995 the  Company
granted 599,700 options to purchase common shares to certain employees,  members
of the supervisory board and a consultant.

In addition,  in 1995 the Company  granted  108,000  options to purchase  common
shares at the initial  public  offering price to an  unaffiliated  consultant as
partial consideration for his assistance in connection with the public offering.
The options were granted at an exercise price of $7.00 per share,  and expire in
September 1999.

During 1995, the Company granted, to certain employees and a consultant, 343,200
options to purchase  common  shares at $6.50 per share which was the fair market
value of the common shares  underlying  such option grants at the time of grant.
Those options vest over a period ending April 1999 at the latest,  and expire on
different  dates,  but in no event later than July 2000. In 1997,  4,480 options
were exercised and as of December 31, 1998, 335,720 options were exercisable.

In December  1996,  the Company  granted  36,000  options to three  unaffiliated
members of the supervisory  board and 6,000 options to an employee,  to purchase
common shares at $10.75 per share, which was the fair market value of the Common
Shares  underlying  such option grants at the time of grant.  Those options were
vested in December 1996 and expire in December 2001.

In 1997, the Company  granted 22,000 options to one  unaffiliated  member of the
supervisory  board and 72,500  options to three  employees,  to purchase  common
shares at exercise  price  between $7.5 to $9.25 per share,  which were the fair
market values of the common shares  underlying such option grants at the time of
each grant.  The options expire on different  dates,  but in no event later than
December 2002. As of December 31, 1998, 59,750 options were exercisable.

                                        F-22

<PAGE>




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

NOTE 21 - STOCK OPTIONS (continued)
In November 1997, the Company granted  120,000 options to Mr. Zouker,  its Chief
Executive  Officer,  to purchase  common shares at $8 per share,  which was more
than the fair market value of the common shares underlying such option grants at
the time of grant.  Those  options  were vested in  November  1997 and expire in
December 2002. The Company  accounts for the  stock-based  compensation by using
the intrinsic  value-based  method  provided in APB Opinion 25,  "Accounting for
Stock  Issued  to  Employees."  The  Company  has  adopted  the  disclosure-only
provisions of SFAS No. 123, "Accounting for Stock Based Compensation." Since the
options that were  granted by the Company had no intrinsic  value at their grant
dates,  no  compensation  cost has been  recognized for stock option plans.  Had
compensation  cost been determined based on the fair value at the grant date for
stock option awarded in 1997,  1996 and 1995,  consistent  with the provision of
SFAS No. 123, the Company's  net income for 1998,  1997 and 1996 would have been
decreased by approximately $96, $635 and $162, respectively. The Company's basic
earnings per common share and the earnings per common share - assuming dilution,
for 1998, 1997 and 1996, would have been decreased by $0.01, $0.09 and $0.03 per
share, respectively.

The  weighted  average  fair  values on the dates of grant for  options  granted
during  1997 and 1996,  were  $3.80 and $1.95  respectively.  The fair  value of
options granted in 1997 was estimated  using the Black & Scholes  option-pricing
model while the fair value of options granted in 1996 was based on their minimum
value with the following weighted average assumptions:

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

                                                                                                        1997                1996
                                                                                                     -----------        ------------
Expected life of options (years).................................................................          5                  5
Expected volatility                                                                                       39.5                -
Risk free interest rate.............................................................................        .6%               4%
Expected dividend yield............................................................................         0                 0
Information regarding options for 1998, 1997 and 1996 is as follows:

                                         1998                               1997                                1996
                             ----------------------------      -------------------------------      ----------------------------

                                                Weighted                               Weighted                            Weighted
                                                 Average                                Average                            Average
                                                Exercise                               Exercise                            Exercise
(Shares in thousands)          Shares             Price             Shares               Price             Shares           Price
                             ----------      ---------------     ------------       ---------------      ----------      ----------
Options outstanding at
  beginning of year......... 496             7.58                285                     7.12            243             6.50
Options granted............. -               -                   215                     8.16            42              10.75

Options exercised..........  -               -                   (4)                    (6.50)
                             ----------      ---------------     ------------       ---------------      ----------      ---------
Options outstanding at

  end of year................496             7.58                496                     7.58            285             7.12
                             ==========      ===============     ============       ===============      ==========      ========

Options exercisable at

  end of year................457             7.50                384                      7.55           151             7.68
                             ==========      ===============     ============       ===============      ==========      ==========



