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, 2008

                                       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)

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

<PAGE>

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: 6,528,100
        ---------

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 has submitted  electronically  and
posted on its corporate Web site, if any, every  Interactive  Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter)  during the  preceding 12 months (or for such shorter  period that
the registrant was required to submit and post such files).

                                                           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 [_]


                                       2
<PAGE>

      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.


                                       3
<PAGE>

                                Table of Contents

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

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

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

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

Exhibit 13.1      Certification


                                       4
<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.

      Selected Financial Data

      Selected  data set forth below have been  derived  from ICTS  Consolidated
Financial  Statements which have been 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          2008        2007      2006      2005     2004
---------------------         -------     ------    ------    ------   ------
Cash and cash equivalents     $ 3,750     $2,095    $1,743    $5,927   $3,224
Current Assets                 16,571     15,771    17,444    24,962   23,529
Total Assets                   25,396     24,230    26,425    31,676   37,507
Current Liabilities            29,971     28,216    29,249    25,435   20,395
Shareholders Equity
    (Deficiency)              (22,965)   (20,610)  (19,002)   (5,148)  21,506
-----------------------------------------------------------------------------

Discontinued Operations
-----------------------
Total Assets                      --      $2,873      $130      $537  $17,455
Total Liabilities              9,174      10,619    13,441    11,424    8,786
-----------------------------------------------------------------------------


                                       5
<PAGE>

Selected Financial Data Statement of Operations

      The following table  summarizes  certain  statement of operations data for
ICTS for the years ended December 31, 2008, 2007, 2006, 2005, and 2004:

<TABLE>
<CAPTION>
                                                                  (U.S Dollars in thousands except per share data)
                                                                               Year ended December 31,
                                                            -------------------------------------------------------------
                                                               2008         2007         2006         2005         2004
                                                            ---------    ---------    ---------    ---------    ---------
<S>                                                           <C>          <C>          <C>          <C>          <C>
Revenues                                                      $98,809      $64,780      $60,791      $57,713      $57,993
Cost of revenues                                               85,107       52,397       55,284       53,721       52,825
                                                            ---------    ---------    ---------    ---------    ---------
GROSS PROFIT                                                   13,702       12,383        5,507        3,992        5,168
Selling, General and administrative expenses                   15,341       13,338       14,878       11,690       12,201
                                                            ---------    ---------    ---------    ---------    ---------
OPERATING LOSS                                                 (1,639)        (955)      (9,371)      (7,698)      (7,033)
Other income (expense), net                                      (856)      (3,580)         527         (761)      (3,359)
                                                            ---------    ---------    ---------    ---------    ---------
LOSS BEFORE EQUITY LOSS FROM INVESTMENTS IN
AFFILIATES AND INCOME TAXES                                    (2,495)      (4,535)      (8,844)      (8,459)     (10,392)

Equity loss from investments in affiliates                                  (2,479)        (132)        (486)      (1,625)

Income taxes benefits (expenses)                                 (402)        (966)        (846)      (2,387)       1,529
                                                            ---------    ---------    ---------    ---------    ---------
LOSS FROM CONTINUING OPERATIONS                                (2,897)      (7,980)      (9,822)     (11,332)     (10,488)

Income (loss) from discontinued operations,
  net of income tax benefit (expense) of
  $(2), $2,470, $(2,476), $2,525 and
  $1,655 in 2008, 2007, 2006, 2005 and
  2004, respectively                                              928        5,422       (4,248)     (13,548)     (15,474)
                                                            ---------    ---------    ---------    ---------    ---------

NET LOSS                                                       (1,969)      (2,558)     (14,070)     (24,880)     (25,962)
                                                            =========    =========    =========    =========    =========

NET INCOME (LOSS) PER SHARE, BASIC AND DILUTED:
Continuing Operations                                          $(0.44)      $(1.22)      $(1.51)      $(1.74)      $(1.61)
Discontinuing Operations                                         0.14         0.83        (0.65)       (2.07)       (2.37)
                                                            =========    =========    =========    =========    =========
Net Loss per share                                             $(0.30)      $(0.39)      $(2.16)      $(3.81)      $(3.98)
                                                            =========    =========    =========    =========    =========
Weighted average number of shares outstanding               6,528,100    6,528,100    6,528,100    6,528,100    6,524,250
                                                            =========    =========    =========    =========    =========

COMPREHENSIVE LOSS
Net loss                                                       (1,969)      (2,558)     (14,070)     (24,880)     (25,962)
Translation adjustment                                           (487)          80         (399)      (1,560)       1,043
Unrealized gain (loss) on marketable
  equity securities                                                            497          104         (214)        (616)
                                                            ---------    ---------    ---------    ---------    ---------
                                                                 (487)         577         (295)      (1,774)         427
                                                            ---------    ---------    ---------    ---------    ---------
Comprehensive loss                                            $(2,456)     $(1,981)    $(14,365)    $(26,654)    $(25,535)
                                                            =========    =========    =========    =========    =========
</TABLE>

      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 United  States  Transportation  Security  Administration  ("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.


                                       6
<PAGE>

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

      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 at that time 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  Corporation
Inc. ("Huntleigh"), 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 approximately  $59.2 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.

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

      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. The outcome of
these 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.

      Losses in recent years

      We incurred net losses of approximately $2.0, $2.6, $14.1, $24.9 and $26.0
million in 2008,  2007, 2006, 2005 and 2004  respectively.  We cannot assure you
that we can  achieve  profitability.  The losses  were  accompanied  by net cash
provided by (used in) operating activities of $3.9, $(3.6),  $(7.6),  $(5.2) and
$(1.2) million in 2008, 2007, 2006, 2005 and 2004, respectively, and at December
31, 2008 the  Company  had a working  capital  deficiency  of $15.3  million and
negative equity of $23.0 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.

      Auditors' going concern opinion

      In their  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


                                       7
<PAGE>

December 31, 2008,  the Company had a total loss of $2.0 million,  a net working
capital  deficiency  of $15.3  million  and  shareholders'  deficiency  of $23.0
million.

      Loans from 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  U.S.  subsidiary,  ICTS  USA,  Inc and  Subsidiaries,  has
undergone an examination by the IRS for the years ended December 31, 2004,  2003
& 2002. The IRS has proposed a number of adjustments that collectively result in
an assessed tax liability and penalties of more than  approximately $7.3 million
plus interest. Management is vigorously contesting the proposed adjustments, and
has filed a "Protest"  with the IRS.  This matter will be heard by the Appellate
Division  of the IRS,  at which  time  management  will have an  opportunity  to
present its  position on the various  issues  raised at the  examination  level.
Management  has  provided  for  possible  tax  liabilities  resulting  from this
examination in its financial statements presented herein.

      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 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.

      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  and  financial  condition.  There is a material  contract  that will
expire in 2010 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 adverse effect 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 have suffered because
of the economic slowdown which affected our situation as service  provider.  The


                                       8
<PAGE>

airline industry continues to encounter financial difficulties and this may have
a material adverse impact on our business.

      Development of new Technology

      As part of our  technology  business  strategy,  we develop  technological
solutions  and systems for the  aviation  security  industry,  develop  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.

      We compete in a highly  competitive  industry and our  competitors  may be
more successful in developing new technology and achieving market  acceptance of
their products.

      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.

      Governmental regulation

      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 the USA. 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 loss of  revenues  due to the
business taking was approximately $5 million.

      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


                                       9
<PAGE>

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.

      Licenses for operations

      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 defendant in several significant lawsuits,  the loss of
which could have a material adverse effect on the Company.

      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.

      Limitations in price share

      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.

      Main shareholders activities

      As of December 31, 2008, there are three main shareholders in the Company,
which own  together  approximately  78.2% of our shares  (excluding  options and
conversion rights). 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 (excluding options and conversion
rights). As a result of such 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.


                                       10
<PAGE>

      Dividends

      We cannot  assure you that any  dividends  will be declared or paid on our
common stock.

      Laws in 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  17,  2008,  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.


                                       11
<PAGE>

      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  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 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  Biesbosch  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


                                       12
<PAGE>

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%  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 is not able 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.  certain  carriers.  Following  these
contracts I-SEC established new subsidiaries throughout Europe and the Far East,
in the Netherlands,  France, England,  Spain, Hungary,  Germany, Japan and other
countries.

      Leasing Business

      In the second quarter of 2002, the Company purchased  equipment and leased
it back to the sellers, an affiliated private Dutch company.

      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 in 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") certain
assets  owned  by ITA  and  used  by it in the  development,  establishment  and


                                       13
<PAGE>

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.

      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
business.  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.

      Business Overview

      General

      ICTS specializes 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 through its subsidiary  Huntleigh  engages  primarily in non-security
related activities in the USA.

      ICTS,  through  I-SEC  International  Security  B.V.  ("I-SEC"),  supplies
aviation security services at airports in Europe and the Far East.

      In addition,  ICTS  develops  technological  systems and solutions for the
following  markets:  aviation  and non - aviation  security,  banking  and other
markets.

      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,  supplies aviation security at airports, airlines and
governments  in Europe and the far east.  During 2008,  I-SEC was  contracted to
provide and extend the  security  services  it  provides to Schiphol  Airport in
Amsterdam ("Schiphol"). The contract is for a period of five years.

      ICTS NAS, a partnership in which ICTS held 50% interest,  had one contract
serving Schiphol which expired in February 2008. ICTS NAS is being liquidated.


                                       14
<PAGE>

      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  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 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  subsidiaries  and the  provision of services at
international airports in London, UK; Paris, France; Barcelona, Spain; Budapest,
Hungary;  Edinburgh,  Scotland,  Narita,  Japan and others. 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 13 locations.

      Consulting, Auditing and Training

      ICTS,  through  I-SEC,   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.  The Company trains airline  employees to
screen  passengers  and to perform other  security  measures  through  extensive
courses and written training manuals.

      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 30 airports in 23 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     Cargo Security Screening - for some international and domestic
                  carriers.

            o     Aircraft  Search - Search  of the  entire  aircraft  to detect
                  dangerous objects.


                                       15
<PAGE>

      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, vendor behind
counters 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.

      Maintenance

      Huntleigh provides workers that maintain equipment in airports.

      Queue Monitors

      Huntleigh   provide  queue  monitors   assisting   passengers  before  the
checkpoint.

      Aircraft Cleaning

      Huntleigh  provides  employees  who  perform  interior  aircraft  cleaning
services.

      Janitorial

      Huntleigh  provides to airline airport  offices,  airline  terminal areas,
airline gates, etc. cleaning (janitorial) services.

      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.

      Shuttle Service

      Huntleigh  shuttles  airline  crews from their hotels to the aircraft back
and forth in airports.

      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


                                       16
<PAGE>

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.

      Baggage Handling Services

      Huntleigh provides employees who move passengers'  baggage from the check-
in counter to screening  machines and/or vice versa, as well as moving oversized
baggage from check-in to appropriate bag belts.

      Technological Systems and Solutions

      APS

      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.

      I-BOX

      I-BOX, a unique technological platform developed by the Company, comprises
one of the main  contributors  to  operational  efficiency of the Company and is
being used as part of our aviation  security  systems.  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.

      Travel Documents Check

      Travel  DocCheck (TDC) is the travel  industry's most reliable and easy to
operate system for automated clearing of travel document compliance. 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.


                                       17
<PAGE>

      Identity Document Authentication and Management System (FDI)

      FDI is designed to speed-up  client  authentication  and  capture/retrieve
document data and images. FDI is a fully automated,  easy to operate,  front-end
client enrollment system.

Key features:

      o     Full page document scanning (automated or push-button)

      o     Hi-resolution document imaging

      o     Photograph extraction

      o     Full content extraction

      o     Multi-layer identity  authentication  (performance enabled by client
            hardware capabilities)

      o     Simple indications

      o     Ability to investigate  alerts,  carry out manual  double-checks and
            investigate template and watch-list libraries

      FDI works with a range of operating system environments and terminals with
minimal system requirements.

      The system can work with a wide range of document  scanners  (from  simple
scanners to full featured 3-illumination enterprise scanners) and links with any
type of biometric input device.

      FDI-equipped  terminals can work stand-alone or in real-time  network with
enterprise systems.

      Electronic Identity Document Authentication and Management System ("E-ID")

      E-ID is a fully  automated  system for  authentication  and  enrollment of
persons carrying electronic identity documents (ePassports, e-IDs/EMV cards).

      E-ID  is   designed  to  speed-up   full  scope   client   authentication,
capture/retrieve  printed,  embedded and electronic  data, and capture  document
images.

Key features:

      o     Full capture of electronic chip data (in compliance with country and
            industry regulations)

      o     Handling of all common electronic security standards

      o     Full page document scanning (automated or push-button)

      o     Hi-res document imaging

      o     Photograph extraction

      o     Full content extraction

      o     Multi-layer identity  authentication  (performance enabled by client
            hardware capabilities)

      o     Simple indications


                                       18
<PAGE>

      o     Ability to investigate  alerts,  carry out manual  double-checks and
            investigate template and watch-list libraries

      E-ID works with a range of operating  system  environments  and  terminals
with minimal system requirements.

      The  system  can work  with a wide  range  of  document  scanners  (simple
scanners,  full  featured  3-illumination  enterprise  scanners),   self-service
kiosks,  with internal or external  biometric  chip readers,  and links with any
type of biometric input device.

      E-ID equipped  terminals can work stand-alone or in real-time network with
enterprise systems.

      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 the Company.

      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. It is a fully automated banking check authentication  system.  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  experience  in  detection of  suspicious  signs and in advanced
document checks.

      Marketing of Security Systems and Technology

      ICTS market its  technologies  by  establishing  projects  with  Airports,
airlines, banks and other existing and potential customers.

      Main Customers

      In 2008 ICTS had two main clients,  each one  constituting  10% or more of
the Company's consolidated revenues,  which accounted together for 55% of ICTS's
revenues.

      Sales

      Sales in the U.S

      ICTS revenue in the USA during the years 2008, 2007 and 2006 totaled $40.4
million (41% of total revenue),  $46.7 (72% of total  revenue) and $46.8 million
(77% of total revenue) respectively.


                                       19
<PAGE>

      Sales in Europe

      ICTS revenue in Europe during the years 2008,  2007 and 2006 totaled $58.0
million (59% of total revenue),  $17.3 (27% of total  revenue) and $13.7 million
(23% of total revenue) respectively

      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,  is
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.

      Organizational Structure

      The following are the significant  subsidiaries of ICTS as of December 31,
2008:

            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%).


                                       20
<PAGE>

      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, 2008,  2007 and 2006 were $1.5,  $1.2 and $1.2 millions
respectively.

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

                  Year Ended
              December 31, 2008
              -----------------
                    2009                         $1,213
                    2010                            822
                    2011                            453
                    2012                            134
                    2013                              5
                                                 ------
                                                 $2,627
                                                 ======

      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,  2008 and  2007  totaled  $7.3 and $8.5  million,
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


                                       21
<PAGE>

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 specializes in the provision of aviation  security  services.  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 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.

      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
engaged  in  the  U.S.  primarily  in  non-security  related  activities.  These
activities   consist  of  non-security   aviation   security  services  and  the
development of technological services.

      In February 2005, as the non-competition  restrictions  expired in Europe,
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 consolidated  financial  statements have been prepared with accordance
with accounting  principles  generally  accepted in the United States of America
("U.S. GAAP").

      Please  refer  to  Note  2 of  ICTS's  consolidated  financial  statements
included  in this  Annual  Report for the year  ended  December  31,  2008 for a
summary of ICTS's significant accounting policies.

      Use of Estimates

      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
revenue  and  expenses  during  the  reporting  periods.  The  most  significant
estimates and  assumptions  relate to the (a)  calculation  of the allowance for
doubtful accounts, (b) recognition of contingent liabilities, (c) calculation of
income taxes,  (d)  impairment  evaluation of marketable  equity  securities and
equity method  investments and (e) calculation of stock-based  compensation  for
stock option grants. Actual results could differ from those estimates.

      Discontinued Operations:

      1)    In  December  2005,  the  Company  sold  its  lease   equipment  and
            terminated its business in the Lease segment.

      2)    After reviewing the financial results of the Entertainment  segment,
            the Company decided in December 2005 to cease those operations. As


                                       22
<PAGE>

            a result of this  decision,  as of December  31, 2008 and 2007,  the
            Company accrued $7.3 and $8.5 million, 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 3 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.

      Functional and reporting currency

      The  accompanying  information and consolidated  financial  statements are
presented in United  States  dollars in accordance  with  Statement of Financial
Accounting Standards ("SFAS") No 52, "Foreign Currency Translation." The Company
has determined that the functional  currency of its foreign  subsidiaries is the
local currency.  For financial reporting purposes, the assets and liabilities of
such subsidiaries are translated into United States dollars using exchange rates
in  effect  at the  balance  sheet  date.  The  revenue  and  expenses  of  such
subsidiaries  are translated  into United States dollars using average  exchange
rates in effect during the reporting period.  Resulting translation  adjustments
are  presented  as  a  separate  category  in  shareholders'  deficiency  called
accumulated other comprehensive loss.

