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

                                    FORM 20-F

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

                                       OR

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007

                                       OR

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

                                       OR

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

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

     For the transition period from _________________ to _________________

                         COMMISSION FILE NUMBER 0-28542

                            ICTS INTERNATIONAL, N.V.
--------------------------------------------------------------------------------

             (Exact Name of Registrant as specified in its charter)

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

                                 The Netherlands
--------------------------------------------------------------------------------
                 (Jurisdiction of incorporation or organization)

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

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

<PAGE>

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

Title of each Class:  None     Name of each exchange on which registered:  None

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

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

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

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

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report: 6,672,980
        ---------

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
                                                             YES [_]     NO [X]

If this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.
                                                             YES [_]     NO [X]

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

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
                                                             YES [X]     NO [_]

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

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

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

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

      If "Other" has been checked in response to the previous question, indicate
by check mark which financial statement item the registrant has elected to
follow.
                                                       Item 17 [_]   Item 18 [_]

If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act).
                                                             YES [_]     NO [X]

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

      Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
                                                             YES [_]     NO [_]

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


                                      -2-
<PAGE>

                                Table of Contents

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

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

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

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

Exhibit 13.1      Certification


                                      -3-
<PAGE>

                                     PART I

Item 1. Identity of Directors, Senior Management and Advisers

                                 Not Applicable

Item 2. Offer Statistics and Expected Timetable

                                 Not Applicable

Item 3. Key information.

      Operations

      ICTS International, N.V., including its subsidiaries (collectively
referred to herein as "ICTS" or "the Company"), is a provider of aviation
security and other aviation related services through service contracts with
airline companies, airport authorities and governments. In 2002, one of the
company's subsidiaries, Huntleigh USA Corporation ("Huntleigh") derived a
substantial portion of its revenues from providing aviation security services to
the United States Transportation Security Administration ("TSA"). Commencing
November 2002, the Company ceased providing such services to the TSA but
continues to provide such services to aviation companies and others outside the
U.S.

      Discontinued Operations

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

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

      Selected Financial Data

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

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

                                       (U.S Dollars in thousands)
--------------------------------------------------------------------------------
Continuing Operations          2007      2006      2005       2004      2003
---------------------          ----      ----      ----       ----      ----
Cash and cash equivalents     $2,095    $1,743    $5,927     $3,224    $7,404
Current Assets                15,771    17,444    24,962     23,529    30,002
Total Assets                  24,230    26,425    31,676     37,507    55,914
Current Liabilities           28,216    29,249    25,435     20,395    24,747
Shareholders Equity
    (Deficiency)             (20,610)  (19,002)   (5,148)    21,506    46,961
Discontinued Operations
-----------------------
Total Assets                  $2,873      $130      $537    $17,455   $28,586
Total Liabilities             10,619    13,441    11,424      8,786     8,601
--------------------------------------------------------------------------------


                                      -4-
<PAGE>

Selected Financial Data Statement of Operations
         The following table summarizes certain statement of operations data for
ICTS for the years ended December 31, 2007, 2006, 2005, 2004, and 2003:

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

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

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

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

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


                                      -5-
<PAGE>

      Risk Factors.

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

      Developments that have had a significant impact on our operations.

      One major event in 2001 and early 2002 significantly changed our business
operations: the passage of the Aviation and Transportation Security Act (the
"Security Act") by the United States Congress in response to the terrorist
attacks on September 11, 2001, pursuant to which the Federal Government through
the TSA took over aviation security services in the U.S. in November 2002. As a
result of this event, we have limited aviation security operations in the U.S.

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

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

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

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

      If the TSA will claim such difference from Huntleigh and will prevail in
all of its contentions, and none of Huntleigh's claims will be recognized, then
the Company may suffer a loss in an amount of about $59 million. The Company is
engaged in litigation with the FAA/TSA. No provisions have been made by the
Company with respect to the above potential claims.

      Claim for Loss of Business.

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

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

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

      We face significant potential liability claims.

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

      We have incurred major losses in recent years.

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


                                      -6-
<PAGE>

used in operating activities of $3.6, $7.6, $5.2, $1.2 and $19.3 million in
2007, 2006, 2005, 2004 and 2003, respectively, and at December 31, 2007 the
Company had a working capital deficiency of $11.7 million and negative equity of
20.6 million. If we do not achieve new service contracts and profitability, the
viability of our company will be in question and our share price will likely
decline.

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

      In its report, our auditors have expressed an opinion that there is
substantial doubt about our ability to continue as a going concern. As discussed
in the accompanying audited financial statements at the year ended December 31,
2007, the Company had revenue of $64.8 million and a total loss of $2.6 million
as well as a net working capital deficiency and negative equity.

      We are reliant on loans made by our principal stockholder.

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

      IRS Audit.

      The Company's Subsidiary is currently undergoing an IRS audit for the
years ended December 31, 2002, 2003 and 2004. Should the audit conclude that the
Company owes significant funds to the IRS this could have an adverse effect on
the financial condition of the Company.

      We are dependent on our key personnel.

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

      We will be dependent on major customers.

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

      Our revenues are primarily provided from services pursuant to contracts,
which are cancelable on short notice at any time, with or without cause. We
cannot assure you that an existing client will decide not to terminate us or
fail to renew a contract. In addition consolidation in the airline industry
could also result in a loss of customers. Any such termination or failure to
renew a contract with us could have a material adverse effect on our results of
operations or financial condition. There is a material contract that will expire
in 2009 and the Company is in the process of negotiations to renew the contract.
If the negotiations will not be in the Company's favor it will have a material
affect on the Company's financial results.

      If our relationship with our major customers is impaired, then there may
be a material adverse affect on our results of operations and financial
condition. Our major customers consist of the major airlines servicing the
United States. Currently our customers' financial results may suffer because of
the increase in oil prices which has affected also our situation as service
provider. If such airlines encounter financial difficulty this may have a
material adverse impact on our business.

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

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

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

      We cannot assure you that we will be successful in our attempts to change
or implement our business strategy. We may not have the expertise to be
successful in developing our business in areas that are not related to the
security industry.


                                      -7-
<PAGE>

Our failure to change our business strategy or implement it successfully will
have a material adverse affect on our financial condition and results of
operations.

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

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

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

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

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

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

      Our operations are dependent upon obtaining required licenses.

      A license to operate is required from the airport authority in the
airports in which we currently operate. The loss of, or failure to obtain, a
license to operate in one or more of such airports could result in the loss of,
or the inability to compete for, contracts in the airports in which we have
licenses.

      Litigation.

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

      Our financial condition is subject to currency risk.

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

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

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

      As of December 31, 2007, three groups of shareholders, officers and
directors own approximately 81.5% of our shares (including options that are in
the money and immediately exercisable). Their interests could conflict with
yours; significant sales of shares held by them could have a negative effect on
our stock price.

      Mr. Menachem Atzmon, a director and chairman of the board of the Company,
as a representative of the Atzmon Family Trust, owns or controls approximately
56% of our issued and outstanding common stock. As a result of such


                                      -8-
<PAGE>

ownership, and/or control, the Atzmon Family Trust is able to significantly
influence all matters requiring shareholder approval, including the election of
directors and approval of significant corporate transactions. Such concentration
may also have the effect of delaying or preventing a change in control. In
addition, sales of significant amounts of shares controlled by the Atzmon Family
Trust or any other main shareholder, or the prospect of these sales, could
adversely affect the market price of our common stock.

      We cannot assure you that we will pay dividends.

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

      We are subject to the laws of the Netherlands.

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

      In this regard, the general meeting of shareholders has authorized our
Supervisory Board to issue any authorized and unissued shares at any time up to
five years from December 6, 2006, the date of such authorization, and has
authorized the Supervisory Board to exclude or limit shareholder preemptive
rights with respect to any issuance of common shares prior to such date. Such
authorizations may be renewed by the general meeting of shareholders from time
to time, for up to five years at a time. This authorization would also permit
the issuance of shares in an acquisition, provided that shareholder approval is
required in connection with a statutory merger (except that, in certain limited
circumstances, the board of directors of a surviving company may resolve to
legally merge the company). Shareholders do not have preemptive rights with
respect to shares which are issued against payment other than in cash.