                                        F-23
<PAGE>



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


NOTE 22 - NEW ACCOUNTING STANDARDS NOT YET ADOPTED

On June 15, 1998, the FASB issued  Statement of Financial  Accounting  Standards
No. 133,  "Accounting for Derivative  Instruments and Hedging Activities" ("SFAS
133").  FAS No. 133  establishes a new model for accounting for  derivatives and
hedging activities. SFAS No. 133 requires companies to record derivatives on the
balance sheet as assets or liabilities,  measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending  on the use of the  derivative  and  whether  it  qualifies  for hedge
accounting. SFAS No.133 is effective for calendar-year companies as from January
1, 2000,  but earlier  application is permitted.  The company  believes that the
impact of adopting SFAS No. 133 will not have a material effect on the Company.

NOTE 23- SUBSEQUENT EVENT

On  January 6, 1999,  the  Company  acquired  80% of the  outstanding  shares of
Huntleigh Corporation  ("Huntleigh"),  based in St. Louis, Missouri, for $5,900.
Both,   the  Company  and  the  seller,   have  options  to  acquire  and  sell,
respectively, the remaining 20% at an agreed upon price formula.


                                        F-24



<PAGE>




1. 1.    Report of independent auditors


                To the Shareholders of Procheck International B.V.

                          Introduction

                We have  audited  the  accompanying  balance  sheets of Procheck
                International  B.V.  as of  December  31,  1998 and 1997 and the
                related statements of operations,  shareholders' equity and cash
                flows for each of the years ended  December 31,  1998,  1997 and
                1996 as included in this report.  These financial statements are
                the   responsibility   of   the   company's   management.    Our
                responsibility  is to  express  an  opinion  on these  financial
                statements based on our audits.

                          Scope

                We conducted  our audits in accordance  with auditing  standards
                generally accepted in the United States. Those standards require
                that  we  plan  and  perform  the  audit  to  obtain  reasonable
                assurance  about  whether the financial  statements  are free of
                material  misstatement.  An audit includes examining,  on a test
                basis,  evidence  supporting the amounts and  disclosures in the
                financial  statements.  An audit  also  includes  assessing  the
                accounting  principles  used and  significant  estimates made by
                management,   as  well  as  evaluating  the  overall   financial
                statement  presentation.  We believe  that our audits  provide a
                reasonable basis for our opinion.

                          Opinion

                In our  opinion,  the  financial  statements  referred  to above
                present fairly, in all material respects, the financial position
                of the company as of December  31, 1998 and 1997 and the results
                of its  operations  and  its  cash  flows  for the  years  ended
                December 31, 1998,  1997 and 1996, in conformity with accounting
                principles generally accepted in the United States.

                March 15, 1999



                PricewaterhouseCoopers N.V.
                Rotterdam, The Netherlands


                                        F-25
<PAGE>


                   Procheck International B.V.


2. 1.    Balance sheet as at December 31, 1998


                                                                       December 31, 1998             December 31, 1997

                                                                         NLG         NLG            NLG            NLG



                 Current assets
                 Cash and cash equivalents                           708,957                      1,1209,10
                 Trade debtors                                       475,408                        331,076
                 Other receivables                                   492,297                        106,728


                 Total current assets                                              1,676,662                     1,558,714



                 Fixed assets                                                        223,478                       178,104



                 Total assets                                                      1,900,140                     1,736,818





                 Current liabilities
                 Accounts payable                                     38,647                         16,900
                 ICTS International N.V., current account            715,494                        777,332
                 Seceurop Beheer B.V., current account               209,601                        259,187
                 Taxes and social securities                         334,161                         92,105
                 Other liabilities                                    93,417                         82,474



                 Total current liabilities                                         1,391,320                     1,227,998



                 Shareholders' equity
                 Issued capital                                      500,000                        500,000
                 Share premium account                                 8,820                          8,820
                 Retained earnings                                   250,000                              0



                                                                     758,820                        508,820

                 Repurchased shares                                  -250000                              0



                 Total shareholders' equity                                          508,820                       508,820



                 Total liabilities and shareholders' equity                        1,900,140                     1,736,818

The accompanying notes are an integral part of these statements.