      Since  2007  the  activities  in  Europe  increased  materially.   As  the
functional  currency  in most of Europe is the Euro,  the  Company is exposed to
foreign currency  fluctuations  based on the exchange rate fluctuations  between
the Euro and the Dollar.

      Principles of Consolidation

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

      Accounts Receivable

      Accounts  receivable  represent  amounts due to the  Company for  services
rendered.  The Company  provides an  allowance  for  doubtful  against  accounts
receivable to estimate losses  resulting from  customers'  inability to pay. The
allowance for doubtful  accounts is based on historical  collection  experience,
factors related to a specific customer and current economic trends.  The Company
written off accounts receivable against the allowance for doubtful accounts when
the balance is determined to be uncollectible.

      Comprehensive Loss

      The Company  reports  comprehensive  loss in accordance with SFAS Nb. 130,
"Reporting  Comprehensive Income" ("SFAS 130"). SFAS 130 requires the disclosure
of  comprehensive  income  (loss) to  reflect  changes in  shareholders'  equity


                                       23
<PAGE>

(deficiency)  that result from  transactions  and economic events from non-owner
sources.  The  Company's  comprehensive  loss  consists  of its net loss of $2.0
million, $2.6 million and $14.1 million, foreign currency translation adjustment
of $(487),  $80 and $(399)  and  unrealized  gain  (loss) on  marketable  equity
securities of $0, $497 and $104, for the years ended December 31, 2008, 2007 and
2006, respectively.

      Revenue Recognition

      Revenue  is  recognized  as  services  are  rendered,  based on the  terms
contained  in the  contractual  arrangements,  provided  the  fee is  fixed  and
determinable,  the services have been  rendered,  and  collection of the related
receivable is reasonably assured.

      Cost of Revenue

      Cost of revenue represents  primarily payroll and related costs associated
with employees who provide services under the terms of the company's contractual
arrangements. Such costs are recognized as services are provided.

      Legal Proceedings

      United States Transportation Security Administration

      In February 2002, one of the Company's subsidiaries was awarded a security
services  contract  (the "TSA  Contract")  by the United  States  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  2002. In accordance  with the terms of the TSA Contract,
the U.S.  Federal  Government  provided the Company with a non-interest  bearing
advance of $26 million which was payable to the TSA in monthly  installments  of
$1.3 million commencing in April 2002. Through December 31, 2008, the subsidiary
has repaid $11.7 million of the advance. As of December 31, 2008, the amount due
from the TSA with respect to services  provided  under the TSA Contract is $17.3
million.  The  Company  has  reflected  the amount due from the TSA,  net of the
remaining unpaid advance,  of $3 million as other receivable on the accompanying
consolidated balance sheet as of December 31, 2008 and 2007.

      The TSA filed a contract dispute with the Office of Dispute Resolution for
Acquisition  ("ODRA") in connection with the TSA Contract seeking  reimbursement
of an alleged  overpayment  of  principal in the amount of $59.2  million.  This
claim follows a lawsuit which the Company's subsidiary had already filed against
the TSA for repeated breach of contract.  The Company's subsidiary is vigorously
challenging  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
the subsidiary's  motion for partial summary judgment against the TSA for breach
of contract  by failing the give  appropriate  notice for the  transitioning  of
airport  locations.  A separate  hearing will be held to determine the amount of
damages due to the  subsidiary on this claim.  With respect to the claim for the
$59.2  million  overpayment,  the  subsidiary  has filed a motion to dismiss the
action which has been denied.  Both claims are now in mediation.  At this stage,
Management is unable to determine the outcome of the dispute or estimate a range
of  potential  loss.  Accordingly,   no  provision  has  been  included  in  the
accompanying  consolidated  balance sheet related to this matter.


                                       24
<PAGE>

      United States Department of Labor

      During 2003, the United States  Department of Labor ("DOL")  finalized its
audit of 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. A long-term  liability of $7.3 million was  recognized  for the DOL
claim as of December  31,  2006.  The DOL claim was  settled  during 2007 for $3
million, payable with the proceeds received from any settlement with the TSA. As
a result of the  settlement  with the DOL, the Company  recorded  income of $4.3
million  during  the year ended  December  31,  2007,  which is  reflected  as a
reduction  in cost of  revenue.  As of December  31, 2008 and 2007,  a long-term
liability  to the DOL of $3 million is reflected  in  accompanying  consolidated
balance sheet.

      September 11, 2001 Terrorist Attacks

      As a result of the September 11, 2001 terrorist attacks, numerous lawsuits
charging the Company with wrongful death and/or  property  damage were commenced
in the United States District Court,  Southern  District of New York,  resulting
from certain airport security  services  provided by one of its subsidiaries for
United  Flight 175 out of Logan  Airport in Boston,  Massachusetts.  A number of
these cases have been settled,  are in the process of being settled or have been
dismissed at no cost to the Company.

      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 an  internal  review of this  matter,
Management  has not found any  evidence of  non-compliance  with  respect to the
security services provided at Boston's Logan International  Airport on September
11, 2001.

      The Company  maintains  an aviation  insurance  policy,  which may provide
limited  coverage for liabilities  that may be assessed against the Company as a
result of the events of September 11, 2001.  The  liabilities  under these cases
may, by statute,  be limited to the policy  coverage.  After the September  11th
terrorist  attacks,  the  Company's  insurance  carriers  canceled  all war risk
provisions contained in the Company's insurance policies.

      Management is unable to determine the likelihood of an unfavorable outcome
or estimate a range of loss with respect to the  remaining  open claims  against
the Company.  Accordingly,  no provision has been  included in the  accompanying
balance sheet related to these matters.

      The United States Government

      The Company had commenced an action  against the United States  Government
with  respect  to its  Fifth  Amendment  rights  relating  to the  taking of its
business. In December 2004, the United States Government's motion to dismiss the
case was denied.  A motion for  reconsideration  was also filed by the defendant
and  denied.  The trial for this  action was held and in March  2007,  the court
ruled against the Company's action. The Company appealed the decision and in May
2008,  the United States Court of Appeals for the Federal  Circuit  affirmed the
lower court's ruling.  In addition,  the Company appealed the case to the United
States Supreme Court, which denied certiorari.


                                       25
<PAGE>

      Audiovisual-Washington, Inc.

      In September 2005, Avitecture, Inc. (a/k/a  Audiovisual-Washington,  Inc.)
("Avitecture")  filed a Demand for Arbitration and Mediation  against one of the
Company's  subsidiaries with the American  Arbitration  Association in Somerset,
New  Jersey.  The  Demand  for  Arbitration  alleges  that the  subsidiary  owes
Avitecture  $0.2  million  for audio,  video and control  systems.  The case was
decided  against the Company's  subsidiary in an arbitration  proceeding,  which
resulted in an award to Avitecture of $0.2 million.  The  arbitrator's  decision
was affirmed by the Superior  Court of New Jersey in May 2007 and the  Appellate
Court in February  2008.  The Company has $0.2  million in accrued  expenses and
other  current  liabilities  related to this matter as of December  31, 2008 and
2007.

      Turner Construction Company

      In November 2005, Turner  Construction  Company  ("Turner") filed a Demand
for Arbitration and Mediation against one of the Company's subsidiaries with the
American  Arbitration  Association  in  Somerset,  New  Jersey.  The  Demand for
Arbitration  alleges that pursuant to a written agreement dated in October 2003,
the subsidiary owes Turner $0.9 million for work and/or services  performed.  In
an arbitration  proceeding,  the  arbitrator  awarded Turner $956 plus interest.
This award was  affirmed on appeal.  In October  2007,  the  subsidiary  filed a
petition of bankruptcy with the New Jersey  Superior Court,  which dismissed the
action again the  subsidiary  without  prejudice  as a result of the  bankruptcy
filing.  In anticipation  of Turner  attempting to reinstate or reopen the case,
the Company  elected not to release the $1.0 million  previously  established in
accrued expenses and other current  liabilities related to this matter. To date,
Turner has not moved to reinstate or reopen the case.

      Landlord Claims

      Two of the Company's  subsidiaries have been sued by their landlord (which
is the same  entity for both  properties)  alleging  breach of their  respective
leases.  One suit is in the Circuit  Court of Baltimore  and the other is in the
Superior Court of New Jersey. The landlord is seeking unpaid rent for the entire
terms of the  leases  for $2.6  million in  Atlantic  City,  New Jersey and $3.7
million in Baltimore,  Maryland, plus legal fees. The Company filed a bankruptcy
petition for both of the subsidiaries. However, the landlord was able to prevail
in one of the claims  because of a guarantee  given by the Company in connection
with the lease in one of the  locations.  In January  2008,  a  judgment  in the
amount of $2.6 million was awarded in favor of the landlord.  The subsidiary has
filed an appeal to challenge the judgment. As of December 31, 2008 and 2007, the
Company  has $7.3 and  $8.5  million,  respectively  in other  liabilities  from
discontinued  operations.  The  reduction  in the  Company's  reserve  for these
matters is based on changes in the claims  against the Company and is  presented
as part of discontinued operations.

      Fraport A.G. International Airport Services Worldwide

      The Company  was in a dispute  with  Fraport  A.G.  International  Airport
Services  Worldwide  over the  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 ($80.8 million
as of December 31, 2008). This dispute was settled in 2008 without any liability
to the Company.


                                       26
<PAGE>

      General

      The  Company  is  subject  to  various  investigations,  claims  and legal
proceedings  covering a wide range of matters that arise in the ordinary  course
of its business  activities.  These claims are  primarily  related to grievances
filed  by  current  and  former   employees   for  unfair  labor   practices  or
discrimination,  and for  passenger  aviation  claims.  Management  recognizes a
liability for any matter when the likelihood of an unfavorable outcome is deemed
to be probable and the amount is able to be reasonably estimated. Management has
concluded that such claims, in the aggregate,  would not have a material adverse
effect on the Company's consolidated financial position,  results of operations,
or cash flows.

      Selected Financial Data Statement of Operations

      The following table  summarizes  certain  statement of operations data for
ICTS for the years ended December 31, 2008, 2007, 2006, 2005, and 2004:

<TABLE>
<CAPTION>
                                                                        (U.S Dollars in thousands except per share data)
                                                                                      Year ended December 31,
                                                              ---------------------------------------------------------------------
                                                                 2008           2007           2006           2005           2004
                                                              ---------      ---------      ---------      ---------      ---------
<S>                                                             <C>            <C>            <C>            <C>            <C>
Revenues                                                        $98,809        $64,780        $60,791        $57,713        $57,993
Cost of revenues                                                 85,107         52,397         55,284         53,721         52,825
                                                              ---------      ---------      ---------      ---------      ---------
GROSS PROFIT                                                     13,702         12,383          5,507          3,992          5,168
Selling, General and administrative expenses                     15,341         13,338         14,878         11,690         12,201
                                                              ---------      ---------      ---------      ---------      ---------
OPERATING LOSS                                                   (1,639)          (955)        (9,371)        (7,698)        (7,033)
Other income (expense), net                                        (856)        (3,580)           527           (761)        (3,359)
                                                              ---------      ---------      ---------      ---------      ---------
LOSS BEFORE EQUITY LOSS FROM INVESTMENTS IN
AFFILIATES AND INCOME TAXES                                      (2,495)        (4,535)        (8,844)        (8,459)       (10,392)

Equity loss from investments in affiliates                                      (2,479)          (132)          (486)        (1,625)

Income taxes benefits (expenses)                                   (402)          (966)          (846)        (2,387)         1,529
                                                              ---------      ---------      ---------      ---------      ---------
LOSS FROM CONTINUING OPERATIONS                                  (2,897)        (7,980)        (9,822)       (11,332)       (10,488)

Income (loss) from discontinued operations,
  net of income tax benefit (expense) of
  $(2), $2,470, $(2,476), $2,525 and
  $1,655 in 2008, 2007, 2006, 2005 and
  2004, respectively                                                928          5,422         (4,248)       (13,548)       (15,474)
                                                              ---------      ---------      ---------      ---------      ---------

NET LOSS                                                         (1,969)        (2,558)       (14,070)       (24,880)       (25,962)
                                                              =========      =========      =========      =========      =========

NET INCOME (LOSS) PER SHARE, BASIC AND DILUTED:
Continuing Operations                                            $(0.44)        $(1.22)        $(1.51)        $(1.74)        $(1.61)
Discontinuing Operations                                           0.14           0.83          (0.65)         (2.07)         (2.37)
                                                              =========      =========      =========      =========      =========
Net Loss per share                                               $(0.30)        $(0.39)        $(2.16)        $(3.81)        $(3.98)
                                                              =========      =========      =========      =========      =========
Weighted average number of shares outstanding                 6,528,100      6,528,100      6,528,100      6,528,100      6,524,250
                                                              =========      =========      =========      =========      =========

COMPREHENSIVE LOSS
Net loss                                                         (1,969)        (2,558)       (14,070)       (24,880)       (25,962)
Translation adjustment                                             (487)            80           (399)        (1,560)         1,043
Unrealized gain (loss) on marketable
  equity securities                                                                497            104           (214)          (616)
                                                              ---------      ---------      ---------      ---------      ---------
                                                                   (487)           577           (295)        (1,774)           427
                                                              ---------      ---------      ---------      ---------      ---------
Comprehensive loss                                              $(2,456)       $(1,981)      $(14,365)      $(26,654)      $(25,535)
                                                              =========      =========      =========      =========      =========
</TABLE>


                                       27
<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,
                                                     --------------------------
                                                      2008      2007      2006
                                                     ------    ------    ------
Revenues ........................................     100%       100%      100%
Cost of revenues.................................    86.1%      80.9%     90.9%
Gross profit.....................................    13.9%      19.1%      9.1%
Selling, general and administrative expenses.....    15.5%      20.6%     24.5%
Operating loss...................................    (1.7)%     (1.5)%   (15.4)%
Loss from continuing operations..................    (2.9)%    (12.3)%   (16.2)%
Income (Loss) from discontinued operations.......     0.9%       8.4%     (7.0)%
Net loss for the year.......................         (2.0)%     (3.9)%   (23.1)%

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

      Year Ended  December  31, 2008  Compared to Year Ended  December  31, 2007
(U.S. Dollars in thousands unless otherwise indicated)

      Revenues. Revenues for the year ended December 31, 2008 were $98.8 million
(2007:  $64.8 million)  consisted of $40.4 million (2007: $46.7 million) from US
operations,   $44.2  million  (2007:   $7.6  million)  from  operations  in  The
Netherlands,  $6.4 million  (2007:  $4.8 million) from  operations in France and
$7.8 ,million (2007: $5.7 million) from operations in other locations.

      The decrease in the revenues from the  operations in the US relates mostly
to the fact that since the fourth quarter of 2007 the TSA operates the checks of
the boarding  authorization  of passengers and the comparison to the passengers'
IDs before  allowing  the  passengers  to pass through the  checkpoint.  Loss of
revenues for the Company is approximately $5 million for 2008.

      Increase  in the  revenue  from The  Netherlands  relates  mainly to a new
contract with Schiphol Airport which added $34.4 million to the revenues.

      Increase  in the  other  locations  was  the  result  of  increase  in new
contracts and more volume at existing locations.

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

      Gross profit for the year ended December 31, 2008 was $13.7 million, 13.9%
as percentage of revenue (2007: $12.4 million, 19.1% as percentage of revenue).

      In 2007 an amount  of $4.3  million  reduced  the cost of  revenues  which
relates to the agreement of the Company with the DOL. This amount  increased the
2007 gross profit by the $4.3  million.  The 2007 gross profit  without the $4.3
million would be $8.1 million,  12.5% as percentage of revenues. The increase in
the 2008 gross  profit  excluding  the $4.3  million,  comparing to last year is
mainly because of the increase of revenue from the aviation security  operations
which maintains higher margin  associated with the service provided than the non
aviation security operations.


                                       28
<PAGE>

      Selling,  General  and  Administrative  Expenses.   Selling,  general  and
administrative expenses were $15.3 million for the year ended December 31, 2008,
15.5%  as  percentage  of  revenues,  as  compared  to $13.3  million,  20.6% as
percentage of revenue for the year ended December 31, 2007.

      The 2007 SG&A expenses included $1.1 million expense  regarding  potential
penalties  resulting  from IRS audit for the years 2002 - 2004,  comparing  to a
penalty  reduction  of  $0.2  million  in 2008  recorded  as part of the IRS tax
accrual examination by the Company's tax advisors. The SG&A expenses, net of the
IRS penalties,  totaled $15.5 million in 2008 compared to $12.2 million in 2007.
The increase in the SG&A  expenses in 2008 relate  mainly to the increase of the
aviation security operations in Europe.