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

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

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

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


                                      -9-
<PAGE>

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

Item 4. Information on the Company

      History and Development of the Company.

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

      Aviation Security Business.

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

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

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

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

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

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

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

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

      Leasing Business.

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

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


                                      -10-
<PAGE>

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

      Entertainment Business.

      On December 23, 2003, the Company, through wholly owned subsidiaries,
purchased from ITA International Tourist Attractions, Ltd., ("ITA") (a company
under the control of one of ICTS's shareholders) certain assets owned by ITA and
used by it in the development, establishment and operation of motion-based
entertainment theaters. The assets purchased consist primarily of intangible
property and certain equipment. ITA was a company in which a principal
shareholder of the Company, at the time, owned in the aggregate in excess of 50%
of the shares. The purchase price for the assets purchased was $5.4 million. The
purchase price was paid by set-offs against certain debts owed by ITA to the
Company, cash and notes. As a part of the transaction, certain agreements made
between the Company and ITA in 2001 were terminated, with the result that the
Company was no longer committed to involve ITA in its existing and future
entertainment projects. Prior to entering into the transaction the Company
obtained a fairness opinion as to the fairness of the consideration and the
transaction to the Company.

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

      In 2005 the Company decided to cease its operations in the entertainment
segment. In early 2006, the Company closed its motion-based entertainment
theater in Baltimore, MD and its multi-experience motion-based entertainment
theater in Atlantic City, NJ. The Company is also a partner (42.5%) in a
movie-based entertainment facility in Niagara Falls, NY. No discussion has been
made as to whether the Niagara Falls location should be closed as well.

      Business Overview

      General

      ICTS had specialized until 2002 in the provision of aviation security
services. Following the taking of its aviation security business in the United
States by the TSA in 2002, ICTS engages primarily in non-security related
activities in the USA. In addition, ICTS provides non-security related aviation
services and develops technological systems and solutions for the security
market.

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

      Business Strategy

      ICTS is currently pursuing the following business strategy:

      Developing Security Related Technology.

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

      Aviation Security Operations in Europe.

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

      U.S. Operations.

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

      Services

      Services Offered in Europe. Prior to the sale of its European operations,
ICTS primarily provided aviation security services, operated airport
checkpoints, verified travel documents, provided baggage reconciliation
services, operated


                                      -11-
<PAGE>

electronic equipment, such as x-ray screening devices, operated manual devices,
consulting services, public transportation, security consulting and training.
Following the sale, ICTS primarily provided advanced passenger-screening
services in The Netherlands and Russia. With its reentry into the aviation
security market, I-SEC International Security B.V. is offering the same types of
services as those listed above to interested clients, as well as additional, new
services. The Company has completed the initial phase of its re-entry and
penetration into the international aviation security market. This phase,
executed in parallel to the expansion of the Company's existing operations in
the Netherlands and in Russia, includes the establishment of new subsidiaries
and the provision of services at international airports in London, UK; Paris,
France; Cologne, Germany; Barcelona, Spain; Budapest, Hungary; Edinburgh,
Scotland and more. I-SEC is supplying a range of aviation security services and
implementing state-of-the-art technologies at these locations within the
framework of long-term contracts signed with various airlines. Following this
recent expansion, I-SEC is providing services at a total of 16 locations in
Europe. Additionally, I-SEC is providing aviation security consulting services
at airports in the Asia-Pacific region.

      Services Offered in the United States. Prior to the enactment of the
Security Act, Huntleigh was one of the leading providers of security and
non-security aviation services in the United States. Huntleigh currently
provides limited aviation security services and other separate services at
approximately 32 airports in 25 states.

      The limited security services provided by Huntleigh involves the
following:

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

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

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

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

      Agent Services For Airlines.

      Agent services include: passenger service, ground handling and baggage
      service. Although an agent is a Huntleigh employee, the employee is
      considered a representative of specific airlines.

      Guard Services.

      Guard services involve guarding secured areas, including aircraft.

      Huntleigh provides cleaning services for aircraft cabins.

      Maintenance.

      Huntleigh provides that workers maintain equipment in one airport.

      Aircraft Search.

      Search of the entire aircraft to detect dangerous objects.

      Ramp Services.

      Ramp services include:

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

            o     cleaning the aircraft

            o     conducting cabin searches

            o     stocking supplies

            o     de-icing the aircraft and

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


                                      -12-
<PAGE>

      Shuttle Service.

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

      Skycap Services Provider.

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

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

      Wheelchair attendants.

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

      Aviation Security Services.

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

      Technological Systems and Solutions.

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

      Technology Initiatives.

      I-BOX.

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

      IP@SS.

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

      Automated Travel Check.

      Automated Travel Check is a technologically upgraded version of Travel Doc
offered either as software only, or as a complete software and hardware package.
It verifies that the passengers' travel documents fully comply with the
requirements of countries of destination and transit prior to embarkation, and
also facilitates the detection of forged travel documents. Automated Travel
Check enhances the level of security, assists in combating illegal immigration
and reduces or mitigates associated civil penalties for airlines.


                                      -13-
<PAGE>

      APIS+.

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

      Smart Document reader (SDR).

      SDR is a proprietary state-of-the-art software solution that automatically
extracts data from a variety of standard and non-standard travel documents, ID
documents, e-ID documents, driver's licenses, airline boarding passes and
various mass transit tickets at extremely high levels of accuracy and speed. SDR
also implements various advanced means and proprietary checks to detect forged
documents. It comprises a main component in many of the advanced technological
systems offered by ICTS through its subsidiary, ICTS Technologies USA, such as
IP@SS, Automated Travel Check, APIS+, the Company's solution for banks, and
more.

      Bank Client Security and regulatory Compliance Solution.

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

      Consulting, Auditing and Training.

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

      Airline and Airport Customers.

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

      Leasing Operation.

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

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

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


                                      -14-
<PAGE>

      Sales.

      Sales in the U.S.

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

      Sales in Europe.

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

      Marketing of Security Systems and Technology.

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

      Competition.

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

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

      Aviation Security Regulatory Matters.

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

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

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

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

      Organizational Structure.

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

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

            Huntleigh USA Corporation. (Missouri - 100%).

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

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

      Property, Plant and Equipment.

      The Company leases premises under long-term operating leases, in most
cases with renewal options. Lease expenses from continuing operations for the
years ended December 31, 2007, 2006 and 2005 were $1,191, $1,217 and $849,
respectively.


                                      -15-
<PAGE>

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

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

During 2002, subsidiaries from the Entertainment segment signed rent contracts
for 17 years. As of December 2005, the company decided to discontinue the
operations of the Entertainment segment. The Company has an accrual for future
rent, regarding its discontinued Entertainment operations. The total accruals as
of December 31, 2007 and 2006 totaled $8,530 and $10,125, respectively. The
accruals have been updated according to the legal claims of the landlord against
the Company.

Item 5. Operating and Financial Review and Prospects

      Operating Results

      General

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

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

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

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

      In 2001 and 2002 ICTS sold substantially all of its European operations in
two stages, for an aggregate purchase price of $103 million. As a result of the
sale, and because of non-competition restrictions in the sale agreement, ICTS
has fully divested itself at that time from its European operations, except for
its operations in the Netherlands and Russia.

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

      Critical Accounting Policies

      The preparation of ICTS's consolidated financial statements in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions in certain circumstances that
affect


                                      -16-
<PAGE>

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

      Discontinued Operations:

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

      2)    After reviewing the financial results of the Entertainment segment,
            the Company decided in December 2005 to cease operations. As a
            result of this decision, as of December 31, 2007 and 2006, the
            Company accrued $8,530 and $10,125, respectively, for future rent
            regarding its Entertainment locations. The amounts were accrued
            according to claims the landlord prosecuted against the Company, and
            which are under litigation.