                                        F-26

<PAGE>


2. 2.    Statement of operations as at December 31, 1998


                                                                                        1998           1997           1996

                                                                                         NLG            NLG            NLG

                 Net sales                                                         3,789,980      2,807,255      2,981,484


                 Operating expenses
                 Salaries and social securities                                    1,607,700      1,487,477      1,499,761
                 Depreciation fixed assets                                            61,886         63,971         15,893
                 Other operating expenses                                            711,119        582,028        661,822

                 Total operating expenses                                          2,380,705      2,133,476      2,177,476


                 Operating income                                                  1,409,275        673,779        804,008

                 Interest income                                                      28,058         16,552         17,069
                 Interest expense                                                          0         -2,493         -1,191

                 Income before taxes                                               1,437,333       6,878,38        819,886
                 Income taxes                                                        502,740        244,683        281,567

                 Net income                                                          934,593        443,155        538,319




The accompanying notes are an integral part of these statements.

                                         F-27

<PAGE>

2. 3.      Statement of shareholders' equity


                                                    Common         Share          Share       Retained            Re-         Total
                                                    shares        amount        premium       earnings      purchased
                                                                                                               shares

                                                                     NLG            NLG            NLG            NLG           NLG

                 January 1, 1996                       500       500,000          8,820              0              0       508,820
                 Net income                              0             0              0        538,319              0       538,319
                 Dividends                               0             0              0       -538,319              0      -538,319

                 December 31, 1996                     500       500,000          8,820              0              0       508,820
                 Net income                              0             0              0        443,155              0       443,155
                 Dividends                               0             0              0       -443,155              0      -443,155

                 December 31, 1997                     500       500,000          8,820              0              0       508,820
                 Net income                              0             0              0        934,593              0       934,593
                 Dividends                               0             0              0       -684,593              0      -684,593
                 Repurchased shares                      0             0              0              0       -250,000      -250,000

                 December 31, 1998                     500       500,000          8,820        250,000       -250,000       508,820


The accompanying notes are an integarl part of these statements.

                                         F-28
<PAGE>


2. 4.       Statement of cash flows

                                                                                                              December 31,

                                                                                        1998           1997           1996



                                                                                         NLG            NLG            NLG

                 Cash flows from operating activities
                 Operating income                                                  1,409,275        673,779        804,008



                 Adjustments to reconcile net income to net cash
                 provided by (used in) operating activities
                 Depreciation                                                         61,886         63,971         15,893
                 Trade debtors                                                      -144,332        -58,865         35,637
                 Other receivables                                                  -385,569        -90,306         21,941
                 Accounts payable                                                     21,747        -64,337         59,279
                 Other liabilities                                                   141,575        388,693        361,335
                 Interest income                                                      28,058         14,059         15,878
                 Income taxes                                                       -502,740       -244,683       -281,567



                 Net cash provided  by operating activities                          629,900        682,311      1,032,404



                 Cash flows from investing activities
                 Purchase of equipment                                              -107,260        -50,658       -181,509
                 Disposal of equipment                                                     0              0            670



                 Net cash used in investing activities                              -107,260        -50,658       -180,839


                 Cash flows from financing activities
                 Dividends                                                          -684,593       -443,155       -538,319
                 Repurchased shares                                                 -250,000              0              0



                 Net cash used in financing activities                              -934,593       -443,155       -538,319



                 Change in cash and cash equivalents                                -411,953        188,498        313,246
                 Balance cash and cash equivalents beginning of year               1,120,910        932,412        619,166



                 Balance cash and cash equivalents end of year                       708,957      1,120,910        932,412


 The accompanying notes are an integral part of these statements.

                                       F-29

<PAGE>



         Procheck International B.V.

2. 5.    Notes to the financial statements

2.5.1.         General


                          Operations
                Procheck  International  B.V. is a provider of enhanced aviation
                security  services.  The Company  primarily  serves the European
                operations  of the major U.S.  carriers  at  Schiphol,  the main
                international   airport  in  the   Netherlands.   The  company's
                principal  service  is the  implementation  of  passengers  risk
                evaluation and classification procedures, generally described as
                "profiling".  The Company is also engaged in security consulting
                for airlines and airports and in the provision of other security
                services. The company operates in one segment.