      Operating  Loss.  Operating  loss for the year ended December 31, 2008 was
$1.6 million compared to operating loss of $1.0 million in 2007.

      Other Income  (Expenses),  Net.  Other expense for the year ended December
31, 2008 totaled $0.9 million  compared to $3.6 million in 2007.  Other  expense
for the year 2008 relates to the following:

      (a) Income of $0.4 million  relates to  agreement  between the Company and
Bilu which  released ICTS from  guarantees  that were provided by the Company in
the past and were fully accrued for.

      (b) Financial expenses net in 2008 were $1.3 million (2007: $3.3 million).
Financial  expenses of $0.5 million  compared to 2.2 million in 2007,  relate to
estimated  interest for previous years possible tax exposure in the US. Interest
expenses to related  parties  totaled $0.3 million,  both in 2008 and 2007.  The
interest  is  calculated  according  to the loan terms - Libor  plus  1.5%.  The
outstanding  loan as of  December  31,  2008 was $6.1  million  compared to $6.5
million in 2007.

      (c) Other expenses in 2007 of $0.3 million included profit of $0.3 million
from  investments  that  were  fully  impaired  in  the  previous  years  and an
impairment of the investment in Plangraphics which totaled $0.6 million.

      Taxes on Income.  Tax expenses in 2008  totaled  $0.4 million  compared to
$1.0  million in 2007.  The Company  expensed in 2008 an amount of $0.2  million
regarding the 2002-2004 IRS audit compared to $0.7 million in 2007.

      Share in Losses of Associated Companies. During 2007 the Company wrote off
all its  investments in associated  companies.  As a result of that the share in
loss of associated companies in 2008 was zero compared to $2.5 million in 2007.

      Loss for Continuing  Operations.  ICTS's loss from  continuing  operations
totaled in 2008 $2.9 million compared to $8.0 million in 2007.

      Profit from  Discontinued  Operations.  ICTS's  profit  from  discontinued
operations totaled $0.9 million compared to profit of $5.4 million in 2007.

      Against the Company there are two 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, 2008 and 2007 the total  accruals were $7.3 and $8.5 million,  respectively.
The change of $1.2 million on the  accruals was recorded  based on the change in
the  claims.  In 2007 the  Company  recognized  similar  income of


                                       29
<PAGE>

$1.6  million  following  the  changes in the claims  between the years 2007 and
2006.  The 2007 amount  included also $2.8 million  relating to refund  received
from the IRS in the USA.

      Net Loss.  As a result  of the  foregoing,  ICTS's  losses  amounted  $2.0
million  for  the  year  2008,  compared  to  $2.6  million  for  2007.  As  for
geographical segments, see note 15 in the financial statements of the Company.

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

      Revenues. Revenues for the year ended December 31, 2007 were $64.8 million
(2006:  $60.8  million),  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.


                                       30
<PAGE>

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

      Other Income  (Expenses),  Net. Other expenses for the year ended December
31, 2007 totaled  $3,580  compared to income of $527 in 2006. The other expenses
relate to the following:

      (a)  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  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.

      (b) 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.

      (c) Gain from sale of investments totaled $349 in 2007 compared to $576 in
2006.

      (d) During 2007 the  Company has fully  impaired  its  investment  in Plan
Graphics which totaled $600.

      (e) 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 audits.

      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


                                       31
<PAGE>

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 15
in the financial statements.

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

      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  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


                                       32
<PAGE>

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.

      Other Income (Expense),  Net. Other income for the year ended December 31,
2006 was $527 compared to other expense of $761 for the year ended  December 31,
2005. Other income in 2006 relates to the following:

      (a) 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.

      (b) Gains from sales of investments totaling an amount of $576.

      (c)  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 was 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.


                                       33
<PAGE>

      As to the  geographical  segments,  please  see  note 15 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, 2008, we had cash
and cash equivalents of $3.8 million as compared to $2.1 million on December 31,
2007. In 2008 there was no short-term  restricted  cash compared to $1.8 million
on December 31, 2007.

      The  Company  has a  history  of  recurring  losses  and  working  capital
deficiency.  The Company  incurred net losses of $2.0,  $2.6,  and $14.1 million
during the years ended December 31, 2008,  2007, and 2006,  respectively.  As of
December 31, 2008, the Company had a working  capital  deficit and  shareholders
deficiency of $15.3 and $23.0,million respectively.  In addition, the Company is
subject to potential material  contingencies in connection with: (a) an audit of
the Company's operations in the United States of America by the Internal Revenue
Service (b) the  September  11, 2001  terrorist  attacks in the United States of
America,  (c) unpaid rent  obligations  related to certain  non-core  businesses
which have been  discontinued  in the United States of America,  and (d) certain
claims made  against the Company by the United  States  Transportation  Security
Administration.  These  factors  raise  substantial  doubt  about the  Company's
ability to continue as a going concern.

      Management  believes that the Company's  operating  cash flows and related
party financing  activities  will provide it with  sufficient  funds to meet its
obligations and execute its business plan. However, there are no assurances that
management's  plans to  generate  sufficient  cash to  continue  to operate  the
Company will be successful.  The accompanying  consolidated financial statements
do not include any adjustments  that might be necessary if the Company is unable
to continue as a going concern.

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

      As of  December  31,  2008 and 2007,  the Company had loans from a related
party which amount to $6.1 and $6.5  million,  respectively,  which were used to
cover part of the Company's obligations.

      The Company's cash and cash equivalents  increased in 2008 by $1.7 million
as a result of the following:

      Net cash provided by (used in) in operating  activities for the year ended
December  31, 2008 was $3.9  million as  compared to net cash used in  operating
activities  of $3.6  million for the year ended  December  31, 2007 and net cash
used in operating  activities  of $7.6  million for the year ended  December 31,
2006. The net loss during 2008 totaled $2.0 million, offset by non-cash expenses
in $0.1  million  relating  to stock  based  compensation  and $0.8  million  in
depreciation  and  amortization.  Changes in operating assets and liabilities


                                       34
<PAGE>

in 2008  amounted  to $3.6  million  compared  to $4.0  million in 2007 and $2.7
million in 2006.  The changes in operating  assets and  liabilities in 2008 were
primarily  attributable to a $4.9 million increase in accrued expenses and other
current  liabilities,  a decrease  of $0.3  million in  accounts  payable and an
increase  of  $1.3  million  in  accounts  receivable.   Net  cash  provided  by
discontinued operations totaled $2.4 million.

      Net cash  provided by investing  activities  was $0.6 million for the year
ended December 31, 2008 as compared to net cash used in investing  activities of
$1.1 million for the year ended December 31, 2007 and net cash used in investing
activities of $0.2 million for the year ended December 31, 2006. The increase in
2008 is mainly  because of the change in  restricted  cash  which  totaled  $1.8
million and cash used for  purchase of  equipment  totaled  $1.0 million in 2008
compared to $0.8 million in 2007 and $0.6 in 2006.

      Net cash used in financing activities were $2.1 million for the year ended
December 31, 2008 as compared to net cash  provided by financing  activities  of
$5.0 for the year ended  December  31, 2007 and $3.7  million for the year ended
December 31, 2006. In 2008,  net cash provided by financing  activities was used
primarily to decrease the notes payable - bank loans by $1.8 million.

      Notes Payable - Bank

      In April 2005, one of the Company's  subsidiaries  entered into a loan and
security  agreement  with  a  commercial  bank.  Pursuant  to the  terms  of the
arrangement,  the commercial  bank committed to providing the subsidiary with up
to $8 million in revolving loans, including a maximum of $3.5 million in letters
of  credit.  Borrowings  issued  under the  arrangement  are  limited  to 85% of
eligible  accounts  receivable  and  95%  of  the  subsidiary's   required  cash
collateral. As of December 31, 2008 and 2007, the subsidiary has $3.5 million in
cash collateral  deposited with the commercial bank. The term of the arrangement
extends through March 10, 2010.  Loans made under the arrangement are designated
as either  prime  based or LIBOR  based  loans at the option of the  subsidiary.
Prime based loans bear interest,  which is payable monthly,  at the bank's prime
rate  plus 1% per  annum  (4.25%  and  8.25% at  December  31,  2008  and  2007,
respectively).  LIBOR based loans bear interest,  which is payable  monthly,  at
LIBOR plus 350 basis  points  (5.50% and 8.38% at  December  31,  2008 and 2007,
respectively).  The subsidiary is also assessed commitment fees of 3% per annum.
The arrangement is secured by the cash collateral  deposited with the commercial
bank and the assets of the  subsidiary.  As of December  31, 2008 and 2007,  the
subsidiary has $4.8 and $5.7 million,  respectively,  in outstanding  borrowings
and $0.6 and $1.0 million,  respectively, in outstanding letters of credit under
the arrangement.  The arrangement  subjects the subsidiary to various  financial
covenants,  including  interest  coverage,  minimum  tangible net worth,  and an
annual capital expenditure limitation.

      In November 2004, one of the Company's  subsidiaries entered into a credit
agreement with a commercial  bank to provide it with a borrowing  arrangement of
up to (euro)0.7 million.  Borrowings under the arrangement are limited to 60% of
eligible  accounts  receivable,  secured  by the assets of the  subsidiary,  and
guaranteed by the Company. Loans made under the arrangement bear interest, which
is payable  monthly at the  commercial  bank's  euro base rate plus 2% per annum
(7.3% at December 31, 2007).  As of December 31, 2007,  the  subsidiary has $0.7
million  in  outstanding  borrowings  and  under  the  arrangement.  The  credit
agreement expired in February 2008.


                                       35
<PAGE>

      In February 2008, two of the Company's subsidiaries jointly entered into a
credit  agreement  with a  commercial  bank to  provide  them  with a  borrowing
arrangement  of up to  (euro)2.2  million.  The  available  capacity  under  the
borrowing arrangement automatically reduces to (euro)1.7 million on May 1, 2008,
(euro)1.2  million on August 1, 2008 and  (euro)0.7  million on January 1, 2009.
Borrowings under the arrangement bear interest, which is payable monthly, at the
bank's  euro base rate  (subject  to a floor of 3.5%) plus 2% per annum (7.4% at
December 31, 2008).  Borrowings  under the arrangement are secured by the assets
of the  subsidiaries  and  guaranteed  by the Company.  As of December 31, 2008,
there  are no  outstanding  borrowings  and  (euro)1.2  million  in  outstanding
guarantees under the arrangement.  The arrangement  subjects the subsidiaries to
various  financial  covenants,  including  minimum  tangible  net  worth.  As of
December 31, 2008, the Company was in violation of certain  financial  covenants
specified in the credit  agreement,  including the payment of dividends  without
the approval of the commercial  bank and the  maintenance of a minimum  tangible
net worth threshold. On May 1, 2009, the credit agreement expired.

      The Company is indebted to a commercial bank for bank overdrafts of $0 and
$0.4 million as of December 31, 2008 and 2007, respectively.  These amounts bear
interest, which is payable monthly, at 7% per annum.

      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.
The Company is affected by the worldwide  economic  slowdown,  which affects the
aviation  industry.  As the Company is a service  provider to this industry,  it
affects the results of the Company.

      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.

      The  following  table  summarizes   ICTS's   obligations  from  continuing
operations to make future payments under contracts as of December 31, 2008:

<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                                  3,146          90    3,056
Accrued severance pay                              88                                      88
Operating lease obligations (1)                 2,627       1,213    1,409        5
Loan from related party, including
  accrued interest                              6,072                6,072
Employment contracts                            1,130         514      616
Fees and interest regarding Credit Line           600         600
                                               ------      ------   ------   ------    ------
                                               13,663       2,417   11,153        5        88
</TABLE>

      As of  December  31,  2008 and 2007 the  Company  recorded  an accrual for
future rent  regarding  its  discontinued  operations  of $7.3 and $8.5 million,
respectively.  The accruals  have been updated  according to the legal claims of
the landlord against the Company.


                                       36
<PAGE>

      (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, 2008,  2007 and 2006 were $1.5, $1.2 and $1.2 millions,
respectively.

Item 6. Directors, Senior Management and Employees

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

                           Age     Position
                          -----    ----------
Menachem Atzmon            65      Chairman of the Supervisory Board
David W. Sass              73      Member of the Supervisory Board

Eytan Barak                65      Member of the Supervisory Board, Member of
                                   Compensation and Audit Committee
Elie Housman               72      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
Philip M. Getter           72      Member of the Supervisory Board, Chairman
                                   of the Audit Committee
Avraham Dan                64      Managing Director
Ran Langer                 63      Managing Director
Raanan Nir                 60      Managing Director
Alon Raich                 33      Chief Financial Officer

      Menachem  J.  Atzmon is a CPA (Isr).  Since  1996 Mr.  Atzmon 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.,  He is
currently,  and has been since 2004,  a member of the Board of  Directors of two
companies  owned by the Tel-Aviv  Municipality.  In addition,  he is currently a
member of the board of directors  since the year 2006 in Mer  Telecommunications
Solution (MTS), a  public  company.  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.  Since 2008 to the present,  he is a member of the
board of directors of Menora  Mivtachim Mutual Funds Ltd. Since January 2009, he
is a  member  of the  board  of  directors  in Eltek  Ltd,  Meshulam  Levinstrin
Contracting & Engineering Ltd, and Elgo irrigation Ltd, public companies.

      Elie Housman served as Chairman of Inksure Technologies,  Inc. until 2008.
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 a director
of 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.


                                       37
<PAGE>

      Gordon Hausmann is the senior partner of his own law firm which he founded
in London 28 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 48 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 president of DAMG Capital, LLC Investment Bankers.
Prior thereto he was most  recently  head of Investment  Banking and a member of
the board of directors of Prime  Charter,  Ltd. He has more than thirty years of
corporate finance experience.

      Having served as Administrative Assistant to the Director of United States
Atomic Energy  Commission  from 1958 to 1959, he began his Wall Street career as
an analyst at Bache & Co. in 1959.  He was a partner  with  Shearson,  Hammill &
Company  from  1961 to  1969  and a  Senior  Partner  of  Devon  Securities,  an
international  investment  banking and research  boutique from 1969 to 1975. Mr.
Getter was a member of the New York Society of Security  Analysts.  From 1975 to
1983 he was  President  and CEO of Generics  Corporation  of  America,  a public
company  that was one of the largest  generic drug  manufacturers  in the United
States.  As Chairman and CEO of Wolins  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 and became its  Chairman in 2008, 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.  Mr.  Getter  received  his B.S.  in  Industrial  Relations  from  Cornell
University.  He 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.


                                       38
<PAGE>

      Raanan Nir has been managing director, since 2002, of his own company, Red
Flag, B.V., which is a trust company  established in The Netherlands,  providing
financial and general management services. From 2000 to 2002 he was in charge of
finance  for an IT  start-up  company.  From  1998  to  2000  he was CFO of ICTS
International, N.V.

      Alon Raich is a CPA (Isr),  joined  ICTS in  September  2005 as  Financial
Controller and became Chief Financial Officer (CFO) of the Company in 2008. 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.

                           Summary Compensation Table

The following table sets forth compensation earned by the executive officers and
the highest paid executive during 2008:

<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>      <C>
Avraham Dan,    2008      180        68           60                                                                   308
Managing
Director        2007      180                     60                                                                   240

                2006      180        60           60                                            45,000                 300
-----------------------------------------------------------------------------------------------------------------------------
Ran Langer,     2008       No Salary
Managing
Director        2007       No Salary

                2006       No Salary                                                            45,000
-----------------------------------------------------------------------------------------------------------------------------
Doron Zicher,   2008      294       321           36                                                                   651
Managing
Director of     2007      242       174           39                                                                   455
Subsidiary(1)
                2006      221       217           32                                            55,000                 470
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Mr. Zicher is entitled to a bonus,  net of sale expenses,  of 8% of the sale
proceeds in the event I-SEC will be sold.

      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.

      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, 2008.


                                       39
<PAGE>

                                         Salaries, fees,     Pension, retirement
                                           commissions             and other
                                           and bonuses         similar benefits
                                         ---------------     -------------------
                                                     (in thousands)
                                         ---------------------------------------

Directors as a group (6 persons)               $108
All officers as a group(7 persons)           $1,442                  $103

      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.


                                       40
<PAGE>

      Employees

      As of December 31, 2008 the number of employees in Europe is approximately
950.

      As  of  December   31,  2008  the  number  of  employees  in  the  USA  is
approximately 2,400.

      Share ownership

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

      Options to Purchase Securities

      On December 17, 2008 shareholders adopted the 2008 Employee,  Director and
Commitment  Stock Option 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 1,500,000  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.  No options have been granted under this plan as of the
date hereof.