      Pursuant to Statement of Financial Accounting Standard ("FAS") No.144 of
the Financial Accounting Standard Board of the United States (the "FASB"),
"Accounting for the Impairment or Disposal of Long Lived Assets" in a case of
discontinued operations there has to be a separation in the Financial Statements
between continuing operations and the discontinued operations - see note 2(u) in
the financial statements.

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

      Goodwill

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

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

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

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

      Functional and reporting currency

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

      Revenue recognition

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

      Impairment in value of long-lived assets

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


                                      -17-
<PAGE>

the carrying amount of such assets, an impairment loss would be recognized, and
the assets would be written down to their estimated fair values.

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

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

      Contract with the TSA

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

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

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

      Labor Department Issue

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

      Legal Proceedings

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

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

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

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


                                      -18-
<PAGE>

motion for reconsideration was filed by the defendant and denied. The trial for
this action has been held and the court has decided against the Company. The
Company appealed the decision. In May 2008 the U.S. Court of Appeals for the
Federal Circuit has affirmed the lower court's ruling against the Company.

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

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

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

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

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

      Huntleigh intends to vigorously challenge the TSA's claim which it asserts
is devoid of any factual or legal merit. The TSA's filing comes on the heels of
a recent decision by ODRA granting Huntleigh's motion for partial summary
judgment against the TSA. ODRA has granted Huntleigh's motion for partial
summary judgment on Huntleigh's claim that the TSA breached the contract by
failing to give appropriate notice for transitioning airport locations. A
separate hearing will be held to determine the amount of damages due to
Huntleigh on this claim. With regards to the claim for the $59.2 million
overpayment, Huntleigh has filed a motion to dismiss the action which has been
denied.

      In 2005 the Company's subsidiary ICTS USA, Inc. filed a refund claim with
the Internal Revenue Service ("IRS") in an amount in excess of $2.4 million
which was to be reflected on the December 31, 2005 year end financial statements
as a receivable. The refund had not been received by the Company. The Company
made a demand to the IRS for the refund. Thereafter, by letter dated August 15,
2006, the Company was advised that a criminal investigation by the United States
Department of Justice, Tax Division is ongoing by a grand jury regarding
possible criminal tax violations by the subsidiary for the tax years 2002 and
2003 regarding certain royalty payment made to the Company. In January 2008, the
Company was advised that the current investigation was withdrawn, and the
Company received the $2.5 million refund and $373 of interest.

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

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


                                      -19-
<PAGE>

Selected Financial Data Statement of Operations
         The following table summarizes certain statement of operations data for
ICTS for the years ended December 31, 2007, 2006, 2005, 2004, and 2003:

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

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

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

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

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


                                      -20-
<PAGE>

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

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

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

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

      Revenues. Revenues for the year ended December 31, 2007 were $64,780
(2006: $60,791), consisted of $46.7 million (2006: $46.8 million) from U.S.
operations, $7.6 million (2006: $7.2 million) from operations in the
Netherlands, $4.8 million (2006: $3.4 million) from operations in France and
$5.7 million (2006: $3.3 million) from other operations.

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

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

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

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

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

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

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

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

      Financial Expenses. Financial expenses-net were $3,334 (compared to $714
in 2006). The Financial expenses included in 2007 an expense of $2,179 estimated
accrued interest regarding possible tax exposure in the U.S. for previous


                                      -21-
<PAGE>

years. Interest expenses to related party totaled $285 in 2007 compared to $88
in 2006. The interest is calculated according to the loan terms - Libor plus
1.5%. The outstanding loan as of December 31, 2007 was $6,528 compared to $2,652
in 2006.

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

      Other Income (Expenses), Net. Other income for the year ended December 31,
2007 totaled $(246) compared to $1,241 in 2006. Gain from sale of investments
totaled $349 in 2007 compared to $576 in 2006. During 2007 the Company has fully
impaired its investment in Plan Graphics which totaled $600. In 2006 the Company
recognized a profit of $665 regarding deposits that were fully accrued in the
past related to the Bilu investment and were paid back to the Company.

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

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

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

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

      During 2006 the Company expensed a receivable from the IRS of $2.5 million
following a criminal investigation of the IRS against the Company. ICTS filed a
complaint against the IRS in the U.S. District Court and the complaint was
dismissed. In the beginning of 2008 the criminal investigation was removed and
the refund was paid to the Company with interest of $373.

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

      Net Loss. As a result of the foregoing, ICTS's losses amounted $2.6
million for the year ended December 31, 2007, as compared to $14.1 million loss
for the year ended December 31, 2006. As for geographical segments, see note 19
in the financial statement.

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

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

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

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

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

      Gross profit for the year ended December 31, 2006 was $5.5 million, 9.1%,
as a percentage of revenue (2005: $4.0 million, 6.9% as a percentage of
revenue). The increase in gross profit as a percentage of revenues is primarily
attributable


                                      -22-
<PAGE>

to the fact that the gross profit for the year 2006 is influenced from new
activities in Europe with higher profitability, improving and reducing
operational expenses and termination of unprofitable contracts in the USA.

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

      The amortization expense increased of $423 relating to accrued
amortization of Procheck's intangible assets and their life term due to the high
competition in the security market in the Netherlands and the fact the contract
with Schiphol will be over on 2008 and the renewal is uncertain.

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

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

      Other Income (Expense), Net. Other income for the year ended December 31,
2006 was $1,241 compared to $147 for the year ended December 31, 2005. Other
income in 2006 increased because of gains from sales of investments totaling an
amount of $576. Guarantees provided to Bilu in the past against cash deposits
were fully accrued in previous years. During 2007, $665 of those guarantees were
cancelled and paid back to the Company and are included in other income.

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

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

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

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

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

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

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

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

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

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

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


                                      -23-
<PAGE>

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

      Gross profit for the year ended December 31, 2005 was $4 million, 7% as a
percentage of revenue (2004: $5.2 million, 9% as a percentage of revenue). The
decrease in gross profit as a percentage of revenues is primarily attributable
to the fact that the gross profit for the year 2005 included expenses of $1.1
million regarding the new activities of operations in the aviation field by
I-SEC and its subsidiaries, mainly establishing costs.

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

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

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

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

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

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

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

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

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

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

      Liquidity and Capital Resources

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

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

      ICTS's principal cash requirement for its operations is the payment of
wages. Working capital is financed primarily by cash from operating activities,
and by short-term and long-term borrowings. As of December 31, 2007, we had cash
and cash equivalents of $2.1 million as compared to $1.7 million on December 31,
2006, and short-term restricted cash of $1.8 million as compared to $0.7 million
on December 31, 2006.

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


                                      -24-
<PAGE>

      During 2007 and 2006, the Company received loans from a related party
which amount to $6.5 and $2.7, respectively, which were used to cover part of
the Company's obligations.

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

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

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

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

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

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

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

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


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


                                      -25-
<PAGE>

Company estimates that if the TSA will prevail in all of its contentions, and
none of the Company's claims will be recognized, then there may be a material
adverse effect on ICTS's financial condition.

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

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

<TABLE>
<CAPTION>
Contractual Obligations                         Payments due by Period (in thousands)
-------------------------------           ------------------------------------------------
                                                      Less        1-3      4-5   more than
                                            Total  than 1 year   years    years   5 years
                                            -----  -----------   -----    -----   -------
<S>                                         <C>           <C>    <C>       <C>      <C>
Long-term debt                              3,276         126    3,150
Accrued severance pay                          84                                      84
Operating lease obligations (1)             2,432         697    1,657       78
Loan from related party                     6,528         884    5,644
Employment contracts                        1,082         541      541
Fees and interest regarding Credit Line       825         825
                                           ------      ------   ------   ------    ------
                                           14,227       3,073   10,992       78        84
</TABLE>

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

      (1) The Company leases premises under long-term operating leases, in most
cases with renewal options. Lease expenses from continuing operations, for the
years ended December 31, 2007, 2006 and 2005 were $1,191, $1,217 and $849,
respectively.