                          Basis of presentation
                The  financial  statements  were  prepared  in  accordance  with
                generally  accepted  accounting  principles of the United States
                and are presented in Dutch Guilders.
2.5.2.         Significant accounting policies

                The  preparation  of financial  statements  in  conformity  with
                generally accepted accounting  principles requires management to
                make  estimates  and  assumptions  in  determining  the reported
                amounts of assets and  liabilities  and disclosure of contingent
                assets and  liabilities at the date of the financial  statements
                and the reported  amounts of revenues  and  expenses  during the
                reported   period.   Actual  results  could  differ  from  those
                estimates.
2.5.3.         Accounting policies


                          Cash and cash equivalents
                Cash and cash equivalents  consist of cash and liquid investment
                instruments with an original maturity of three months or less.

Fixed  assets These  assets are valued at cost less  depreciation,  based on the
estimated useful life.


                                         F-30
<PAGE>




2.5.4.      Determination of results


                          General
                Result represents the difference between the realizable value of
                the services  rendered  and the costs and other  charges for the
                year. The result on  transactions  are recognized in the year in
                which  they are  realized.  Losses are taken as soon as they are
                foreseeable. The comprehensive income equals the net income.

                          Net sales
                Net sales  represents  the amounts  charged to third parties for
                services rendered in the reporting year exclusive VAT.

                          Costs
                Costs are allocated to the reporting  year to which they relate.
                Depreciation  is provided by the  straight-line  method over the
                estimated useful life.

                          Income taxes
                Deferred tax assets and liabilities,  if any, are recognized for
                the  estimated  future tax  effects  attributable  to  temporary
                differences  between income tax bases of assets and  liabilities
                and their reported amounts in the financial  statements,  and to
                tax loss carryforwards.  Measurement of deferred tax liabilities
                and assets is based on provisions  of the enacted tax laws,  and
                deferred tax assets are reduced, if necessary,  by the amount of
                tax benefits the  realization of which is not considered  likely
                based on available evidence. Deferred tax liabilities and assets
                are   classified  as  current  or   non-current   based  on  the
                classification  of the related  asset or liability for financial
                reporting,  or according to the  expected  reversal  date of the
                specific  temporary  differences,  if not related to an asset or
                liability for financial reporting.


                                         F-31
<PAGE>

2.6      Notes to the balance sheet

2.6.1         Other receivables

                Amongst  others,  the  other  receivables  comprise  loans to D.
                Zicher Holding B.V., totaling NLG 215,000. In 1998 a loan of NLG
                200,000 has been issued to D. Zicher Holding.  Interest  charges
                of this loan amount to 4 %.  Besides  that, a loan of NLG 15,000
                has been issued to D. Zicher Holding in 1997.  Interest  charges
                of this loan amount to 3 %. There are no further agreements with
                regard to securities or redemption schemes.

2.6.2         Fixed assets

                Fixed assets can be summarized as follows:

                                                                      Office        Computer           Cars          Total
                                                                   equipment       hard- and
                                                                                    software

                                                                         NLG             NLG            NLG            NLG

                 Book value at December 31, 1997                      15,307        1,215,22         41,275        178,104
                 Additions                                             9,410          37,850         60,000        107,260
                 Depreciation                                         -6,099         -33,737        -22,050        -61,886

                 Book value at December 31, 1998                      18,618         125,635         79,225        223,478


                 Depreciation rates                                      20%             25%            30%


2.6.3         Issued capital


                There has been no change in the issued  capital.  The authorized
                capital  amounts to NLG  2,500,000  divided in 1,250 shares A of
                NLG 1,000 and 1,250 shares B of NLG 1,000;  500 shares have been
                issued and fully paid up, divided in 245 shares A and 255 shares
                B.


                                   F-32
<PAGE>



2.6.4         Retained earnings

                Resulting  from  the  profit  appropriation,  an  amount  of NLG
                250,000 has been added to the retained earnings during 1998.

2.6.5         Repurchased shares

                In  1998  it  was  decided  by  the  Shareholders'   Meeting  to
                repurchase 5% of the  sharecapital  (12 shares A and 13 shares B
                with a nominal  value of NLG 25,000)  from D. Zicher  Holding as
                per July 1,  1998 for an  amount  of NLG  250,000.  This will be
                further formalized during 1999.

2.6.6        Commitments


                          Lease obligations
                The company leases premises under operating  lease,  expiring in
                1999.  Future  minimum lease  payments,  as of December 31, 1998
                amounts to NLG 15,168 during 1999. As per December 31, 1998, the
                lease arrangements are short-term commitments.