      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").


                                       41
<PAGE>

      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.

      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


                                       42
<PAGE>

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.  Directors  - 30,000  options  were  granted to each of the  Directors,
namely,  Elie Housman,  Philip  Getter,  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.

      6. Committee Chairmen 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. Philip  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.


                                       43
<PAGE>

      6. 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.

      7. 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.

      8. 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.

      9. 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.

      10.  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.

      11. 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,  2008 there  were  outstanding  options  to  purchase
1,632,000  shares,  out of  3,600,000  that were  approved  and issued.  All the
options  were granted to  directors,  executive  officers  and  employees of the
Company 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 three
years and no later than  October  2009.  Options  available  for grant under the
plans are 1,968,000. The plans expire by their terms at various dates to 2018.

      All  current  executive  officers  (Managing  Directors)  (3 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 (6  persons)  as a group:  192,000
Options.

During the year 2009 one of the Company's  employees  exercised  50,000  options
which were granted to him in previous years.

      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


                                       44
<PAGE>

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.

      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


                                       45
<PAGE>

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 May 31, 2009 (including  options  exercisable
within 60 days from that date) 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 (c)                                   4,547,226            61.22%
------------------------------------------------------------------------------------------
Nicholas P. Monteban, Xalladio Holding B.V. and
Galladio Capital Management B.V.                            688,000            10.54%
------------------------------------------------------------------------------------------
Everest Special Situations Fund
 & Affiliates (d)                                           770,582            11.80%
------------------------------------------------------------------------------------------
All officers and directors as a group including
the Atzmon Family Trust
(12 persons)                                              5,267,226            64.64%
------------------------------------------------------------------------------------------
</TABLE>

      (a) The  amounts  includes  common  shares  owned  by  each of the  above,
directly or indirectly and options immediately exercisable or exercisable within
60 days from May 31, 2009.

      (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 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 shareholders.

      (c) 1.  Aragata  Holdings  Co.,  Limited,  owns  directly  and  indirectly
approximately  56% 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 Aragata Holdings Co., Limited.  Mr. Atzmon disclaims any beneficial
interest in the Atzmon  Family  Trust.  Aragata  Holdings  Co.,  Limited and the


                                       46
<PAGE>

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), 900,000 are currently exercisable.  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.

            3. As of May 31, 2009 the Company  received loans from related party
in total amount of $6.9 million and accrued  interest of $0.8 million.  The loan
is convertible to the Company's common stock at a rate of $2.10 per share.

      (d) The shares were purchased by the group during 2008, 2007 and 2006.

      Related Party Transactions

      The Company had an outstanding  guarantee with respect to certain  related
party debt  obligations  of $2,515,  which were  fully  reserved.  In 2007,  the
Company was  released  from $665 of the  guarantee.  In 2008,  the Company  paid
$1,429 to settle  certain  outstanding  obligations  under the guarantee and was
released  from its remaining  guarantee of $421.  The Company  recognized  other
income  related to the recovery of its  guarantee of $0.4,  $0, and $0.7 million
during the years ended December 31, 2008, 2007 and 2006, respectively.

      ICTS holds  4,825,555  shares of Inksure  Technologies  Inc.  ("Inksure"),
which represents  27.4% of Inksure's  outstanding  shares.  In October 2002, Mr.
Elie  Housman,  then the Chairman of the Board of Inksure,  was appointed to the
ICTS Supervisory  Board. Mr. Getter, a member of the ICTS Supervisory Board, was
elected  to the  Board of  Inksure.  Mr.  Sass 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  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 September 2006, the Company entered into an arrangement  with a related
party to provide it with up to $3.1 million in  revolving  loans  through  April
2007.  Loans received under the arrangement  bear interest,  which is payable at
maturity, at LIBOR plus 1.5% per annum. The arrangement was secured by 2,157,894
shares of Inksure Technologies, Inc. common stock.

      In  January  2007,  the  borrowing  capacity  under  the  arrangement  was
increased to $6.3 million and the term was extended to April 2008. In connection
with the  extension,  the  related  party  was  granted  an  option  to  convert
outstanding  notes payable under the arrangement into the Company's common stock
at a price of $3.50 per share.

      In April 2008, the Company entered into a new arrangement with the related
party, which replaced all previous  arrangements,  to provide it with up to $6.6
million in revolving  loans through  November 2010. All  outstanding  borrowings
from previous  arrangements  were applied to the  borrowing  capacity of the new
arrangement.  Loans  received  under the  arrangement  bear  interest,  which is
payable at maturity, at LIBOR plus 1.5% per annum. The arrangement is secured by
a 26% interest in one of the  Company's  subsidiaries.  In  connection  with the
arrangement,  the  related  party was  granted an option to convert


                                       47
<PAGE>

outstanding  notes payable under the arrangement into the Company's common stock
at a price of $2.75 per share.

      In April 2009, the Company entered into a new borrowing arrangement with a
related party which replaced all previous  arrangements between the parties. The
new  arrangement  provides  the  Company  with the  ability to borrow up to $6.3
million from the related  party and is  convertible  at the option of the holder
into the Company's common stock at $2.10 per share.  All outstanding  borrowings
from previous  arrangements  were applied to the  borrowing  capacity of the new
arrangement. Borrowings under the arrangement bear interest, which is compounded
semi-annually,  at rates equivalent to those charged by the Company's commercial
bank. Principal and interest under the arrangement are payable in November 2013.
The  arrangement  is  secured  by  a  26%  interest  in  one  of  the  Company's
subsidiaries.

      Entities  related to two of the  Company's  board  members  provide  legal
services to the Company.  Legal expense  related to these  services is $93, $138
and $107 for the years ended  December  31, 2008,  2007 and 2006,  respectively.
Included in accounts payable on the accompanying  consolidated  balance sheet is
$106 and  $182  due for  these  services  as of  December  31,  2008  and  2007,
respectively.

      During the year ended December 31, 2007, the Company  engaged the services
of an  entity  owned  by a  related  party  as a  subcontractor  for  one of the
Company's  subsidiaries.  The Company incurred  expenses of $176, $91 and $0 for
such  services  for the  years  ended  December  31,  2008 and  2007  and  2006,
respectively.

Item 8. Financial Information

      Consolidated Statements and Other Financial Information.

      See pages F-1 through F-36 incorporated herein by reference.

      Legal Proceedings

      United States Transportation Security Administration

      In February 2002, one of the Company's subsidiaries was awarded a security
services  contract  (the "TSA  Contract")  by the United  States  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  2002. In accordance  with the terms of the TSA Contract,
the U.S.  Federal  Government  provided the Company with a non-interest  bearing
advance of $26 million which was payable to the TSA in monthly  installments  of
$1.3 million commencing in April 2002. Through December 31, 2008, the subsidiary
has repaid $14.3 million of the advance. As of December 31, 2008, the amount due
from the TSA with respect to services  provided  under the TSA Contract is $17.3
million.  The  Company  has  reflected  the amount due from the TSA,  net of the
remaining unpaid advance,  of $3 million as other receivable on the accompanying
consolidated balance sheet as of December 31, 2008 and 2007.

      The TSA filed a contract dispute with the Office of Dispute Resolution for
Acquisition  ("ODRA") in connection with the TSA Contract seeking  reimbursement
of an alleged  overpayment  of  principal in the amount of $59.2


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<PAGE>

million. This claim follows a lawsuit which the Company's subsidiary had already
filed against the TSA for repeated breach of contract.  The Company's subsidiary
is  vigorously  challenging  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 the  subsidiary's  motion for partial summary  judgment against
the TSA for breach of contract by failing  the give  appropriate  notice for the
transitioning of airport locations. A separate hearing will be held to determine
the amount of damages due to the  subsidiary on this claim.  With respect to the
claim for the $59.2 million  overpayment,  the  subsidiary has filed a motion to
dismiss the action which has been denied.  Both claims are now in mediation.  At
this  stage,  Management  is unable to  determine  the outcome of the dispute or
estimate a range of potential loss. Accordingly,  no provision has been included
in the accompanying consolidated balance sheet related to this matter.

      United States Department of Labor

      During 2003, the United States  Department of Labor ("DOL")  finalized its
audit of 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. A long-term  liability of $7.3 million was  recognized  for the DOL
claim as of December  31,  2006.  The DOL claim was  settled  during 2007 for $3
million, payable with the proceeds received from any settlement with the TSA. As
a result of the  settlement  with the DOL, the Company  recorded  income of $4.3
million  during  the year ended  December  31,  2007,  which is  reflected  as a
reduction  in cost of  revenue.  As of December  31, 2008 and 2007,  a long-term
liability  to the DOL of $3 million is reflected  in  accompanying  consolidated
balance sheet.

      September 11, 2001 Terrorist Attacks

      As a result of the September 11, 2001 terrorist attacks, numerous lawsuits
charging the Company with wrongful death and/or  property  damage were commenced
in the United States District Court,  Southern  District of New York,  resulting
from certain airport security  services  provided by one of its subsidiaries for
United  Flight 175 out of Logan  Airport in Boston,  Massachusetts.  A number of
these cases have been settled,  are in the process of being settled or have been
dismissed at no cost to the Company.

      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 an  internal  review of this  matter,
Management  has not found any  evidence of  non-compliance  with  respect to the
security services provided at Boston's Logan International  Airport on September
11, 2001.

      The Company  maintains  an aviation  insurance  policy,  which may provide
limited  coverage for liabilities  that may be assessed against the Company as a
result of the events of September 11, 2001.  The  liabilities  under these cases
may, by statute,  be limited to the policy  coverage.  After the September  11th
terrorist  attacks,  the  Company's  insurance  carriers  canceled  all war risk
provisions contained in the Company's insurance policies.


                                       49
<PAGE>

      Management is unable to determine the likelihood of an unfavorable outcome
or estimate a range of loss with respect to the  remaining  open claims  against
the Company.  Accordingly,  no provision has been  included in the  accompanying
balance sheet related to these matters.

      The United States Government

      The Company had commenced an action  against the United States  Government
with  respect  to its  Fifth  Amendment  rights  relating  to the  taking of its
business. In December 2004, the United States Government's motion to dismiss the
case was denied.  A motion for  reconsideration  was also filed by the defendant
and  denied.  The trial for this  action was held and in March  2007,  the court
ruled against the Company's action. The Company appealed the decision and in May
2008,  the United States Court of Appeals for the Federal  Circuit  affirmed the
lower court's ruling.  In addition,  the Company appealed the case to the United
States Supreme Court, which denied certiorari.

      Audiovisual-Washington, Inc.

      In September 2005, Avitecture, Inc. (a/k/a  Audiovisual-Washington,  Inc.)
("Avitecture")  filed a Demand for Arbitration and Mediation  against one of the
Company's  subsidiaries with the American  Arbitration  Association in Somerset,
New  Jersey.  The  Demand  for  Arbitration  alleges  that the  subsidiary  owes
Avitecture  $0.2  million  for audio,  video and control  systems.  The case was
decided  against the Company's  subsidiary in an arbitration  proceeding,  which
resulted in an award to Avitecture of $0.2 million.  The  arbitrator's  decision
was affirmed by the Superior  Court of New Jersey in May 2007 and the  Appellate
Court in February  2008.  The Company has $0.2  million in accrued  expenses and
other  current  liabilities  related to this matter as of December  31, 2008 and
2007.

      Turner Construction Company

      In November 2005, Turner  Construction  Company  ("Turner") filed a Demand
for Arbitration and Mediation against one of the Company's subsidiaries with the
American  Arbitration  Association  in  Somerset,  New  Jersey.  The  Demand for
Arbitration  alleges that pursuant to a written agreement dated in October 2003,
the subsidiary owes Turner $0.9 million for work and/or services  performed.  In
an arbitration  proceeding,  the  arbitrator  awarded Turner $956 plus interest.
This award was  affirmed on appeal.  In October  2007,  the  subsidiary  filed a
petition of bankruptcy with the New Jersey  Superior Court,  which dismissed the
action again the  subsidiary  without  prejudice  as a result of the  bankruptcy
filing.  In anticipation  of Turner  attempting to reinstate or reopen the case,
the Company  elected not to release the $1.0 million  previously  established in
accrued expenses and other current  liabilities related to this matter. To date,
Turner has not moved to reinstate or reopen the case.

      Landlord Claims

      Two of the Company's  subsidiaries have been sued by their landlord (which
is the same  entity for both  properties)  alleging  breach of their  respective
leases.  One suit is in the Circuit  Court of Baltimore  and the other is in the
Superior Court of New Jersey. The landlord is seeking unpaid rent for the entire
terms of the  leases  for $2.6  million in  Atlantic  City,  New Jersey and $3.7
million in Baltimore,  Maryland, plus legal fees. The Company filed a bankruptcy
petition for both of the subsidiaries. However, the landlord was able to prevail
in one of the claims  because of a guarantee  given by the


                                       50
<PAGE>

Company in connection with the lease in one of the locations. In January 2008, a
judgment in the amount of $2.6 million was awarded in favor of the landlord. The
subsidiary  has filed an appeal to challenge  the  judgment.  As of December 31,
2008 and 2007,  the Company  has $7.3 and $8.5  million,  respectively  in other
liabilities from discontinued operations. The reduction in the Company's reserve
for these  matters is based on changes in the claims  against the Company and is
presented as part of discontinued operations.

      Fraport A.G. International Airport Services Worldwide

      The Company  was in a dispute  with  Fraport  A.G.  International  Airport
Services  Worldwide  over the  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 ($80.8 million
as of December 31, 2008). This dispute was settled in 2008 without any liability
to the Company.

      General

      The  Company  is  subject  to  various  investigations,  claims  and legal
proceedings  covering a wide range of matters that arise in the ordinary  course
of its business  activities.  These claims are  primarily  related to grievances
filed  by  current  and  former   employees   for  unfair  labor   practices  or
discrimination,  and for  passenger  aviation  claims.  Management  recognizes a
liability for any matter when the likelihood of an unfavorable outcome is deemed
to be probable and the amount is able to be reasonably estimated. Management has
concluded that such claims, in the aggregate,  would not have a material adverse
effect on the Company's consolidated financial position,  results of operations,
or cash flows.

      Subsequent  Events

      In April 2009, the Company entered into a new borrowing arrangement with a
related party which replaced all previous  arrangements between the parties. The
new  arrangement  provides  the  Company  with the  ability to borrow up to $6.3
million from the related  party and is  convertible  at the option of the holder
into the Company's common stock at $2.10 per share.  All outstanding  borrowings
from previous  arrangements  were applied to the  borrowing  capacity of the new
arrangement. Borrowings under the arrangement bear interest, which is compounded
semi-annually,  at rates equivalent to those charged by the Company's commercial
bank. Principal and interest under the arrangement are payable in November 2013.
The  arrangement  is  secured  by  a  26%  interest  in  one  of  the  Company's
subsidiaries.

      Credit agreement of (euro)2,100 with one of the commercial banks,  expired
in May 2009 without being extended.

      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.


                                       51
<PAGE>

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

      Year                                        High               Low
      ----                                        -----             -----
      2004                                        $8.42             $1.35
      2005                                        $3.23             $1.58
      2006                                        $2.54             $0.10
      2007                                        $2.79             $1.40
      2008                                        $2.30             $1.70

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

      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

      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

      2008                                        High               Low
      ------                                      -----             -----
      First Quarter                               $2.20             $1.80
      Second Quarter                              $2.20             $2.00
      Third Quarter                               $2.30             $1.92
      Fourth Quarter                              $2.20             $1.70

      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, 2008 and 2007,


                                       52
<PAGE>

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.

      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


                                       53
<PAGE>

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  December 17, 2008. 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


                                       54
<PAGE>

of the common shares.  Any such proposal is subject to general  requirements  of
Netherlands law with respect to reduction of share capital.

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

      On December 17, 2008, 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 May 31,  2009 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 the same detail or with the 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,


                                       55
<PAGE>

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.
Subject to the discussion below regarding passive foreign investment  companies,
the Company should be considered to be a "qualified foreign corporation" so that
such dividends should be eligible to be taxed as net capital gains (at a maximum
U.S.  federal rate of 15 percent).  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.

      The  declaration  of dividends  will be at the discretion of the Company's
board  of  directors  and  will  depend  upon the  Company's  earnings,  capital
requirements,   financial  position,  general  economic  conditions,  and  other
pertinent factors.  The Company 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. 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.


                                       56
<PAGE>

      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, trust,
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

      Subject to the  discussion  below  regarding  passive  foreign  investment
companies,  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 for one year or less,  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.  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 a version of Form W-8 (Certificate of
Foreign Status).