      ICTS's guarantees regarding Bilu

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

      Off- balance sheet arrangements

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

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

      Trend information

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


                                      -26-
<PAGE>

Item 6. Directors, Senior Management and Employees

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

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

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

      Eytan Barak is a CPA (Isr). From the year 2001 to the present, Mr. Barak
is a partner in Dovrat-Barak Investment in High-Tech Companies Ltd., a company
which arranges financial resources and management assistance to start-up
companies. He is, and has been since the year 2003 to the present, a member of
the Board of Directors of a public company owned by a Israeli Bank; a Provident
Fund Company managed by "Bank Otsar Ha-Hayal" a subsidiary of Bank Hapoalim,
where he is acting as the chairman of the investment committee and member of the
audit committee; and from the year 2000 to the year 2003 a member of the Board
of Directors of seven Provident Companies managed by First International Bank of
Israel, where he was acting chairman of the audit committee and member of the
investment committee. He is currently, and has been since 2004, a member of the
board of directors and chairman of the finance committee of two companies owned
by the Tel-Aviv Municipality. In addition, he is currently and a member of the
board of directors and a member of the audit committee since the beginning of
the year 2006 in Lumenis Ltd., a public company that was listed in Nasdaq. He is
since the year 2000 to the present a member of the executive board and a member
of the finance committee of the Olympic Committee of Israel. He is the chairman
of the board of "OTZMA," the Israel Center of Sport Clubs. Since 2006, he is a
member of the Board of Directors of Surface Tech Ltd.

      Elie Housman has served as Chairman of Inksure Technologies, Inc. since
February 2002. Mr. Housman was a principal at Charterhouse Group International,
a privately held merchant bank, from 1989 until June 2001. At Charterhouse, Mr.
Housman was involved in the acquisition of a number of companies with total
sales of several hundred million dollars. Mr. Housman was the Chairman of Novo
Plc. in London, a leading company in the broadcast storage and services
industry. He is also a director of EUCI Career Colleges, Incorporated, which is
listed on the NASDAQ Small Cap Market and the Boston Stock Exchange and Top
Image System, Ltd. At present, Mr. Housman is a director of a number of
privately held companies in the United States. He became a member of the
Supervisory Board of ICTS in 2002.

      Gordon Hausmann is the senior partner of his own law firm which he founded
in London 25 years ago. He specializes in business finance and banking law. He
holds office as a Board Member of the UK subsidiaries of various quoted
companies, Company Secretary of Superstar Holidays Ltd., a subsidiary of El Al
Airlines Ltd., Director of Dominion Trust Co. (UK) Ltd., associated with a
private Swiss banking group, and a Governor of the Hebrew University.

      David W. Sass for the past 47 years has been a practicing attorney in New
York City and is currently a senior partner in the law firm of McLaughlin &
Stern, LLP. He has been a director of ICTS since 2002. Mr. Sass became a
director of Inksure Technologies, Inc., a company which develops, markets and
sells customized authentication systems designed to enhance the security of
documents and branded products and to meet the growing demand for protection
from counterfeiting and diversion. He is also a director of several privately
held corporations. He is an Honorary Trustee of Ithaca College.

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


                                      -27-
<PAGE>

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

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

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

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

      Compensation

                           Summary Compensation Table

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

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
                                                                              Nonqualified
Name and                                                      Non-Equity        Deferred       Number of    Number
Principal                                     All Other     Incentive Plan    Compensation      Option     of Stock
Position        Year     Salary    Bonus     Compensation    Compensation       Earnings        Awards      Awards     Total
                           $         $            $                $                $                                   $
-----------------------------------------------------------------------------------------------------------------------------
<S>             <C>       <C>       <C>           <C>          <C>                <C>           <C>                    <C>
Avraham Dan,    2007      180                     60                                                                   240
Managing
Director        2006      180        60           60                                            45,000                 300

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

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

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


                                      -28-
<PAGE>

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

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

      The following table sets forth information concerning the aggregate
compensation paid or accrued on behalf of all of our directors and executive
officers as a group for the year ended December 31, 2007.

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

      Board practices

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

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

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

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

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

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

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

      Employees

The number of employees in Europe is approximately 750.

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

      Share ownership

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


                                      -29-
<PAGE>

      Options to Purchase Securities.

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

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

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

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

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

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

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

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

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

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


                                      -30-
<PAGE>

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

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

      1. Menachem Atzmon (Chairman of the Board) - 550,000 options of which
250,000 shall be immediately vested and 300,000 options to be vested equally
over the next three years. With respect to the Options for 200,000 shares they
are granted in lieu of a current salary for Mr. Atzmon. Options are exercisable
at $1.35 per share representing the fair market value on the date of grant.

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

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

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

      5. Udi Bechor (Key Employee) - 45,000 options to be vested equally in the
next three years. Options are exercisable at $1.35 per share representing the
fair market value on the date of grant. Mr. Bechor left the Company in 2007 and
can no longer exercise his options.

      6. Oded Shoam (Key Employee) - 50,000 options to be vested equally in the
next three years. Options are exercisable at $1.35 per share representing the
fair market value on the date of grant.

      7. (Directors) - 30,000 options were granted to each of the Directors,
namely, Elie Housman, Philip Getter, Lynda Davey, M. Albert Nissim and David W.
Sass. The Options shall be immediately vested as to 10,000 shares and shall vest
10,000 shares on each anniversary in the event such person is a Director of the
Company at that time. The options are exercisable at $1.35 per share
representing the fair market value on the date of grant. The options of Lynda
Davey expired in 2007. Ms. Davey left the Company in 2007 and can no longer
exercise her options.

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

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

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

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

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

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

      5. Udi Bechor (Key Employee) - 35,000 options to be vested equally over
three years. Options are exercisable at $1.00 per share representing the fair
market value on the date of grant. Mr. Bechor left the Company in 2007 and can
no longer exercise his options.

      6. Oded Shoam (Key Employee) - 35,000 options to be vested equally over
three years. Options are exercisable at $1.00 per share representing the fair
market value on the date of grant.


                                      -31-
<PAGE>

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

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

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

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

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

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

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

      A summary of the Options granted is as follows:

      As of December 31, 2007 there were outstanding options to purchase
1,723,000 shares, out of 2,100,000 that were approved and issued. All the
options were granted to directors, executive officers and employees of the
Company as a group at exercise prices ranging from $1.00 to $1.35 per share
under the plans. These options vest over various terms, ranging from immediately
to five years and no later than November 2011. Options available for grant under
the plans are 377,000. The plans expire by their terms at various dates to 2015.

      All current executive officers (Managing Directors) (2 persons) as a
group: 210,000 Options

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

      All non-executive officers and other (8 persons) as a group: 283,000
Options

      U.S. Federal Income Tax Consequences

      The rules governing the U.S. federal tax treatment of stock options,
restricted stock and shares acquired upon the exercise of stock options are
quite technical. Therefore, the description of U.S. federal income tax
consequences set forth below is necessarily general in nature and does not
purport to be complete. Moreover, the statutory provisions are subject to
change, as are their interpretations, and their application may vary in
individual circumstances. In particular, the "American Jobs Creation Act of
2004" imposed new rules concerning the taxation of various deferred compensation
arrangements. It is not clear whether, and to what extent, these new rules apply
to awards under the Plan. Although the Company does not believe that awards
under the Plan are affected by the new rules, there can be no assurance to that
effect until adequate guidance is forthcoming from the U.S. Treasury Department.
Finally, the tax consequences under applicable state, local and foreign income
tax laws may not be the same as under the U.S. federal income tax laws.

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

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


                                      -32-
<PAGE>

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

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

      RESTRICTED STOCK. A participant granted shares of restricted stock under
the Plan is not required to include the value of such shares in ordinary income
until the first time such participant's rights in the shares are transferable or
are not subject to substantial risk of forfeiture, whichever occurs earlier,
unless such participant timely files an election under Section 83(b) of the
Internal Revenue Code to be taxed on the receipt of the shares. In either case,
the amount of such income will be equal to the excess of the fair market value
of the stock at the time the income is recognized over the amount (if any) paid
for the stock. The service recipient will ordinarily be entitled to a deduction,
in the amount of the ordinary income recognized by the participant, for the
service recipient's taxable year in which the participant recognizes such
income, provided that the amount constitutes reasonable compensation for
services that would result in a deduction for U.S. federal income tax purposes
and that certain federal income tax withholding requirements are satisfied.