                          Future participation
                The Company has the intention of participating for 33 1/3 % in a
                joint  venture  during  1999.   Procheck  will  transfer  mainly
                knowledge and know-how into the new company.  Because this joint
                venture is not established  yet, the financial  consequences for
                Procheck International cannot be determined at this moment.



                                         F-33
<PAGE>

2. 7.    Notes to the statement of operations

2.7.1        Salaries and social securities

                                                                                        1998           1997           1996

                                                                                         NLG            NLG            NLG

                 Salaries                                                          1,384,390      1,384,079      1,388,831
                 Pension charges                                                      53,568         42,940         45,374
                 Other social charges                                                169,742         60,458         65,556

                                                                                   1,607,700      1,487,477      1,499,761


2.7.2        Income tax



                                                                                                                      1998

                                                                                                                       NLG

                 Result from ordinary activities before taxation                                                 1,437,333
                 Investment premiums not taxable                                                                    -4,480
                 Non-deductible expenses                                                                             3,546

                 Taxable income                                                                                  1,436,399


                 Corporation tax to be paid (35%), charged to profit and loss account                              502,740


                As no temporary  differences exist as per December 31, 1998, the
                taxable income and calculated corporation tax equals the amounts
                for fiscal purposes.



                                         F-34
<PAGE>



                The  following  taxes  have been  paid  during  the years  ended
December 31, 1998, 1997 and 1996:

                                                                                        1998           1997           1996

                                                                                         NLG            NLG            NLG

                 Taxes paid                                                          240,600        380,111        274,064





                                           F-35
<PAGE>


3.       Other

3.1     Supplementary information

3.1.1        Profit appropriation



                                                                                                                       NLG



                 Net profit for the financial year 1998                                                            934,593





                 Added to the retained earnings                                                                    250,000
                 Distributed to the shareholders                                                                   684,593



                                                                                                                   934,593



3.1.2        Earnings per share


                                                                                                       1998           1997

                 number of outstanding common shares (weighted average)                               487.5            500

                                                                                                        NLG            NLG

                 operating income per common share                                                    2,891          1,348
                 net income per common share                                                          1,917            886

3.1.3        Financial instruments

                The  Company's   financial   instruments  that  are  exposed  to
                concentrations of credit risk consist primarily of cash and cash
                equivalents  and trade accounts  receivable.  The Company places
                its  cash  and  cash   equivalents   with  high  credit  quality
                institutions.  The Company provides normal trade credit,  in the
                normal   course  of  business,   to  a  Ministry  of  the  Dutch
                Governance,  its  primarily  customer,  and to other  customers.
                Based  on  past  experience  and  the  identity  of its  current
                customers,  the Company  believes  that its accounts  receivable
                exposure is limited.  Book value approximates fair value because
                of the short maturity of these instruments.




                                         F-36
<PAGE>

3.1.4        Related parties

                As per December 31, 1998, ICTS International N.V. and Seceurop Beheer B.V. had the
                outstanding shares of the Company.
                Expenses incurred from these related parties are as follows:

                                                                                        1998           1997           1996

                                                                                         NLG            NLG            NLG

                 Services fees                                                       168,000        168,000        150,000

                 Administration services                                                   0         12,000         12,000




                Balances with related parties are as follows:

                                                                                        1998           1997           1996

                                                                                         NLG            NLG            NLG

                 Current accounts payable                                            925,095      1,054,177        588,193



                The amounts payable will be settled currently.

3.1.5       Employment benefits

                Yearly the company pays a certain  percentage of its salaries to
                an  insurance  company  on behalf of an  insured  pension  plan.
                Except for this yearly payment,  the insurance company bears the
                full responsibility to fulfill the obligations and rights of the
                pension  plan.  Besides this pension  plan,  certain  employment
                contracts contain profit sharing elements.



                                     F-37 
</TABLE>


<PAGE>

                                                    SIGNATURES

                  Pursuant to the  requirements  of Section 12 of the Securities
Exchange  Act of  1934,  the  registrant  certifies  that  it  meets  all of the
requirements  for filing on Form 20-F and has duly caused this Annual  Report to
be signed on its behalf by the undersigned, thereunto duly authorized.

                               ICTS INTERNATIONAL N.V.


                                By:/S/Lior Zouker
                                Name: Lior Zouker
                              Title: Chief Executive Officer



         Date:  March 19, 1999