      Passive Foreign Investment Company

      Management has determined  that the Company has not been a passive foreign
investment  company  ("PFIC") for United States  federal income tax purposes for
prior  taxable years and believes that the Company will not be treated as a PFIC
for the current  and future  taxable  years,  but this  conclusion  is a factual
determination  made annually and thus subject to change.  The Company would be a
PFIC with  respect to a U.S.  Holder if, for any taxable year in which such U.S.
Holder held shares,  either (i) at least 75% of the  Company's  gross income for
the taxable year is passive income, or (ii) at least 50% of the Company's


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<PAGE>

assets are attributable to assets that produce or are held for the production of
passive income.  Under a "look-through" rule, a corporation takes into account a
pro rata share of the income and the assets of any corporation in which it owns,
directly  or  indirectly,  25% or more of the  stock by  value.  Passive  income
generally includes dividends,  interest,  royalties, rents (other than rents and
royalties derived from the active conduct of a trade or business and not derived
from a related  person),  annuities,  and gains from assets that produce passive
income.  The 50% asset  test would  apply to the  Company  based on fair  market
values.

      If the Company is a PFIC for any taxable year during  which a U.S.  Holder
holds shares,  the U.S. Holder will be subject to special tax rules with respect
to:

      o     any "excess  distribution"  that the U.S. Holder receives on shares,
            and

      o     any gain the U.S. Holder  realizes from a sale or other  disposition
            (including a pledge) of the shares,

unless the U.S.  Holder makes a "qualified  electing  fund" or  "mark-to-market"
election as discussed below.

      Distributions  the U.S. Holder receives in a taxable year that are greater
than 125% of the average annual  distributions  the U.S.  Holder received during
the shorter of the three preceding  taxable years or the U.S.  Holder's  holding
period for the shares  will be treated as an excess  distribution.  Under  these
special tax rules:

      o     the excess  distribution or gain will be allocated  ratably over the
            U.S. Holder's holding period for the shares,

      o     the amount  allocated to the current  taxable year,  and any taxable
            year  prior to the first  taxable  year in which the  Company  was a
            PFIC, will be treated as ordinary income, and

      o     the  amount  allocated  to each other year will be subject to tax at
            the highest tax rate in effect for that year and the interest charge
            generally  applicable to underpayments of tax will be imposed on the
            resulting tax attributable to each such year.

      The tax  liability  for  amounts  allocated  to years prior to the year of
disposition  or  "excess  distribution"  cannot be  offset by any net  operating
losses,  and gains (but not losses) realized on the sale of the shares cannot be
treated as capital, even if the U.S. Holder holds the shares as capital assets.

      If the Company  were to become a PFIC,  a U.S.  Holder may avoid  taxation
under the  excess  distribution  rules  discussed  above by making a  "qualified
electing  fund"  election to include the U.S.  Holder's  share of the  Company's
income on a current basis.  However, a U.S. Holder may make a qualified electing
fund election only if the Company,  as a PFIC,  agree to furnish the shareholder
annually with certain tax information. Management has not decided whether, under
such circumstances, the Company would prepare or provide such information.

      Alternatively,  if the Company  were to become a PFIC,  a U.S.  Holder may
make a  mark-to-market  election to elect out of the excess  distribution  rules
discussed above. If a U.S. Holder made a mark-to-market election for the


                                       58
<PAGE>

shares, the U.S. Holder would include in income each year an amount equal to the
excess,  if any, of the fair  market  value of the shares as of the close of the
U.S. Holder's taxable year over the U.S. Holder's adjusted basis in such shares.
A U.S.  Holder is allowed a deduction  for the excess,  if any, of the  adjusted
basis of the shares over their fair market  value as of the close of the taxable
year only to the extent of any net  mark-to-market  gains on the shares included
in the U.S. Holder's income for prior taxable years.  Amounts included in a U.S.
Holder's income under a mark-to-market  election,  as well as gain on the actual
sale or other disposition of the shares are treated as ordinary income. Ordinary
loss treatment also applies to the deductible portion of any mark-to-market loss
on the shares, as well as to any loss realized on the actual sale or disposition
of the  shares,  to the extent  that the amount of such loss does not exceed the
net  mark-to-market  gains previously  included for such shares. A U.S. Holder's
basis in the shares will be adjusted to reflect any such income or loss amounts.
Other than net capital gains  treatment for dividends,  the tax rules that apply
to   distributions   by  corporations   which  are  not  PFICs  would  apply  to
distributions by the Company.

      The mark-to-market election is available only for stock which is regularly
traded on a national  securities exchange that is registered with the Securities
and Exchange  Commission,  or the national market system established pursuant to
section  11A of the  Exchange  Act,  or any  exchange or market that the IRS has
determined  has rules  sufficient  to carry out the  purposes  of the income tax
rules.  There can be no assurance  that the Company will continue to satisfy the
requirements of the mark-to-market election.

      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 2009 the  standard  corporate
income tax rate will be 20% on profits  up to (euro)  200,000  and 25.5% for the
excess.  In 2008 the standard  corporate  income tax rate was 20% applicable for
taxable profits up to (euro) 275,000 and 25.5% for the excess.

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


                                       59
<PAGE>

(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;  unless  the  subsidiary  company  can be  considered  as a
low-taxed portfolio investment company;

      A subsidiary  company is considered as  "low-taxed" 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 a  subsidiary  company  qualifies  as a (low  taxed)  portfolio
investment  company  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 is applied from the perspective of the subsidiary itself.

      Nonetheless, the participation exemption will be applicable 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 taxed  in the  hands  of ICTS  against  ordinary
corporate  income  tax  rates,  while a  (partial)  credit  may be  allowed  for
underlying taxes.

      Costs  related  to  the  acquisition  of  qualifying   participations  are
generally  added  to the  cost  price  of the  acquisition  and are as such  not
deductible.  Other  expenses  relating  to  participations  (e.g.  the  cost  of
financing),  regardless  of whether  they are  resident  in the  Netherlands  or
abroad,  are in principle  deductible  (however,  see infra).  As of 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 of 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 harbor, ICTS may from year to year decide
to apply  the  average  debt/equity  ratio of the "top  entity"  of the group of
companies  to which it belongs as its  maximum  debt/equity  ratio  based on the
statutory  commercial  (consolidated)  accounts  of that  entity.  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).


                                       60
<PAGE>

      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 of 2008 the term for  carry-back  operating  losses is  reduced  to one
year. Further, the term for carry-forward of losses is restricted to nine years,
subject  to certain  anti-abuse  provisions.  Not yet  compensated  losses  will
disappear  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,

      Limitations on loss  compensation  may also apply in the case of so-called
"holding  losses",  - 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 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.

      Corporate Income Tax 2007 Act, other changes

      As of January 1, 2007,  changes to the  corporate  income tax  legislation
include the introduction of an "interest box" and a "patent box".

      In the  interest  box regime  (not yet  entered  into  force),  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,  which has  entered  into  force,  income  from
self-developed  intangible assets will be taxed an effective tax rate of 10%. In
general,  the maximum  amount of income to be taxed this special rate is limited
to 4 times the total costs in relation to the intangible assets.  Application of
the patent box is  possible in relation  only 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 still  decide to apply the patent
box regime.

      Further,  as of January  1, 2008  restrictions  apply on the  depreciation
period of goodwill and other business assets.  The minimum  depreciation  period
for goodwill is 10 years.  The minimum  depreciation  period for other  business
assets  is 5 years.  It  should  still be  possible  to  value  assets  at lower
going-concern value. Further, restrictions have been


                                       61
<PAGE>

introduced  on  the  depreciation  of  real  estate  property.  Depreciation  of
investment  property is no longer 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 is
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  jurisdictions  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 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 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,  or under the
provisions of the EU Parent/Subsidiary  Directive. 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 set at a rate of 15%
in the case of an individual  shareholder,  and is reduced to lower rates in the
case of a corporate shareholder.

      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 subject to Dutch dividend  withholding  tax of 15%,  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.


                                       62
<PAGE>

      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, 2008, in exceptional  cases,
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 of April 27, 2001,
which may have an impact on the levy of dividend withholding tax.

      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 or 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 may be in effect  between the country of residence of the
shareholder and the Netherlands.


                                       63
<PAGE>

      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.

      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.

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

      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 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.  The IRS has proposed a number of adjustments that
collectively  result in an assessed tax  liability  including  penalties of $7.3


                                       64
<PAGE>

million  plus  interest.   Management  is  vigorously  contesting  the  proposed
adjustments and has filed a "protest" with the IRS. This matter will be heard by
the  Appellate  Division  of the  IRS,  at which  time  management  will  have a
opportunity  to  present  its  position  on the  various  issues  raised  at the
examination  level.   Management  has  provided  for  possible  tax  liabilities
resulting from this examination in its financial statements presented herein.

      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 - applies to Company's  operations  outside
the USA. In 2008,  about 41% of the Companies  revenues were derived in the USA,
and 59% was derived in Europe.

      The Company is subject to changes in the 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 $125,000 in the year ended December 31, 2008.

      See also note 2 in the financial statements.

Item 12. Description of Securities Other than Equity Securities

      Not applicable

                                     PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

      As of  December  31, 2008 two of the  subsidiaries  were in  violation  of
certain financial  covenants  specified in the credit  agreement,  including the
payment  of  dividends  without  the  approval  of the  commercial  bank and the
maintenance of a minimum  tangible net worth  threshold.  However the commercial
bank accepted those violations with no penalties to the Company.  On May 1, 2009
the credit agreement expired.


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<PAGE>

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,  have evaluated the effectiveness of our disclosure  controls
and  procedures  as of  December  31,  2008.  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 chief
financial  officer are 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  chief
financial  officer  assessed  the  effectiveness  of our  internal  control over


                                       66
<PAGE>

financial  reporting as of December 31, 2008.  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, Procheck  International BV,
I-SEC  Netherlands  BV,  I-SEC  France  and  Huntleigh  Corp  USA;  collectively
"Subsidiaries".  Our management  including our chief  executive  officer and our
chief financial officer has concluded based on its assessment, that our internal
control over financial  reporting was effective as of December 31, 2008 based on
these criteria.

      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,  2008 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,  MHM Mahoney Cohen,  CPAs,  P.C. ("MHM MC"), for services
rendered to us for the year ended  December 31, 2008.  The fee billed by MHM MC,
our  independent   registered  public  accounting  firm,  for  audit  and  other
professional  services during 2008 is 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.


                                       67
<PAGE>

                                                 2008    2007
                                                 ----    ----
                Audit fees:
                Audit fees                       300     300
                Audit related fees
                Sub-total                        300     300
                Non-Audit services:
                Tax fees
                Total fees                       300     300

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.

Item 16F. Change in Accountants Disclosure.

      ICTS International  N.V. ("the Company")  appointed MHM Mahoney Cohen CPAs
as the Company's new auditor on January 8, 2009. The Company's  audit  committee
approved the  engagement  of the successor  firm of MHM Mahoney Cohen CPAs.  The
Company was notified that the shareholders of Mahoney Cohen & Company, CPA, P.C.
("MC"),  became  shareholders  of Mayer Hoffman  McCann P.C pursuant to an asset
purchase  agreement which is registered with the PCAOB. The New York practice of
Mayer Hoffman McCann P.C. now operates under the name MHM Mahoney Cohen CPAs.

      During the Company's two most recent fiscal years ended  December 31, 2007
and December 31, 2006,  and through the date of this Current Report on this Form
20F, the Company did not consult with MHM Mahoney  Cohen CPAs  regarding  any of
the  matters or  reportable  events set forth in Item 304 (a)(2) (i) and (ii) of
Regulation S-K.

      The  audit  reports  of  MC  were  based  on  the  consolidated  financial
statements  of the Company as of and for the years ended  December  31, 2007 and
2006 did not contain an adverse opinion or a disclaimer of opinion, and were not
qualified except that both reports included emphasis  paragraphs  relating to an
uncertainty  as to the  Company's  ability to  continue  as a going  concern and
regarding other uncertainties.

      In  connection  with the audits of the  Company's  consolidated  financial
statements for each of the fiscal years ended December 31, 2007 and December 31,
2006 and through the date of this Current Report on Form 20F, there were (i.) no
disagreements between the Company and MC on any matters of accounting principles
or practices,  financial statement disclosures, or auditing scope or procedures,
which  disagreements,  if not  resolved to the  satisfaction  of MC,  would have
caused MC to make reference to the subject matter of the  disagreement  in their
reports  on the  Company's  financial  statements  for  such  years  or for  any
reporting period since the Company's last fiscal year end and (ii) no reportable
events within the meaning set forth in Item 304 (a)(1)(v) of Regulation S-K were
noted,  except in 2006 the Company reported material weaknesses as noted on Item
15 of Form 20-F for the year ended December 31, 2006 filed July 17, 2007.  These
matters were remediated in 2007.


                                       68
<PAGE>

Item 16G. Corporate Governance.

      There are no  significant  differences  between the  corporate  governance
practices  in the  Netherlands  and the U.S.  The  Company  has adapted the U.S.
practices.

                                    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

Item 19. Exhibits

      1. Articles of Association of the Company.*

      2. Articles of Amendment of the Articles of  Association  filed as exhibit
to Form 6K dated April 22, 2009.

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

      4. 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.


                                       69
<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. AND SUBSIDIARIES

                                      By: /s/ Avraham Dan
                                      -----------------------------
                                      Name: Avraham Dan
                                      Title: Managing Director

Date: June 24, 2009


                                       70
<PAGE>

                    ICTS INTERNATIONAL N.V. AND SUBSIDIARIES

                               2008 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 Loss               F-5

  Consolidated Statements of Changes in Shareholders' Deficiency             F-6

  Consolidated Statements of Cash Flows                                      F-7

  Notes to Consolidated Financial Statements                                 F-9


                                      F-1
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

      We have  audited  the  accompanying  consolidated  balance  sheet  of ICTS
International  N.V.  and  Subsidiaries  as of December  31, 2008 and the related
consolidated  statements  of  operations  and  comprehensive  loss,  changes  in
shareholders'  deficiency,  and  cash  flows  for the  year  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 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.  The  Company is not
required  to have,  nor were we engaged  to  perform,  an audit of its  internal
control over financial reporting.  Our audit included  consideration of internal
control over financial  reporting as a basis for designing audit procedures that
are appropriate in the  circumstances,  but not for the purpose of expressing an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting. Accordingly, we express no such opinion. 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  financial  position  of ICTS
International  N.V. and  Subsidiaries as of December 31, 2008 and the results of
its  operations  and its cash flows for the year then ended in  conformity  with
accounting principles generally accepted in the United States of America.

      As  disclosed  in Notes 13 and 16, the Company is involved in  significant
litigation  in connection  with (a) an audit of the Company's  operations in the
United States of America by the Internal  Revenue  Service (b) the September 11,
2001  terrorist  attacks  in the  United  States of  America,  (c)  unpaid  rent
obligations  related to certain non-core businesses which have been discontinued
in the United States of America, and (d) certain claims made against the Company
by the United States Transportation Security Administration.

      The  accompanying  consolidated  financial  statements  have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
1 to the consolidated  financial statements,  the Company has suffered recurring
losses  from  operations,  deficiencies  in  working  capital  and is subject to
potential material 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  plans  with  regard  to  these  matters  are also
described in Note 1. The  consolidated  financial  statements do not include any
adjustments that might result from the outcome of these uncertainties.

/s/ MHM Mahoney Cohen CPAs
   (The New York Practice of Mayer Hoffman McCann P.C.)

New York, New York
June 26, 2009


                                      F-2
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

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

      We have  audited  the  accompanying  consolidated  balance  sheet  of ICTS
International  N.V.  and  Subsidiaries  as of December  31, 2007 and the related
consolidated  statements  of  operations  and  comprehensive  loss,  changes  in
shareholders'  deficiency,  and cash flows for each of the years in the two year
period 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 is not
required  to have,  nor were we engaged  to  perform,  an audit of its  internal
control over financial reporting.  Our audit included  consideration of internal
control over financial  reporting as a basis for designing audit procedures that
are appropriate in the  circumstances,  but not for the purpose of expressing an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting. Accordingly, we express no such opinion. 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 the results of
its  operations  and its cash flows for each of the years in the two year period
then ended in conformity with accounting  principles  generally  accepted in the
United States of America.

      As  disclosed  in Notes 13 and 16, the Company is involved in  significant
litigation in connection  with: (a) an audit of the Company's  operations in the
United States of America by the Internal  Revenue  Service (b) the September 11,
2001  terrorist  attacks  in the  United  States of  America,  (c)  unpaid  rent
obligations  related to certain non-core businesses which have been discontinued
in the United States of America,  (d) certain claims made against the Company by
the United States Transportation  Security Administration and (e) the successful
renewal of a material contract by one of the Company's subsidiaries.