Item 7. Major Shareholders and Related Party Transactions

      Major Shareholders.

      The following table sets forth certain information regarding ownership of
the Company's Common Shares as of June 2, 2008 (including options exercisable
within 60 days from June 2, 2008) with respect to:

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

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

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

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
                                                         Percent of
                                                     Amount Beneficially    Common Shares
Name of Five Percent Shareholders                         Owned (a)        Outstanding (b)
-----------------------------------------------------------------------------------------------
<S>                                                      <C>                  <C>
Atzmon Family Trust (b) (1)(2)                            4,497,226            60.95%
-----------------------------------------------------------------------------------------------
Nicholas P. Monteban, Xalladio Holding B.V. and
Galladio Capital Management B.V.                           688,000             10.54%
-----------------------------------------------------------------------------------------------
Everest Special Situations Fund
 & Affiliates (c)                                            703,772           10.78%
-----------------------------------------------------------------------------------------------
All officers and directors as a group including
the Atzmon Family Trust
(12 persons)                                              5,167,559            64.22%
-----------------------------------------------------------------------------------------------
</TABLE>

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

      (b) As to each shareholder, the percentage is calculated using the amount
beneficially owned by such shareholder (as determined in accordance with (a)
above) divided by the number of total outstanding common shares and the shares
issuable pursuant to the exercise of options exercisable within 60 days from the
date of the grant, if any held by such shareholder. Common shares subject to
options that are immediately exercisable or exercisable within 60 days of the
date of


                                      -33-
<PAGE>

the grant are deemed outstanding for computing the ownership percentage of the
shareholder holding such options, but are not deemed outstanding for computing
the ownership of any other shareholder.

      1. Harmony Ventures B.V., owns directly and indirectly approximately
60.95% of the issued and outstanding Common Shares. A family trust for the
benefit of the family of Mr. Menachem J. Atzmon (the Atzmon Family Trusts) owns
90% of Harmony Ventures B.V. and the Estate of Ezra Harel owns 10% of the
outstanding shares of Harmony Ventures BV and both may be deemed to control
Harmony Ventures B.V. Mr. Atzmon disclaims any beneficial interest in the Atzmon
Family Trust. Harmony Ventures B.V. and the Atzmon Family Trust may be able to
appoint all the directors of ICTS and control the affairs of ICTS.

      2. Of the 900,000 options to Menachem Atzmon (Chairman of the Board),
850,000 are currently exercisable with the remaining 50,000 vesting in 2008.
With respect to the Options, 400,000 shares were granted in lieu of a current
salary for Mr. Atzmon. Options are exercisable at $1.35 per share for 550,000
options and $1.00 per share for 350,000 options representing the fair market
value on the dates of grant.

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

      Related Party Transactions.

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

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

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

      During the period from April to September 2002, ICTS purchased 4,106,895
shares of Inksure Technologies Inc. ("Inksure"), which represents 34.3% of
Inksure's outstanding shares for a purchase price of $5,986. In October 2002,
Mr. Elie Housman, the Chairman of the Board of Inksure, was appointed to the
ICTS Supervisory Board. Mr. Sass, a member of the ICTS Supervisory Board and one
of our directors was elected to the Board of Inksure. Mr. Getter is also a
member of the Board of Inksure. Messrs. Housman, Getter and Sass, as well as an
entity associated with the Atzmon Family Trust, own shares and warrants in
Inksure. In addition, Messrs. Housman, Getter and Sass hold options to purchase
Inksure


                                      -34-
<PAGE>

securities. Inksure develops, markets and sells customized authentications
systems designed to enhance the security of documents and branded products and
to meet the growing demand for protection from counterfeiting and diversion. In
June 2003 and April 2004 the Company participated in Inksure's private
placements purchasing 174,542 and 544,118 additional shares, respectively at an
aggregate purchase price of $192 and $370, respectively. During December 2006
the Company sold 155,000 shares of Inksure at a price of $2.70 per share. In
March 2007 another 155,000 shares were sold for $1.90 per share. As of December
31, 2007 the Company owns approximately 28.1% of the outstanding shares of
Inksure. In 2006 the supervisory board authorized the management to sell its
investment in Inksure. The market value as of December 31, 2007 was
approximately $2.1 million. As of June 1, 2008 the market value of the
investment dropped to $1 million.

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

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

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

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

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

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

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

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

Item 8. Financial Information

      Consolidated Statements and Other Financial Information.

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

      Legal Proceedings

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


                                      -35-
<PAGE>

except 16 which involve property damage. The cases are in their early stages
with depositions having begun on September 12, 2006. A number of these cases
have been settled or are in the process of being settled or dismissed at no cost
to the Company.

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

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

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

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

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

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

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

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

      Huntleigh intends to vigorously challenge the TSA's claim which it asserts
is devoid of any factual or legal merit. The TSA's filing comes on the heels of
a recent decision by ODRA granting Huntleigh's motion for partial summary
judgment against the TSA. ODRA has granted Huntleigh's motion for partial
summary judgment on Huntleigh's claim that the TSA breached the contract by
failing to give appropriate notice for transitioning airport locations. A
separate hearing will be held to determine the amount of damages due to
Huntleigh on this claim. With regards to the claim for the $59.2 million
overpayment, Huntleigh has filed a motion to dismiss the action which has been
denied.

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


                                      -36-
<PAGE>

Company was advised that a criminal investigation by the United States
Department of Justice, Tax Division is ongoing by a grand jury regarding
possible criminal tax violations by the subsidiary for the tax years 2002 and
2003 regarding certain royalty payment made to the Company. In January, 2008,
the Company was advised that the current investigation was withdrawn, and the
Company received the refund of $2.4 million and interest of $373.

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

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

      Significant Changes

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

Item 9. The Offer and Listing

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

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

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

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

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

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


                                      -37-
<PAGE>

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

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

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

Item 10. Additional Information

      Memorandum and Articles of Association

      Introduction

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

      Shares

      The Company's authorized share capital is currently divided into
17,000,000 common shares, per value 0.45 Euro per common share. The common
shares may be in bearer or registered form. As of December 31, 2007 and 2006,
6,672,980 shares were issued. The Company holds 144,880 shares of treasury
stock.

      Dividends

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

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

      Voting Rights

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


                                      -38-
<PAGE>

      General Meetings of Shareholders

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

      Other general meetings of shareholders may be held as often as deemed
necessary by the Supervisory Board or the Management Board and must be held if
one or more shareholders or other persons entitled to attend the general meeting
of shareholders jointly representing at least 10% of the Company's issued share
capital make a written request to the Supervisory Board or the Management Board
that a meeting must be held and specifying in detail the business to be dealt
with at such meeting. Resolutions are adopted at general meetings of
shareholders by a majority of the vote's cast, except where a different
proportion of votes are required by the Articles of Association or Netherlands
law, in a meeting in which holders of at least one-third of the outstanding
common shares are represented. Each share carries one vote.

      Amendment of Articles of Association and Winding Up

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

      Approval of Annual Accounts

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

      Liquidation Rights

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

      Issues of Shares; Pre-emptive Rights

      The Company's Supervisory Board has the power to issue shares. The
shareholders have by an authorizing resolution provided such authority for a
five year period ending June 30, 2011. The number of shares the Supervisory
Board is authorized to issue must be set at the time of the resolution and may
not exceed 17,000,000 shares of the common shares then outstanding.

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

      Repurchase and Cancellation of Shares

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


                                      -39-
<PAGE>

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

      On December 6, 2006, shareholders authorized the Company, for a period of
18 months, to expend funds up to $6.5 million to repurchase common shares in the
open market at prices not to exceed $10 per share. As of June 30, 2007 the
Company has not re-purchased any shares.