      The accompanying financial statements have been prepared assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
consolidated  financial  statements,  the Company has suffered  recurring losses
from  operations,  deficiencies  in working  capital 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  plans with regard to these  matters are also  described in Note 1.
The consolidated  financial statements do not include any adjustments that might
result from the outcome of these uncertainties.

/s/ Mahoney Cohen & Company, CPA, P.C.

New York, New York
June 30, 2008


                                      F-3
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                     December 31,
                                                                                           --------------------------------
ASSETS                                                                                        2008                   2007
                                                                                           --------------------------------
<S>                                                                                        <C>                     <C>
CURRENT ASSETS:
  Cash and cash equivalents                                                                $  3,750                $  2,095
  Restricted cash                                                                              --                     1,795
  Accounts receivable, net                                                                   11,448                  10,200
  Prepaid expenses and other current assets                                                   1,373                   1,681
  Current assets from discontinued operations                                                  --                     2,873
                                                                                           --------------------------------

Total current assets                                                                         16,571                  18,644

Property and equipment, net                                                                   1,728                   1,519
Customer relationship, net                                                                     --                        53
Goodwill                                                                                        314                     314
Restricted cash                                                                               3,500                   3,500
Other receivable - United States government                                                   3,000                   2,934
Other assets                                                                                    283                     139
                                                                                           --------------------------------

Total assets                                                                               $ 25,396                $ 27,103
                                                                                           ================================

LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
  Notes payable-bank                                                                       $  4,861                $  6,719
  Accounts payable                                                                            4,087                   4,432
  Accrued expenses and other current liabilities                                             21,023                  16,181
  Convertible notes payable to related party,
    including accrued interest                                                                 --                       884
  Current liabilities from discontinued operations                                            1,898                   2,089
                                                                                           --------------------------------

Total current liabilities                                                                    31,869                  30,305

Convertible notes payable to related party,
  including accrued interest                                                                  6,072                   5,644
Other liabilities                                                                             3,144                   3,234
Non-current liabilities from discontinued operations                                          7,276                   8,530
                                                                                           --------------------------------

Total liabilities                                                                            48,361                  47,713
                                                                                           --------------------------------

COMMITMENTS AND CONTINGENCIES (NOTE 16)

SHAREHOLDERS' DEFICIENCY:
  Common stock, (euro)0.45 par value; 17,000,000
    shares authorized; 6,672,980 shares issued and
    6,528,100 shares outstanding                                                              3,605                   3,605
  Additional paid-in capital                                                                 20,655                  20,554
  Accumulated deficit                                                                       (38,827)                (36,858)
  Accumulated other comprehensive loss                                                       (7,499)                 (7,012)
  Treasury stock, at cost; 144,880 shares                                                      (899)                   (899)
                                                                                           --------------------------------

Total shareholders' deficiency                                                              (22,965)                (20,610)
                                                                                           --------------------------------

Total liabilities and shareholders' deficiency                                             $ 25,396                $ 27,103
                                                                                           ================================
</TABLE>

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


                                      F-4
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                     Year Ended December 31,
                                                                     -------------------------------------------------------
                                                                         2008                  2007                 2006
                                                                     -------------------------------------------------------
<S>                                                                  <C>                   <C>                   <C>
Revenue                                                              $    98,809           $    64,780           $    60,791
Cost of revenue                                                           85,107                52,397                55,284
                                                                     -------------------------------------------------------

GROSS PROFIT                                                              13,702                12,383                 5,507
Selling, general, and administrative expenses                             15,341                13,338                14,878
                                                                     -------------------------------------------------------

OPERATING LOSS                                                            (1,639)                 (955)               (9,371)
Other income (expense), net                                                 (856)               (3,580)                  527
                                                                     -------------------------------------------------------

LOSS BEFORE EQUITY LOSS FROM INVESTMENTS IN
   AFFILIATES AND INCOME TAXES                                            (2,495)               (4,535)               (8,844)

Equity loss from investments in affiliates                                  --                  (2,479)                 (132)
Income taxes                                                                (402)                 (966)                 (846)
                                                                     -------------------------------------------------------

LOSS FROM CONTINUING OPERATIONS                                           (2,897)               (7,980)               (9,822)
Income (loss) from discontinued operations,
  net of income tax benefit (expense) of
  $(2), $2,470 and $(2,476) in 2008, 2007
  and 2006, respectively.                                                    928                 5,422                (4,248)
                                                                     -------------------------------------------------------

NET LOSS                                                             $    (1,969)          $    (2,558)          $   (14,070)
                                                                     =======================================================

NET INCOME (LOSS) PER SHARE, BASIC AND DILUTED
Continuing operations                                                $     (0.44)          $     (1.22)          $     (1.51)
Discontinued operations                                                     0.14                  0.83                 (0.65)
                                                                     -------------------------------------------------------

Net loss per share                                                   $     (0.30)          $     (0.39)          $     (2.16)
                                                                     =======================================================

Weighted average number of shares outstanding                          6,528,100             6,528,100             6,528,100
                                                                     =======================================================

COMPREHENSIVE LOSS
Net loss                                                             $    (1,969)          $    (2,558)          $   (14,070)
Translation adjustment                                                      (487)                   80                  (399)
Unrealized gain on marketable equity securities                             --                     497                   104
                                                                     -------------------------------------------------------

Comprehensive loss                                                   $    (2,456)          $    (1,981)          $   (14,365)
                                                                     =======================================================
</TABLE>

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


                                      F-5
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                              Accumulated
                                               Common Stock        Additional                    Other                    Total
                                           --------------------     Paid-In    Accumulated   Comprehensive  Treasury   Shareholders'
                                            Shares       Amount     Capital      Deficit         Loss        Stock      Deficiency
                                           ---------------------------------------------------------------------------------------
<S>                                        <C>           <C>        <C>         <C>            <C>           <C>         <C>
BALANCE at JANUARY 1, 2006                 6,528,100     $3,605     $19,670     $(20,230)      $(7,294)      $(899)      $ (5,148)

Stock-based compensation                        --         --           511         --            --          --              511
Net loss                                        --         --          --        (14,070)         --          --          (14,070)
Translation adjustment                          --         --          --           --             104        --              104
Unrealized loss on marketable
  equity securities                             --         --          --           --            (399)       --             (399)
                                           ---------------------------------------------------------------------------------------

BALANCE at DECEMBER 31, 2006               6,528,100      3,605      20,181      (34,300)       (7,589)       (899)       (19,002)
Stock-based compensation                        --         --           373         --            --          --              373
Net loss                                        --         --          --         (2,558)         --          --           (2,558)
Translation adjustment                          --         --          --           --              80        --               80
Unrealized gain on marketable
  equity securities                             --         --          --           --             497        --              497
                                           ---------------------------------------------------------------------------------------

BALANCE at DECEMBER 31, 2007               6,528,100      3,605      20,554      (36,858)       (7,012)       (899)       (20,610)
Stock-based compensation                        --         --           101         --            --          --              101
Net loss                                        --         --          --         (1,969)         --          --           (1,969)
Translation adjustment                          --         --          --           --            (487)       --             (487)
                                           ---------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 2008               6,528,100     $3,605     $20,655     $(38,827)      $(7,499)      $(899)      $(22,965)
                                           ======================================================================================
</TABLE>

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


                                      F-6
<PAGE>

                    ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              (US $ and (euro) in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                         Year Ended December 31,
                                                                             ----------------------------------------------
                                                                               2008               2007                2006
                                                                             ----------------------------------------------
<S>                                                                          <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss                                                                     $(1,969)           $(2,558)           $(14,070)
Income (loss) from discontinued operations                                       928              5,422              (4,248)
                                                                             ----------------------------------------------

Loss from continuing operations                                               (2,897)            (7,980)             (9,822)
Adjustments to reconcile net loss to net cash
  provided by (used in) operating activities:
  Depreciation and amortization                                                  781              1,218               1,127
  Impairment of property and equipment                                             4                 48                  40
  Deferred income taxes                                                         --                 --                    42
  Loss (gain) on property and equipment                                          (12)               (59)                  6
  Other receivable - United States government                                    (64)              --                  --
  Other assets                                                                    38               (295)               (575)
  Impairment of investments                                                     --                  855                --
  Equity loss in investments in affiliates                                      --                2,290                 132
  Stock- based compensation                                                      101                373                 511
  Gain on settlement of liability                                               --               (4,266)               --
  Changes in assets and liabilities:
    Accounts receivable, net                                                  (1,339)               364                 438
    Prepaid expenses and other current assets                                    265                103                 (20)
    Decrease in deposits                                                        --                   93                  82
    Accounts payable                                                            (306)               633                 924
    Accrued expenses and other current liabilities                             4,930              2,827               1,314
    Net cash provided by (used in) discontinued
      operations                                                               2,356                175              (1,824)
                                                                             ----------------------------------------------

Net cash provided by (used in) operating activities                            3,857             (3,621)             (7,625)
                                                                             ----------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment                                          (1,042)              (792)               (630)
  Proceeds from affiliates                                                      --                 --                   443
  Proceeds from sale of property and equipment                                    61                135                  22
  Proceeds from sale of equity method investments                               --                  295                 419
  Proceeds from sale of other investments
    previously impaired                                                         --                 --                   224
  Decrease (increase) in restricted cash                                       1,791               (770)               (665)
  Increase in other assets                                                      (185)              --                   (14)
  Net cash provided by discontinued operations                                  --                   55                --
                                                                             ----------------------------------------------

Net cash provided by (used in) investing activities                              625             (1,077)               (201)
</TABLE>

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


                                      F-7
<PAGE>

                    ICTS INTERNATIONAL N.V. AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONCLUDED)
              (US $ and (euro) in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                          Year Ended December 31,
                                                                             -----------------------------------------------
                                                                               2008                2007                2006
                                                                             -----------------------------------------------
<S>                                                                              <C>                <C>                 <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayments of other liabilities                                                (91)               (195)               (144)
  Net increase (decrease) in notes payable - bank                             (1,824)              1,562               1,224
  Net proceeds (repayments of) convertible notes
     payable to related party                                                   (234)              3,991               2,652
  Net cash from discontinued operations to
     financing activities                                                       --                  (373)               --
                                                                             -----------------------------------------------

Net cash provided by (used in) financing activities                           (2,149)              4,985               3,732
                                                                             -----------------------------------------------

EFFECT OF CHANGES IN FOREIGN CURRENCY EXCHANGE
  RATES ON CASH AND CASH EQUIVALENTS                                            (678)                 65                 (90)
                                                                             -----------------------------------------------

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                               1,655                 352              (4,184)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                   2,095               1,743               5,927
                                                                             -----------------------------------------------

CASH AND CASH EQUIVALENTS, END OF YEAR                                       $ 3,750             $ 2,095             $ 1,743
                                                                             ===============================================

                                                                                          Year Ended December 31,
                                                                             -----------------------------------------------
                                                                               2008                2007                2006
                                                                             -----------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES
  Cash paid during the year for:
  Interest                                                                   $   565             $   624             $   667
                                                                             ===============================================

  Income taxes                                                               $   270             $   226             $   110
                                                                             ===============================================
</TABLE>

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


                                      F-8
<PAGE>

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

NOTE 1 - ORGANIZATION

Description of Business

ICTS International N.V. and 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 airlines and airport
authorities mainly in Europe and the United States of America.

Liquidity and Financial Condition

The Company has a history of recurring losses and working capital  deficiencies.
The Company incurred net losses of $1,969,  $2,558, and $14,070 during the years
ended December 31, 2008, 2007, and 2006, respectively.  As of December 31, 2008,
the  Company  had a working  capital  deficit and  shareholders'  deficiency  of
$15,298 and $22,965, respectively. In addition, as further described in Notes 13
and 16, the Company is subject to potential material contingencies in connection
with:  (a) an audit of the Company's  operations in the United States of America
by the Internal Revenue Service (b) the September 11, 2001 terrorist  attacks in
the United  States of America,  (c) unpaid rent  obligations  related to certain
non-core  businesses  which  have  been  discontinued  in the  United  States of
America,  and (d)  certain  claims made  against the Company  made by the United
States Transportation Security  Administration.  These factors raise substantial
doubt about the Company's ability to continue as a going concern.

Management  believes that the Company's  operating  cash flows and related party
financing  activities  will  provide  it  with  sufficient  funds  to  meet  its
obligations  and execute its business plan for the next twelve months.  However,
there are no assurances that management's  plans to generate  sufficient cash to
continue  to  operate  the  Company  will  be   successful.   The   accompanying
consolidated  financial  statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

The  consolidated  financial  statements  have been prepared in accordance  with
accounting  principles  generally  accepted  in the  United  States  of  America
("U.S.GAAP"). The significant accounting policies are as follows:

Functional Currency

The  accompanying  consolidated  financial  statements  are  presented in United
States dollars in accordance  with Statement of Financial  Accounting  Standards
("SFAS") No 52, "Foreign Currency  Translation." The Company has determined that
the functional currency of its foreign subsidiaries is the local currency, which
is  predominantly  the Euro. For financial  reporting  purposes,  the assets and
liabilities of such subsidiaries are translated into United States dollars using
exchange  rates in effect at the balance sheet date. The revenue and expenses of
such  subsidiaries  are  translated  into United  States  dollars  using average
exchange  rates in effect during the  reporting  period.  Resulting  translation
adjustments  are presented as a separate  category in  shareholders'  deficiency
called accumulated other comprehensive loss.


                                      F-9
<PAGE>

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Use of Estimates

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 revenue and
expenses  during the  reporting  periods.  The most  significant  estimates  and
assumptions  relate  to the  (a)  calculation  of  the  allowance  for  doubtful
accounts, (b) recognition of contingent  liabilities,  (c) calculation of income
taxes,  (d)  impairment  evaluation of marketable  equity  securities and equity
method  investments  and (e) calculation of stock-based  compensation  for stock
option grants. Actual results could differ from those estimates.

Principles of Consolidation

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

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of
three months or less when purchased to be cash and cash equivalents.

Restricted Cash

During  2007,  the  Company won a bid to provide  security  services to Schiphol
International  Airport  in  the  Netherlands.  Pursuant  to  the  terms  of  the
arrangement,  the Company provided the airport with a guarantee of approximately
$1,800 through a commercial  bank to guarantee the  performance of its services.
The Company  secured such guarantee by depositing cash collateral of $1,800 with
this commercial  bank. As of December 31, 2007, the cash collateral is reflected
as restricted cash on the  accompanying  balance sheet. In 2008, the Company was
released from the cash collateral requirement.

The Company has a $3,500 time deposit with a commercial bank that serves as cash
collateral to secure a loan and security  agreement for one of its  subsidiaries
(See Note 7). As of December 31, 2008 and 2007, the cash collateral is reflected
as restricted cash on the accompanying balance sheet.

Accounts Receivable

Accounts receivable  represent amounts due to the Company for services rendered.
The Company provides an allowance for doubtful  against  accounts  receivable to
estimate losses  resulting from  customers'  inability to pay. The allowance for
doubtful accounts is based on historical collection experience,  factors related
to a specific  customer  and current  economic  trends.  The Company  writes off
accounts receivable against the allowance for doubtful accounts when the balance
is  determined  to be  uncollectible.  As of  December  31,  2008 and 2007,  the
allowance for doubtful accounts is $328 and $507, respectively.


                                      F-10
<PAGE>

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Marketable Equity Securities

The Company  accounts for marketable  equity  securities in accordance with SFAS
No. 115,  "Accounting  for Certain  Investments  in Debt and Equity  Securities"
("SFAS 115"). All of the Company's  marketable  equity securities are classified
as available for sale securities.  Available for sale securities are reported at
fair  value  (which is  determined  based upon the  quoted  market  price of the
underlying  securities)  with unrealized  gains (losses) being reported,  net of
related  income  taxes,  as  a  separate   component  of  shareholders'   equity
(deficiency)  called  accumulated other  comprehensive  income (loss).  Realized
gains (losses) are included in the consolidated statement of operations upon the
sale of the securities. As of December 31, 2007, the Company determined that the
decline  in fair  value of its  marketable  equity  securities  was  other  than
temporary and that the marketable equity securities were impaired.  Accordingly,
the Company  recognized  an impairment  charge of $600.  The  impairment  charge
represents the carrying value of the marketable equity securities as of December
31, 2007 of $103 and cumulative  unrealized  losses through December 31, 2007 of
$497 which were previously recognized in accumulated other comprehensive loss.

Investments in Affiliates

The Company  accounts for investments in equity  securities in which it holds an
ownership  interest of 20% or more and has the  ability to exercise  significant
influence,  provided  it does not have  control,  using  the  equity  method  as
prescribed by Accounting  Principles Board Opinion No. 18, "The Equity Method of
Accounting  for  Investments  in Common  Stock." The equity method  requires the
Company to recognize  its share of the net income (loss) of its investees in the
consolidated  statement of operations until the carrying value of the investment
is zero.