      Material contracts

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

      Exchange controls

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

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

      Taxation

      United States Federal Income Tax Consequences

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

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

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

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

      Taxation of Dividends

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


                                      -40-
<PAGE>

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

      Foreign Tax Credits

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

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

      Taxation on Sale or Disposition of Shares

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

      Gift and Estate Tax

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

      Backup Withholding and Information Reporting

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


                                      -41-
<PAGE>

      Foreign Personal Holding Companies

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

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

      Taxes in the Netherlands

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

      Corporate Income Taxes

      ICTS is incorporated under the laws of the Netherlands and is therefore
subject to the tax laws of the Netherlands. In 2006 the standard corporate
income tax rate was 25.5% applicable for taxable profits up to (euro)23 and
29.6% for the excess. In 2007, these rates are 20% for profits up to (euro)25,
23.5% for profits between (euro)25 and (euro)60 and 25.5% for profits in excess
of (euro)60.

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

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

      Participation Exemption

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

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

(ii)  ICTS holds at least 5% of the nominal paid-in share capital of the
      subsidiary company; and

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

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

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

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

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

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


                                      -42-
<PAGE>

(1)   the subsidiary company can be considered as a low-taxed company; and

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

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

      Whether or not a shareholding in a subsidiary company qualifies as a
portfolio investment is determined based on an asset test at the level of the
subsidiary. A shareholding is qualified as a portfolio investment if the assets
of the subsidiary directly or indirectly consist predominantly (i.e. for more
than 50%) of "free portfolio investments", being portfolio assets that are not
used for business activities, including assets used for passive group financing
activities. The test must be applied from the perspective of the subsidiary
itself. The participation exemption will in principle be applicable by
definition in case 90% or more of the assets of the subsidiary company consist
of real estate.

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

      In case the participation exemption is not applicable, income derived from
a subsidiary company will be grossed up and taxed in the hands of ICTS against
ordinary corporate income tax rates, whilst a credit is allowed for underlying
taxes. Income derived from totally exempt portfolio participations will not be
grossed up, nor can a credit for underlying taxes be claimed.

      Costs related to the acquisition of qualifying participations are not
deductible. Other expenses relating to participations, regardless of whether
they are resident in the Netherlands or abroad, are in principle fully
deductible. As from 2007, costs related to the disposal of participations
falling within the scope of the participation exemption will also no longer be
deductible.

      Interest deduction limitations

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

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

      Loss compensation

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

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

      As of 2007, the term for carry-back of losses will be reduced from three
years to one year. Further, the term for carry-forward of losses will be limited
to nine years. Not yet compensated losses will vaporize after these terms have
lapsed. Based on transitional rules, losses sustained in book-years up to and
including 2002 may be set-off against profits of book-years up to and including
2011.


                                      -43-
<PAGE>

      Corporate Income Tax 2007 Act, other changes

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

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

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

      Further, as per January 1, 2007 restrictions will be introduced on the
depreciation period of goodwill and other business assets. The minimum
depreciation period for goodwill will be 10 years. The minimum depreciation
period for other business assets will be 5 years. It should still be possible to
value assets at lower going-concern value. Further, restrictions will be
introduced on the depreciation of real estate property. Shortly summarized,
depreciation of investment property will no longer be allowed in case the
book-value of the property falls below the official fair market value of the
property for tax purposes. The depreciation of real estate property used as part
of a trade or business will be allowed as long as the book-value of the real
estate property does not fall below 50% of the official fair market value of the
property for tax purposes.

      Dutch Tax Consequences of Holding Shares

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

      Dividend Withholding Tax in the Netherlands

      ICTS currently does not anticipate paying any dividends in the foreseeable
future. To the extent that dividends are distributed by ICTS, such dividends
ordinarily would be subject, under the tax laws of the Netherlands, to a
withholding tax at a rate of 25%. In 2007, the domestic Dutch dividend
withholding tax rate will be reduced to 15%. Dividends include distributions in
cash or in kind, deemed dividends and redemption and liquidation proceeds in
excess of, for Dutch tax purposes, recognized paid-in capital. In case there are
profits or in case profits can be anticipated, the repayment of ICTS' share
premium is in principle also subject to dividend withholding tax. Further, share
dividends are subject to Dutch dividend withholding tax, unless distributed out
of the paid-in share premium of ICTS as recognized for tax purposes in the
Netherlands.

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


                                      -44-
<PAGE>

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

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

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

      Income Tax and Corporate Income Tax in the Netherlands

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

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

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

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

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

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

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

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

      As of January 1, 2001, if certain conditions are met a non-resident
individual taxpayer can opt to be treated like a resident of the Netherlands for
tax purposes. This choice will allow the individual to benefit from deductions
and other tax benefits only available to residents of the Netherlands. Whether
or not such choice could be beneficial should be determined separately in each
individual case.


                                      -45-
<PAGE>

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

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

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

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

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

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

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

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

      Tax assessment in the U.S

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

      Documents on display

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

      Subsidiary Information

      Not applicable

Item 11. Quantitative and Qualitative Disclosure About Market Risk

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

      The Company is subject to changes in the primate rate based on the Federal
Reserve actions and general market interest fluctuations. The Company believes
that moderate interest rate increases will not have a material adverse impact on
the results of their operations, or financial position, in the foreseeable
future. An increase of 1% in the interest rate would have increased the
Company's interest expense for factor advances, bank loans, and other parties,
by approximately $150,000 in the year ended December 31, 2008.

      See financial statements, note 19.


                                      -46-
<PAGE>

Item 12. Description of Securities Other than Equity Securities

         Not applicable

                                     PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

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

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

         Not applicable

Item 15. Controls and Procedures.

         Management's report on internal control over financial reporting

(a) Our management, including our chief executive officer and chief financial
officer, has evaluated the effectiveness of our disclosure controls and
procedures as of December 31, 2007. Based on such review, our chief executive
officer and chief financial officer have concluded that we have in place
effective controls and procedures designed to ensure that information required
to be disclosed by us in the reports that we file or submit under the Securities
Exchange Act of 1934, as amended, is accumulated and communicated to our
management, including our principal executive and principal financial officers,
or persons performing similar functions, as appropriate to allow timely
decisions regarding required disclosure, and is recorded, processed, summarized
and reported, within the time periods specified in the SEC's rules and forms.


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

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

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

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

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

Our management including our chief executive officer and our principal financial
officer assessed the effectiveness of our internal control over financial
reporting as of December 31, 2007. In conducting its assessment of internal
control over financial reporting, management based its evaluation on the
framework in "Internal Control - Integrated Framework" issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO). Management has
based the assessment in a scope that includes the significant subsidiaries i.e.
ISEC International Security B.V, Huntleigh Corp USA, PI, I-SEC France.;
collectively "Subsidiaries". Our management including our chief executive
officer and our principal financial officer has concluded based on its
assessment, that our internal control over financial reporting was effective as
of December 31, 2007 based on these criteria.


                                      -47-
<PAGE>

This annual report does not include an attestation report of our registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management's report in this annual report.

(c) There were no changes in our internal control over financial reporting that
occurred during the year ended December 31, 2007 that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.

Item 16A. Audit Committee Financial Experts

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

Item 16B. Code of Ethics

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

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

      The following table sets forth the aggregate fees billed by our registered
independent auditors, Mahoney Cohen & Company, CPA, P.C. ("MC"), for services
rendered to us for the years ended December 31, 2007 and 2006. No services were
performed by, or fees incurred to, Goldstein, Golub and Kessler LLP ("GGK") in
connection with financial information services design and implementation
projects in 2007. The fees billed by MC, our independent registered public
accounting firm, for audit and other professional services during 2007 and 2006,
respectively, are summarized below. The audit committee has considered whether
the provision of these services is compatible with maintaining the principal
accountant's independence and has concluded that such services are compatible.
All fees were reviewed and pre-approved by the audit committee.

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

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

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

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

                                    PART III

Item 17. Financial Statements. See Item 18.

Item 18. Financial Statements

      Reports of Independent Registered Public Accounting Firms

      Consolidated Financial Statements

      Consolidated Balance Sheets

      Consolidated Statements of Operations and Comprehensive Operations
Consolidated Statements of Changes in Shareholders' Equity

      Consolidated Statements of Cash Flows

      Notes to Consolidated Financial Statements


                                      -48-
<PAGE>

Item 19. Exhibits

      1. Articles of Association of the Company.*

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

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

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

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

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

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


                                      -49-
<PAGE>

                                   SIGNATURES

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

                                      ICTS INTERNATIONAL, N.V.

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

Date: June 30, 2008


                                      -50-
<PAGE>

                             ICTS INTERNATIONAL N.V.

                               2007 ANNUAL REPORT

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page

Reports of independent registered public accounting firms                    F-2

   Consolidated financial statements:

   Consolidated Balance Sheets                                               F-4

   Consolidated Statements of Operations and Comprehensive Operations        F-6

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

   Consolidated Statements of Cash Flows                                     F-8

Notes to consolidated financial statements                                  F-10


                                      F-1
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

      We have audited the accompanying consolidated balance sheet of ICTS
International N.V. and Subsidiaries as of December 31, 2007 and 2006 and the
related consolidated statements of operations and comprehensive operations,
changes in shareholders' equity (deficit), and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

      We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company has
determined that it is not required to have, nor were we engaged to perform, an
audit of its internal control over financial reporting. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ICTS
International N.V. and Subsidiaries as of December 31, 2007 and 2006 and the
results of their operations, changes in shareholder equity (deficit) and their
cash flows for the years ended in conformity with accounting principles
generally accepted in the United States of America.

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

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

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

June 30, 2008


                                      F-2
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

                             To the Shareholders of
                             ICTS INTERNATIONAL N.V.

We have audited the accompanying consolidated statements of operations and
comprehensive operations, changes in shareholders' equity (deficiency) and cash
flows of ICTS International N.V. and subsidiaries ("the Company") for the year
ended December 31, 2005. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 2005 and the consolidated results of their
operations, the changes in their shareholders' equity (deficiency) and their
cash flows for the year then ended in conformity with United States generally
accepted accounting principles.

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

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

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


                                      F-3
<PAGE>

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

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

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

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

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


                                      F-4
<PAGE>

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

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

                                                              2007        2006
                                                              ----        ----

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

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

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

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


                                      F-5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                         Year ended December 31,
                                                                                         -----------------------

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

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

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

Loss per common share-basic                                                        $ (0.39)     $  (2.16)     $  (3.81)
                                                                                   =======      ========      ========
Loss per common share- diluted                                                     $ (0.39)     $  (2.16)     $  (3.81)
                                                                                   =======      ========      ========
</TABLE>

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


                                      F-6
<PAGE>

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

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

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

CHANGES DURING 2005:

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

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

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

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                                  ------------

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

<S>                                                                    <C>           <C>            <C>
Cumulative translation adjustments                                    $(7,012)       $(7,090)       $(7,194)
Cumulative unrealized gains on marketable securities                                    (499)          (100)
                                                                      -------        -------        -------
                                                                     *$(7,012)      *$(7,589)      *$(7,294)
                                                                      =======        =======        =======
</TABLE>

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


                                      F-7
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                   Year ended December 31,
                                                                                                   -----------------------

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

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

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


                                      F-8
<PAGE>

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

<TABLE>
<CAPTION>
                                                                   Year ended December 31,
                                                                   -----------------------

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

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

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

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


                                      F-9
<PAGE>

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

NOTE 1 - GENERAL

      a.    Operations

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

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

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

      b.    The Company's financial position

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

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

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

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

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


                                      F-10
<PAGE>

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

NOTE 1 - GENERAL (continued)

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

            As to other outstanding issues, see note 14.

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

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

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

      e.    Renewal of material contracts

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

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

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

      The significant accounting policies are as follows:

      a.    Functional currency

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


                                      F-11
<PAGE>

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

      b.    Use of estimates in the preparation of financial statements

            The preparation of financial statements in conformity with US GAAP
            requires management to make estimates and assumptions that affect
            the reported amounts of assets and liabilities and disclosure of
            contingent assets and liabilities at the dates of the financial
            statements and the reported amounts of revenues and expenses during
            the reported years. As applicable to these financial statements, the
            most significant estimates and assumptions relate to allowances,
            income taxes, contingencies, liabilities and valuation impairment of
            assets. Actual results could differ from those estimates.

      c.    Principles of consolidation

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

      d.    Cash equivalents

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

      e.    Concentration of cash risk

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

      f.    Marketable securities and other investments:

            1) Marketable securities:

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

            2) Other investments

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

      g.    Investments in associated companies

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


                                      F-12
<PAGE>

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

      h.    Property and equipment

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

                                                                        Years
                                                                        -----

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

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

      i.    Goodwill

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

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

      j.    Other assets and intangible assets

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

      k.    Impairment in value of long-lived assets

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

      l.    Treasury stock

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

      m.    Revenue recognition

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

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

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

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


                                      F-13
<PAGE>

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

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

      o.    Income taxes

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

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

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

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

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

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

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

      p.    Accounts receivable

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

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

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

      q.    Concentrations of credit risks - allowance for doubtful accounts

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


                                      F-14
<PAGE>

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

      r.    Advertising costs

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

      s.    Stock-based compensation

            1) Employee stock-based compensation

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

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

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

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

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

                                                           2006      2004
                                                           ----      ----

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

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

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


                                      F-15
<PAGE>

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

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

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

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

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

            2)    Non-employee stock based compensation

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

      t.    Comprehensive Income (Loss)

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

      u.    Costs Associated with Exit or Disposal Activities

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

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

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

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


                                      F-16
<PAGE>

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

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

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

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

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

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

<TABLE>
<CAPTION>
                                                                           Year ended December 31,
                                                                           -----------------------

                                                               2007                                      2006
                                                               ----                                      ----

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

<S>                                            <C>           <C>            <C>         <C>            <C>            <C>
Revenues
Cost of revenues
                                               ------        ------         ------      ------         -------        -------

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

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

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

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

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


                                      F-17
<PAGE>

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

<TABLE>
<CAPTION>
                                                       Year ended December 31,
                                                       -----------------------
                                                                2005
                                                                ----

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

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

</TABLE>
      During 2007 there was no income or expenses relating to the Leasing
      discontinued operations.

      v.    Recently issued accounting pronouncements

            FAS 157

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

            FAS 159

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

            EITF 07-3

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

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


                                      F-18
<PAGE>

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (continued)

            FAS 141R

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

            FAS 160

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

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

NOTE 3 - RESTRICTED CASH

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

                                            2007       2006
                                            ----       ----

      Restricted cash (a)                  $1,795

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

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

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


                                      F-19
<PAGE>

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

NOTE 4 - TRANSACTIONS REGARDING CERTAIN SUBSIDIARIES

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

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

NOTE 5 - INVESTMENTS IN ASSOCIATED COMPANIES

Composed and presented as follows:

<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                                           ------------

                                                                                         2007       2006
                                                                                         ----       ----

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

The investments are presented in the balance sheets as follows:

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

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

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

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

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

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


                                      F-20
<PAGE>

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

NOTE 5 - INVESTMENTS IN ASSOCIATED COMPANIES (continued)

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

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

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

            The investment in NAS was displayed by the Equity Method.