Property and Equipment

Equipment  and  facilities  and  vehicles  are  stated at cost less  accumulated
depreciation.  Depreciation is computed using the straight-line  method over the
estimated  useful  lives of the  assets.  The  estimated  useful  lives  used in
determining depreciation are as follows:

                                 Years
                                 -----
Equipment and facilities          3-20
Vehicles                          3-7

Leasehold  improvements  are amortized using the  straight-line  method over the
shorter of the term of the lease or the estimated useful lives of the assets.

Customer Relationship

The customer relationship represents the fair value of an airport contract of an
acquired   business.   The  customer   relationship   is  amortized   using  the
straight-line  method over the life of the contract of six years. As of December
31, 2008, the customer relationship is fully amortized.


                                      F-11
<PAGE>

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Goodwill

Goodwill  represents the excess purchase price over the fair value of the net of
tangible and intangible assets of an acquired business. Goodwill is reviewed for
impairment  at least  annually  by  reporting  unit using the  two-step  process
outlined  in  Financial  Accounting  Standards  No.  142,  "Goodwill  and  Other
Intangible  Assets." If the carrying value of the reporting  unit's  goodwill is
not recoverable  based upon a discounted cash flow analysis,  then an impairment
charge is recorded for the  difference  between the carrying  value and the fair
value of the  reporting  unit's  goodwill.  During the years ended  December 31,
2008, 2007 and 2006, the Company has not recorded any impairment  charges on its
goodwill.

Long-Lived Assets

The Company  reviews  long-lived  assets,  other than  goodwill,  including  the
customer   relationship,   for   impairment   whenever   events  or  changes  in
circumstances  indicate  that  the  carrying  value  of  the  asset  may  not be
recoverable.  The Company assesses recoverability by determining whether the net
book  value  of the  related  asset  will be  recovered  through  the  projected
undiscounted  future cash flows of the asset. If the Company determines that the
carrying value of the asset may not be  recoverable,  it measures any impairment
based on the projected  future  discounted cash flows as compared to the asset's
carrying  value.  During the years ended December 31, 2008,  2007, and 2006, the
Company has recorded  impairment charges on its long-lived assets of $4, $48 and
$40, respectively.

Convertible Debt Instruments

The Company  evaluates  and  accounts  for  conversion  options  embedded in its
convertible  debt  instruments in accordance with SFAS No. 133,  "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), and Emerging Issues
Task Force  ("EITF")  Issue No.  00-19,  "Accounting  for  Derivative  Financial
Instruments  Indexed to, and  Potentially  Settled  in, a  Company's  Own Stock"
("EITF 00-19"). SFAS 133 generally provides three criteria that, if met, require
companies  to  bifurcate  conversion  options  from their host  instruments  and
account for them as free standing derivative financial instruments in accordance
with EITF 00-19.  These three criteria  include  circumstances in which: (a) the
economic characteristics and risks of the embedded derivative instrument are not
clearly and closely  related to the  economic  characteristics  and risks of the
host  contract,  (b) the  hybrid  instrument  that  embodies  both the  embedded
derivative  instrument  and the host contract is not  re-measured  at fair value
under  otherwise  applicable  accounting  principles  generally  accepted in the
United States of America with changes in fair value reported in earnings as they
occur  and (c) a  separate  instrument  with  the  same  terms  as the  embedded
derivative instrument would be considered a derivative instrument subject to the
requirements  of SFAS 133.  SFAS 133 and EITF 00-19 also provide an exception to
this rule when the host instrument is deemed to be conventional (as that term is
described in the  implementation  guidance to SFAS 133 and further  clarified in
EITF Issue No. 05-2, "The Meaning of Conventional Convertible Debt Instrument in
Issue No. 00-19."


                                      F-12
<PAGE>

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Convertible Debt Instruments (Continued)

The Company accounts for convertible  debt  instruments  (when it has determined
that the embedded  conversion  options should not be bifurcated  from their host
instruments)  in  accordance  with  the  provisions  of  EITF  Issue  No.  98-5,
"Accounting for Convertible  Securities  with  Beneficial  Conversion  Features"
("EITF 98-5"),  and EITF Issue No. 00-27,  "Application  of EITF 98-5 to Certain
Convertible  Instruments."  Accordingly,  the Company  records,  when necessary,
discounts to convertible  debt instruments for the intrinsic value of conversion
options  embedded in convertible  debt  instruments  based upon the  differences
between the fair value of underlying  common stock at the commitment date of the
debt  instrument  and  the  effective  conversion  price  embedded  in the  debt
instrument.

Comprehensive Loss

The  Company  reports  comprehensive  loss in  accordance  with  SFAS  No.  130,
"Reporting  Comprehensive Income" ("SFAS 130"). SFAS 130 requires the disclosure
of  comprehensive  income  (loss) to  reflect  changes in  shareholders'  equity
(deficiency)  that result from  transactions  and economic events from non-owner
sources. The Company's comprehensive loss for the years ended December 31, 2008,
2007, and 2006 consists of its net loss, foreign currency translation adjustment
and unrealized gain (loss) on marketable equity securities.

Stock-Based Compensation

Effective  January 1,  2006,  the  Company  adopted  the fair value  recognition
provisions of SFAS No.123(R),  and began to recognize  compensation  expense for
share-based  awards,  including  stock option grants,  based upon the grant date
fair value over the  requisite  service  period,  which is generally the vesting
period of the award.

As  permitted  under SFAS  123(R),  the  Company  elected to adopt the  modified
prospective   transition   method  and  continue  to  account  for   stock-based
compensation  granted prior to January 1, 2006 using the intrinsic  value method
prescribed  under Accounting  Principles  Board Opinion No. 25,  "Accounting for
Stock Issued to Employees."

Revenue Recognition

Revenue is recognized as services are rendered,  based on the terms contained in
the contractual  arrangements,  provided the fee is fixed and determinable,  the
services  have been  rendered,  and  collection  of the  related  receivable  is
reasonably assured.


                                      F-13
<PAGE>

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Cost of Revenue

Cost of revenue  represents  primarily payroll and related costs associated with
employees  who provide  services  under the terms of the  Company's  contractual
arrangements. Such costs are recognized as services are provided.

Advertising Costs

Advertising  costs are expensed as incurred.  Advertising costs during the years
ended December 31, 2008, 2007 and 2006 are $235, $111 and $115, respectively.

Income Taxes

The Company  accounts for income taxes using the liability  method as prescribed
by SFAS No.109,  "Accounting for Income Taxes". Under this method,  deferred tax
assets  and  liabilities   are  recognized  for  the  future  tax   consequences
attributable to temporary  differences  between the financial statement carrying
amounts of  existing  assets and  liabilities  and their  respective  tax bases.
Deferred  tax  assets and  liabilities  are  measured  using  enacted  tax rates
expected  to apply to  taxable  income  in the  years in which  those  temporary
differences are expected to be recovered or settled.  The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in the period that
includes  the  enactment  date.   Valuation   allowances  are  established  when
realization of net deferred tax assets is not considered more likely than not.

On January 1, 2007, the Company  adopted  Financial  Accounting  Standards Board
Interpretation  No.48,  "Accounting for Uncertainty in Income Taxes" ("FIN 48").
FIN 48, which interprets  Statement of Financial  Accounting  Standards No. 109,
"Accounting for Income Taxes," prescribes a recognition threshold or measurement
attribute for the  financial  statement  recognition  and  measurement  of a tax
position  taken or  expected  to be taken in an income tax  return.  FIN 48 also
provides  guidance or  de-recognition,  classification,  interest and penalties,
accounting  in  interim  periods,  disclosure  and  transition.  On the  date of
adoption,  there was no impact on beginning retained earnings  pertaining to FIN
48  as a  liability  was  already  recorded  for  the  Company's  uncertain  tax
positions.

The Company  recognizes  interest related to uncertain tax positions in interest
expense.  The Company recognizes penalties related to uncertain tax positions in
selling, general and administrative expenses.

Earnings (Loss) Per Share

Basic  earnings  (loss) per share is  computed  by  dividing  net income  (loss)
available to common  stockholders  by the weighted  average  number of shares of
common stock outstanding during the period. Diluted earnings (loss) per share is
determined in the same manner as basic  earnings  (loss) per share,  except that
the number of shares is increased  to include  potentially  dilutive  securities
using the treasury stock method.  Because the Company incurred a net loss in all
periods presented,  all potentially  dilutive  securities were excluded from the
computation of diluted earnings (loss) per share because the effect of including
them is anti-dilutive.


                                      F-14
<PAGE>

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Earnings (Loss) Per Share (Continued)

The  following  table  summarizes  the number of common shares  attributable  to
potentially  dilutive securities  outstanding for each of the periods which were
excluded in the calculation of diluted earnings (loss) per share:

<TABLE>
<CAPTION>
                                                                    Year Ended December 31,
                                                     ------------------------------------------------------
                                                       2008                   2007                  2006
                                                     ---------              ---------             ---------
<S>                                                  <C>                    <C>                   <C>
Stock Options                                        1,632,000              1,723,000             1,920,000
Shares Issuable upon Conversion of
   Convertible Notes Payable to
   Related Party                                     2,208,000              1,865,000                --
                                                     ---------              ---------             ---------

Total                                                3,840,000              3,588,000             1,920,000
                                                     =========              =========             =========
</TABLE>

Fair Value of Financial Instruments

The  fair  values  of cash  and  cash  equivalents,  restricted  cash,  accounts
receivable,  accounts payable,  accrued expenses and other current  liabilities,
and notes  payable-bank  approximate their carrying values due to the short-term
nature of the  instruments.  The carrying  value note  payable to related  party
approximates  its fair value due to the variable rate of interest being charged.
The  fair  value  of  other  liabilities  is not  readily  determinable  because
comparable instruments do not exist.

Concentration of Credit Risk

Financial instruments which are subject to concentrations of credit risk consist
primarily of cash and cash equivalents, restricted cash and accounts receivable.

The Company  maintains cash and cash equivalents and restricted cash in accounts
with high  quality  financial  institutions  in the  United  States of  America,
Europe,  and Israel.  Bank  accounts at  financial  institutions  located in the
United  States  of  America  are  insured  by  the  Federal  Deposit   Insurance
Corporation  ("FDIC") for up to $250 per institution  through December 31, 2013.
As of December 31, 2008,  the cash  balances  being held in the United States of
America do not exceed the FDIC limit. Bank accounts located in Europe and Israel
which hold $3,602 as of December 31, 2008 are uninsured.

The Company  renders  services  to a limited  number of  airlines  and  airports
through service contracts and provides credit without collateral.  Some of these
airlines  and  airports  may  have   difficulties  in  meeting  their  financial
obligations which can have a material adverse effect on the Company's  financial
position,  cash flows and  results of  operations.  To mitigate  this risk,  the
Company  regularly  reviews the credit  worthiness of its customers  through its
credit evaluation process.

Revenue from two customers  represented 55%, 29% and 25% of total revenue during
the  years  ended  December  31,  2008,  2007 and 2006,  respectively.  Accounts
receivable  from  two  customers  represented  41%  and  23% of  total  accounts
receivable as of December 31, 2008 and 2007, respectively.


                                      F-15
<PAGE>

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Risks and Uncertainties

The Company is currently engaged in direct operations in numerous  countries and
is  therefore  subject  to  risks  associated  with   international   operations
(including economic and/or political  instability and trade restrictions).  Such
risks can cause the Company to have significant  difficulties in connection with
the sale or  provision  of its  services  in  international  markets  and have a
material impact on the Company's financial  position,  results of operations and
cash flows.

Furthermore, as a result of its international operations, the Company is subject
to market risks associated with foreign currency exchange rate fluctuations. The
Company does not utilize  derivative  instruments to manage its exposure to such
market risk. As such significant foreign currency exchange rate fluctuations can
have  a  material  impact  on  the  Company's  financial  position,  results  of
operations and cash flows.

Reclassifications

Certain amounts in the prior year  consolidated  financial  statements have been
reclassified to conform to the current year presentation.

Recently Issued Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 157, "Fair Value  Measurements"  ("SFAS 157").  This Statement  defines fair
value,  establishes a framework for measuring fair value and expands  disclosure
of  fair  value   measurements.   SFAS  157  applies   under  other   accounting
pronouncements  that require or permit fair value  measurements and accordingly,
does not require any new fair value  measurements.  The Company adopted SFAS 157
as of January 1, 2008.  The adoption of SFAS 157 did not have a material  effect
on the Company's consolidated financial position, results of operations, or cash
flows.

In  February,  2007,  the FASB  issued SFA No. 159,  "The Fair Value  Option for
Financial  Assets and Financial  Liabilities"  ("SFAS  159").  SFAS 159 provides
companies with an option to report selected  financial assets and liabilities at
fair value.  SFAS 159's objective is to reduce both complexity in accounting for
financial instruments and the volatility in earnings caused by measuring related
assets and liabilities  differently.  SFAS 159 also establishes presentation and
disclosure  requirements  designed to facilitate  comparisons  between companies
that choose  different  measurement  attributes  for similar types of assets and
liabilities.  SFAS 159 requires companies to provide additional information that
will help  investors  and other  users of  financial  statements  to more easily
understand the effect of the company's choice to use fair value on its earnings.
It also  requires  entities  to  display  the fair  value of  those  assets  and
liabilities  for which a company has chosen to use fair value on the face of the
balance  sheet.  The Company  adopted SFAS 159 as of January 1, 2008 and elected
not to report any of its assets and  liabilities at fair value.  The adoption of
SFAS 159 did not have a material effect on the Company's  consolidated financial
position, results of operations, or cash flows.


                                      F-16
<PAGE>

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recently Issued Accounting Pronouncements (CONTINUED)

In  December  2007,  the FASB issued SFAS No.  141(R),  "Business  Combinations"
("SFAS  141(R)"),   which  replaces  SFAS  No.  141,  "Business   Combinations,"
establishes  principles  and  requirements  for  determining  how an  enterprise
recognizes  and  measures  the fair  value of  certain  assets  and  liabilities
acquired  in  a  business  combination,   including  non-controlling  interests,
contingent consideration,  and certain acquired contingencies.  SFAS 141(R) also
requires  acquisition-related  transaction  expenses and restructuring  costs be
expensed as incurred  rather than  capitalized  as a component  of the  business
combination.   SFAS  141(R)  will  be  applicable   prospectively   to  business
combinations  for which the acquisition date is on or after the beginning of the
first annual  reporting  period  beginning on or after  December 15, 2008.  SFAS
141(R) would have an impact on the accounting for any businesses acquired by the
Company after the effective date of the pronouncement.

In December  2007, the FASB issued SFAS No. 160,  "Non-controlling  Interests in
Consolidated  Financial  Statements -- An Amendment of ARB No. 51" ("SFAS 160").
SFAS 160 establishes  accounting and reporting standards for the non-controlling
interest in a subsidiary  (previously referred to as minority  interests).  SFAS
160  also   requires   that  a  retained   non-controlling   interest  upon  the
deconsolidation  of a subsidiary be initially  measured at its fair value.  Upon
adoption   of  SFAS  160,   the   Company   would  be  required  to  report  any
non-controlling  interests as a separate component of stockholders'  equity. The
Company  would also be required to present any net income  (loss)  allocable  to
non-controlling interests and net income (loss) attributable to the shareholders
of the Company separately in its consolidated statements of operations. SFAS 160
is effective for fiscal years,  and interim  periods  within those fiscal years,
beginning  on or after  December  15,  2008.  The  Company  does not  expect the
adoption  of SFAS 160 to have a material  effect on its  consolidated  financial
position, results of operations, or cash flows.

In March  2008,  the FASB issued SFAS No.  161,  "Disclosures  about  Derivative
Instruments  and Hedging  Activities -- an amendment of FASB  Statement No. 133"
("SFAS  161").  SFAS 161  changes the  disclosure  requirements  for  derivative
instruments and hedging  activities.  Entities are required to provide  enhanced
disclosures about (a) how and why an entity uses derivative instruments, (b) how
derivative instruments and related hedged items are accounted for under SFAS 133
and its related interpretations,  and (c) how derivative instruments and related
hedged items affect an entity's financial  position,  financial  performance and
cash flows.  The  guidance in SFAS 161 is  effective  for  financial  statements
issued for fiscal years and interim  periods  beginning after November 15, 2008,
with early  application  encouraged.  This  Statement  encourages,  but does not
require,  comparative  disclosures for earlier periods at initial adoption.  The
Company has  determined at this time that this  pronouncement  does not apply to
any of its transactions.