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

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

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

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

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

               Inksure:

               Balance sheet data:

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

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


                                      F-21
<PAGE>

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

NOTE 5 - INVESTMENTS IN ASSOCIATED COMPANIES (continued)

               Operating results data:

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

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

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

               Rainbow:

               Balance sheet data:

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

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

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

               Operating results data:

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

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

                                                            Unaudited
                                                            ---------

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

               NAS:

               Balance sheet data:

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

                                                             2007         2006
                                                             ----         ----

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


                                      F-22
<PAGE>

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

NOTE 5 - INVESTMENTS IN ASSOCIATED COMPANIES (continued)

               Operating results data:

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

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

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

NOTE 6 - OTHER RECEIVABLES AND INVESTMENTS

<TABLE>
<CAPTION>
                                                                              December 31,
                                                                              ------------

                                                                            2007       2006
                                                                            ----       ----

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

Gross unrealized losses                                                       -,-      $(497)
                                                                           ======      =====
</TABLE>

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

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

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


                                      F-23
<PAGE>

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

NOTE 7 - PROPERTY AND EQUIPMENT

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

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

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

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

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

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

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

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

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

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


                                      F-24
<PAGE>

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

NOTE 7 - PROPERTY AND EQUIPMENT (continued)

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

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

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

NOTE 8 - GOODWILL

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

NOTE 9 - OTHER ASSETS

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

<TABLE>
<CAPTION>
                                                     December 31, 2007                               December 31, 2006
                                                     -----------------                               -----------------

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

<S>                                         <C>              <C>             <C>            <C>              <C>             <C>
Customer relationship (1)                   $1,785           $1,732          $ 53           $1,785           $1,084          $701
Rent Deposits                                   97                             97              188                            188
                                            ------           ------          ----          -------           ------          ----
                                            $1,882           $1,732          $150          $ 1,973           $1,084          $889
                                            ======           ======          ====          =======           ======          ====
</TABLE>

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

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


                                      F-25
<PAGE>

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

NOTE 10 - SHORT-TERM BANK CREDIT

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

<TABLE>
<CAPTION>
                                                             Interest rates as of
                                                               December 31, 2007          December 31,
                                                             --------------------         ------------

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

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

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

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

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

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

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


                                      F-26
<PAGE>

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

NOTE 10 - SHORT-TERM BANK CREDIT (continued)

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

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

NOTE 11 - ACCRUED EXPENSES AND OTHER LIABILITIES

<TABLE>
<CAPTION>
                                                                                  December 31,
                                                                                  ------------

                                                                               2007         2006
                                                                               ----         ----

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

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

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

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


                                      F-27
<PAGE>

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

NOTE 12 - LONG-TERM LIABILITIES

a. Composition:

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

From continuing operations:
In dollars:

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

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

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

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

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

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

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


                                      F-28
<PAGE>

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

NOTE 13 - ACCRUED SEVERANCE PAY

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

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

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

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

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

NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES

      a.    Operating leases

            The Company leases premises under long-term operating leases, in
            most cases with renewal options. Lease expenses from continuing
            operations for the years ended December 31, 2007, 2006 and 2005 were
            $ 1,191, $1,217, and $849, respectively. During 2005 the Company
            accrued for future rent. Regarding its discontinued operations, see
            also note 12 (3).

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

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

      b.    Contingent liabilities

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

                  Based on the contracts with the airlines, the Company may be
                  indemnified by the airlines if the Company is found to have
                  followed the procedures specified by the Federal Aviation
                  Administration. However, if the Company is found to have
                  violated these screening regulations, it could be liable for
                  damages. Based on the Company's review, no evidence of
                  non-compliance has been identified with respect to the
                  services provided at Boston's Logan International Airport on
                  September 11, 2001.


                                      F-29
<PAGE>

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

NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (continued)

                  The Company maintains an aviation insurance policy, which may
                  provide limited coverage for liabilities that may be assessed
                  against the Company as a result of the events of September 11,
                  2001. The liability under these cases may, by statute, be
                  limited to the policy coverage. A number of personal injury
                  cases have been settled or are in the process of being settled
                  at no cost to the Company. Management is unable to estimate
                  the impact of the litigation or fines, as described above.
                  Accordingly, no provision in respect of these matters has been
                  made.

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

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

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

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

                  Huntleigh intends to vigorously challenge the TSA's claim
                  which it asserts is devoid of any factual or legal merit. The
                  TSA's filing comes on the heels of a recent decision by ODRA
                  granting Huntleigh's motion for partial summary judgment
                  against the TSA. ODRA has granted Huntleigh's motion for
                  partial summary judgment on Huntleigh's claim that the TSA
                  breached the contract by failing to give appropriate notice
                  for transitioning airport locations. A separate hearing will
                  be held to determine the amount of damages due to Huntleigh on
                  this claim. With regards to the claim for the $59.2 million
                  overpayment, Huntleigh has filed a motion to dismiss the
                  action which has been denied.

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


                                      F-30
<PAGE>

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

NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (continued)

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

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

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

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

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


                                      F-31
<PAGE>

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

NOTE 14 - COMMITMENTS AND CONTINGENT LIABILITIES (continued)

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

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

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

      c.    Restrictions on operations

            The Company was in dispute with Fraport A.G. International Airport
            Services Worldwide in relation to alleged unlawful use of the letter
            combination "ICTS" by the Company. Fraport initiated proceedings
            before the district court of Amsterdam. The principal amount claimed
            was (euro)57.7 million ($85 million as of December 31, 2007). This
            dispute has been settled during 2008 without any liability to the
            Company during 2008.

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

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

NOTE 15 - FINANCIAL INCOME (EXPENSES) - NET

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

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

From continuing operations:

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

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


                                      F-32
<PAGE>

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

NOTE 16 - OTHER INCOME (EXPENSES)

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

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

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

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

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

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

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

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

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

NOTE 17 - INCOME TAXES

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


                                      F-33
<PAGE>

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

NOTE 17 - INCOME TAXES (continued)

      b.    Deferred taxes:

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

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

                                                             2007          2006
                                                             ----          ----

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

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

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

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

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


                                      F-34
<PAGE>

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

NOTE 17 - INCOME TAXES (continued)

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

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

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

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

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

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

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

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


                                      F-35
<PAGE>

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

NOTE 17 - INCOME TAXES (continued)

Income taxes (expenses) benefits are shown as follows:

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

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

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

      f.    Carry forward tax losses

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

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

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

      1)    Tax assessment

            Under ongoing tax examination of the U.S subsidiaries of the
            Company, by the U.S tax authorities, through the years ended
            December 31, 2002 to 2004, the subsidiaries were required to provide
            information regarding their treatment of certain expenses. By letter
            dated August 15, 2006, the Company was advised that a criminal
            investigation by the United States Department of Justice, Tax
            Division was ongoing by a grand jury regarding possible criminal tax
            violations by the subsidiary for the tax years 2002 and 2003
            regarding certain royalty payment made to the Company. In 2008 the
            Company was advised that the criminal investigation was dismissed.
            However, the IRS continues with its audit for the years 2002-2004.

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

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


                                      F-36
<PAGE>

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

NOTE 18- FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

      1)    Fair market value of financial instruments

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

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

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

      b.    Risk management:

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

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

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

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

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

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

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

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

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


                                      F-37
<PAGE>

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

NOTE 18- FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued)

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

NOTE 19 - SEGMENT INFORMATION

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

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

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

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

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

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

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

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

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

                                                               2007       2006
                                                               ----       ----

            Long lives assets from continuing operations:

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

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


                                      F-38
<PAGE>

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

NOTE 20 - RELATED PARTIES - TRANSACTIONS AND BALANCES

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

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

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

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

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

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

      b.    Balances with related parties:

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

                                                                2007      2006
                                                                ----      ----

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

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

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

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


                                      F-39
<PAGE>

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

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

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

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

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

NOTE 21 - LOSSES PER SHARE

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

<TABLE>
<CAPTION>
                                                                      Year ended December 31,
                                                                      -----------------------

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

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

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

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

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

Weighted average shares of common stock outstanding         6,528,100       6,528,100       6,528,100
                                                            =========       =========       =========
</TABLE>

NOTE 22 - STOCK OPTIONS

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

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

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


                                      F-40
<PAGE>

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

NOTE 22 - STOCK OPTIONS (continued)

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

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

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

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

                                                          2007          2006
                                                          ----          ----

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

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

<TABLE>
<CAPTION>
                                                                   Year ended December 31,
                                                                   -----------------------

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

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

                                                         $                               $                               $
                                                         -                               -                               -

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

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

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

                     -----                               ----             -----             ----
                     1,723                               1.19             1,530             1.22
                     =====                               ====             =====             ====
</TABLE>


                                      F-41
<PAGE>

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

NOTE 23 - SUBSEQUENT EVENTS

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

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

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

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

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

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


                                      F-42
<PAGE>

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

                  Schedule - Valuation and Qualifying Accounts

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

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

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

------------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                      F-43