                                      F-17
<PAGE>

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

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Recently Issued Accounting Pronouncements (CONTINUED)

In April 2008, the FASB issued FASB Staff Position SFAS 142-3, "Determination of
the Useful Life of Intangible Assets" ("FSP SFAS 142-3").  FSP SFAS 142-3 amends
the  factors  that  should be  considered  in  developing  renewal or  extension
assumptions  used to determine the useful life of a recognized  intangible asset
under FASB  Statement  No. 142,  "Goodwill  and Other  Intangible  Assets."  The
objective of this guidance is to improve the consistency between the useful life
of a recognized  intangible asset under SFAS 142 and the period of expected cash
flows used to measure  the fair value of the asset  under SFAS  141(R) and other
U.S. GAAP  principles.  FSP SFAS 142-3 is effective  for fiscal years  beginning
after  December 15,  2008.  The Company does not expect the adoption of FSP SFAS
142-3 to have a material impact on its consolidated financial position,  results
of operation, or cash flows.

In June 2008,  the FASB ratified EITF 07-5,  "Determining  Whether an Instrument
(or an Embedded  Feature) is Indexed to an Entity's  Own Stock"  ("EITF  07-5").
EITF 07-5 provides framework for determining whether an instrument is indexed to
an entity's own stock.  EITF 07-5 is effective for fiscal years  beginning after
December 15, 2008. The Company does not expect the adoption of EITF 07-5 to have
a material impact on its consolidated financial position, results of operations,
or cash flows.

In October 2008, the FASB issued FASB Staff Position  157-3,  "Determining  Fair
Value of a Financial  Asset in a Market that is Not Active" ("FSP  157-3").  FSP
157-3  classified  the  application  of  SFAS  157  in an  inactive  market.  It
demonstrated  how the fair value of a  financial  asset is  determined  when the
market  for that  financial  asset is  inactive.  FSP 157-3 was  effective  upon
issuance,  including prior periods for which  financial  statements had not been
issued.  The  adoption  of FSP  157-3  did not  have a  material  impact  on the
Company's consolidated financial position, results of operations, or cash flows.

In May 2009,  the FASB issued SFAS No. 165,  "Subsequent  Events"  ("SFAS 165").
SFAS 165 provides  general  standards of accounting for and disclosure of events
that occur  after the balance  sheet date but before  financial  statements  are
issued or are available to be issued.  SFAS No. 165 is applicable for interim or
annual  periods after June 15, 2009. The Company does not expect the adoption of
SFAS 165 to have a  material  impact  on its  consolidated  financial  position,
results of operation, or cash flows.

In June 2009, the FASB issued SFAS No. 167,  "Amendments to FASB  Interpretation
No.  46(R)"  ("SFAS  167").  SFAS 167 seeks to improve  financial  reporting  by
enterprises involved with variable interest entities. SFAS 167 is applicable for
annual  periods  after  November  15,  2009  and  interim  periods  therein  and
thereafter.  The  Company  does not  expect the  adoption  of SFAS 167 to have a
material impact on its consolidated financial position, results of operation, or
cash flows.

NOTE 3 - DISCONTINUED OPERATIONS

In December 2005, the Company committed to a plan to cease the operations of its
entertainment segment in the United States of America.  Accordingly,  as of that
date,  the assets,  liabilities  and results of  operations of such segment were
classified as discontinued  operations in the Company's  consolidated  financial
statements.  The nature of the ongoing  discontinued  operations reflected below
represents the costs associated with ongoing  litigation  related to outstanding
rent obligations (See NOTE 16).


                                      F-18
<PAGE>

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

NOTE 3 - DISCONTINUED OPERATIONS (CONTINUED)

A summary of the Company's assets and liabilities from  discontinued  operations
as of December 31, 2008 and 2007 are as follows:

                                                              December 31,
                                                       -------------------------
                                                        2008               2007
                                                       -------------------------

Income tax refund receivable                           $   --            $ 2,873
                                                       -------------------------
    Total current assets from
      discontinued operations                          $   --            $ 2,873
                                                       =========================

Accrued expenses and other current liabilities         $ 1,898           $ 2,089
                                                       -------------------------
    Total current liabilities from discontinued
      Operations                                       $ 1,898           $ 2,089
                                                       =========================

Other liabilities (See Note 16)                        $ 7,276           $ 8,530
                                                       -------------------------
    Total non-current liabilities from
      discontinued operations                          $ 7,276           $ 8,530
                                                       =========================

A summary of the Company's  results from  discontinued  operations for the years
ended December 31, 2008, 2007 and 2006 are as follows:

                                                          December 31,
                                                 -------------------------------
                                                 2008        2007        2006
                                                 -------------------------------

Operating income (expense)                       $ 932     $ 2,634     $ (1,774)
Impairment loss                                    --          (55)        --
Other income (expense), net                         (2)        373            2
Income tax benefit (expense)                        (2)      2,470       (2,476)
                                                 -------------------------------

Income (loss) from discontinued operations       $ 928     $ 5,422     $ (4,248)
                                                 ===============================

NOTE 4 - INVESTMENTS IN AFFILIATES

ICTS Netherlands Airport Services VOF

The Company has a 50% ownership  interest in ICTS  Netherlands  Airport Services
VOF ("NAS"), a joint venture with an unrelated third party. NAS provided airport
services at the  Amsterdam  Schiphol  Airport in the  Netherlands  pursuant to a
long-term service contract. On February 1, 2008, the service contact expired and
NAS ceased  its  operations.  The  Company  does not expect to receive  any cash
distributions  upon the final  liquidation  of NAS. As of December  31, 2008 and
2007, the Company's investment in NAS is $0.

The  Company  recognized  equity  income  (loss) in  affiliates  related  to its
investment in NAS of $0, $(2,003) and $1,303 during the years ended December 31,
2008, 2007 and 2006, respectively.


                                      F-19
<PAGE>

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

NOTE 4 - INVESTMENTS IN AFFILIATES (CONTINUED)

The Company recorded an impairment charge of $192 during the year ended December
31, 2007 and  discontinued its use of the equity method to account for its joint
venture in NAS.  The $192  impairment  charge  consists of $332  relating to the
carrying amount of the investment in NAS as of December 31, 2007, net of $140 in
accumulated other comprehensive income previously recognized. As of December 31,
2008,  the  Company's  share of the  underlying  net assets of NAS  exceeds  the
carrying  value  of its  investment  in NAS by  $47.  The  market  value  of the
Company's investment in NAS as of December 31, 2008 is not determinable.

Balance sheet data for NAS is summarized below:

                                                                December 31
                                                            --------------------
                                                             2008         2007
                                                            --------------------

Current assets                                              $1,637       $ 9,962
Non-current assets                                            --              44
                                                            --------------------
   Total assets                                             $1,637       $10,006
                                                            ====================

Current liabilities                                         $1,544       $ 9,341
Shareholders' equity                                            93           665
                                                            --------------------
   Total liabilities and shareholders' equity               $1,637       $10,006
                                                            ====================

Statement of operations data for NAS is summarized below:

                                                 For the Year Ended December 31,
                                                --------------------------------
                                                 2008        2007          2006
                                                --------------------------------

Revenue                                         $5,931      $62,684      $57,742
Gross profit                                       625          873        3,644
Net income (loss)                                 (565)      (4,006)       1,422

Inksure Technologies Inc.

The Company has an ownership interest in Inksure  Technologies Inc.  ("Inksure")
of 27.5% and 28.3% as of  December  31,  2008 and  2007,  respectively.  Inksure
develops,  markets  and sells  customized  authentication  systems  designed  to
enhance the security of documents and branded products.

The  Company  recognized  equity  income  (loss) in  affiliates  related  to its
investment in Inksure of $0, $(284) and $(1,435) during the years ended December
31, 2008, 2007 and 2006, respectively.  During the year ended December 31, 2007,
the Company's  investment in Inksure was reduced to $0 and the use of the equity
method was suspended. The market value of the Company's investment in Inksure as
of December 31, 2008 is $542.


                                      F-20
<PAGE>

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

NOTE 4 - INVESTMENTS IN AFFILIATES (CONTINUED)

Balance sheet data for Inksure is summarized below:

                                                               December 31
                                                        ------------------------
                                                          2008            2007
                                                        ------------------------

Current assets                                          $ 3,090         $ 2,282
Non-current assets                                          288             640
                                                        ------------------------
   Total assets                                         $ 3,378         $ 2,922
                                                        ========================

Current liabilities                                     $ 8,093         $ 6,541
Shareholders' deficiency                                 (4,715)         (3,619)
                                                        ------------------------
   Total liabilities and
   shareholder's deficiency                             $ 3,378         $ 2,922
                                                        ========================

Statement of operations data for Inksure is summarized below:

                                                          December 31,
                                               --------------------------------
                                                 2008        2007        2006
                                               --------------------------------

Revenue                                        $ 2,158     $ 2,890     $ 2,002
Gross profit                                     1,654       1,782       1,139
Net loss                                        (3,528)     (3,078)     (3,112)

NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment is as follows:

                                                              December 31,
                                                        ------------------------
                                                         2008              2007
                                                        ------------------------

Equipment and facilities                                $3,694            $3,659
Vehicles                                                   693               817
Leasehold improvements                                     304               299
                                                        ------------------------

                                                         4,691             4,775
Less: accumulated depreciation and amortization          2,963             3,256
                                                        ------------------------

                                                        $1,728            $1,519
                                                        ========================

Depreciation  expense is $728,  $570 and $481 for the years ended  December  31,
2008, 2007 and 2006, respectively.


                                      F-21
<PAGE>

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

NOTE 6 - CUSTOMER RELATIONSHIP

As of December 31, 2008 and 2007, the customer relationship is as follows:

<TABLE>
<CAPTION>
                       December 31, 2008                                                    December 31, 2007
-------------------------------------------------------------------------------------------------------------------------------

Gross carrying            Accumulated            Net book             Gross carrying           Accumulated             Net book
    Amount               amortization              Value                  Amount              amortization               value
-------------------------------------------------------------------------------------------------------------------------------
<S>                         <C>                    <C>                   <C>                     <C>                      <C>
    $ 1,785                 $ 1,785                $ --                  $ 1,785                 $ 1,732                  $ 53
-------------------------------------------------------------------------------------------------------------------------------

    $ 1,785                 $ 1,785                $ --                  $ 1,785                 $ 1,732                  $ 53
===============================================================================================================================
</TABLE>

Amortization  expense is $53,  $648 and $648 for the years  ended  December  31,
2008, 2007 and 2006, respectively.

NOTE 7 - NOTES PAYABLE - BANK

In  April  2005,  one of the  Company's  subsidiaries  entered  into a loan  and
security  agreement  with  a  commercial  bank.  Pursuant  to the  terms  of the
arrangement,  the commercial  bank committed to providing the subsidiary with up
to $8,000 in  revolving  loans,  including  a maximum  of $3,500 in  letters  of
credit.  Borrowings  issued under the arrangement are limited to 85% of eligible
accounts receivable and 95% of the subsidiary's required cash collateral.  As of
December  31,  2008 and 2007,  the  subsidiary  has  $3,500  in cash  collateral
deposited  with the  commercial  bank (See Note 2). The term of the  arrangement
extends through March 10, 2010.  Loans made under the arrangement are designated
as either  prime  based or LIBOR  based  loans at the option of the  subsidiary.
Prime based loans bear interest,  which is payable monthly,  at the bank's prime
rate  plus 1% per  annum  (4.25%  and  8.25% at  December  31,  2008  and  2007,
respectively).  LIBOR based loans bear interest,  which is payable  monthly,  at
LIBOR plus 350 basis  points  (5.50% and 8.38% at  December  31,  2008 and 2007,
respectively).  The subsidiary is also assessed commitment fees of 3% per annum.
The arrangement is secured by the cash collateral  deposited with the commercial
bank and the assets of the  subsidiary.  As of December  31, 2008 and 2007,  the
subsidiary has $4,848 and $5,662,  respectively,  in outstanding  borrowings and
$575 and  $1,021,  respectively,  in  outstanding  letters  of credit  under the
arrangement.  The  arrangement  subjects  the  subsidiary  to various  financial
covenants,  including  interest  coverage,  minimum  tangible net worth,  and an
annual capital  expenditure  limitation.  The subsidiary was in compliance  with
these covenants as of December 31, 2008.

In  November  2004,  one of the  Company's  subsidiaries  entered  into a credit
agreement with a commercial  bank to provide it with a borrowing  arrangement of
up to  (euro)650.  Borrowings  under  the  arrangement  were  limited  to 60% of
eligible  accounts  receivable,  secured  by the assets of the  subsidiary,  and
guaranteed by the Company. Loans made under the arrangement bear interest, which
were payable  monthly at the commercial  bank's euro base rate plus 2% per annum
(7.3% at December 31, 2007). As of December 31, 2007, the subsidiary had $680 in
outstanding  borrowings and under the arrangement.  The credit agreement expired
in February 2008.


                                      F-22
<PAGE>

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

NOTE 7 - NOTES PAYABLE - BANK (CONTINUED)

In February  2008,  two of the  Company's  subsidiaries  jointly  entered into a
credit  agreement  with a  commercial  bank to  provide  them  with a  borrowing
arrangement  of up to  (euro)2,150.  The available  capacity under the borrowing
arrangement  automatically reduces to (euro)1,650 on May 1, 2008, (euro)1,150 on
August  1,  2008  and  (euro)650  on  January  1,  2009.  Borrowings  under  the
arrangement  bear interest,  which is payable  monthly,  at the bank's euro base
rate (subject to a floor of 3.5%) plus 2% per annum (7.4% at December 31, 2008).
Borrowings  under the arrangement are secured by the assets of the  subsidiaries
and guaranteed by the Company. As of December 31, 2008, there are no outstanding
borrowings and (euro)1,200 in outstanding guarantees under the arrangement.  The
arrangement subjects the subsidiaries to various financial covenants,  including
minimum  tangible  net worth.  As of  December  31,  2008,  the  Company  was in
violation of certain  financial  covenants  specified  in the credit  agreement,
including the payment of dividends  without the approval of the commercial  bank
and the  maintenance of a minimum  tangible net worth  threshold.  However,  the
commercial bank accepted these violations with no penalty to the Company. On May
1, 2009, the credit agreement expired.

The Company is indebted to a commercial bank for bank overdrafts of $13 and $377
as of December 31, 2008 and 2007,  respectively.  These  amounts bear  interest,
which is payable monthly, at 7% per annum.

NOTE 8 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities are as follows:

                                                                December 31,
                                                           ---------------------
                                                             2008        2007
                                                           ---------------------

Accrued payroll and related                                 $ 4,774     $ 3,013
Accrued vacation                                              2,287       1,071
Accrued value added taxes payable                             1,756         242
Income taxes payable                                          9,614       9,306
Other                                                         2,592       2,549
                                                           ---------------------

Total accrued expenses and other current liabilities        $21,023     $16,181
                                                           =====================

NOTE 9 - CONVERTIBLE NOTES PAYABLE TO RELATED PARTY

In  September  2006,  the Company  entered  into an  arrangement  with an entity
related to its main  shareholder  to  provide it with up to $3,050 in  revolving
loans through April 2007.  Loans received under the  arrangement  bear interest,
which is payable at maturity,  at LIBOR plus 1.5% per annum. The arrangement was
secured by 2,157,894 shares of Inksure Technologies, Inc. common stock (See Note
4).

In January 2007, the borrowing  capacity under the  arrangement was increased to
$6,263  and the  term  was  extended  to  April  2008.  In  connection  with the
extension,  the related party was granted an option to convert outstanding notes
payable  under the  arrangement  into the  Company's  common stock at a price of
$3.50 per share.  The Company  determined  that the  conversion  feature did not
qualify as a free standing derivative  instrument or contain any intrinsic value
which would be considered beneficial.


                                      F-23
<PAGE>

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

NOTE 9 - CONVERTIBLE NOTES PAYABLE TO RELATED PARTY (CONTINUED)

In April 2008, the Company entered into a new arrangement with an entity related
to its main shareholder, which replaced all previous arrangements, to provide it
with up to $6,644 in revolving  loans through  November  2010.  All  outstanding
borrowings from previous  arrangements were applied to the borrowing capacity of
the new arrangement.  Loans received under the arrangement bear interest,  which
is payable at maturity, at LIBOR plus 1.5% per annum. The arrangement is secured
by a 26% interest in one of the Company's  subsidiaries.  In connection with the
arrangement,  the  related  party was  granted an option to convert  outstanding
notes payable under the arrangement  into the Company's  common stock at a price
of $2.75 per share. The Company  determined that the conversion  feature did not
qualify as a free standing derivative  instrument or contain any intrinsic value
which would be considered beneficial.

At December 31, 2008 and 2007,  notes  payable to the related  party  consist of
$5,501 and $6,155,  respectively,  in principal and $571 and $373, respectively,
of accrued  interest.  Interest expense related to these notes is $297, $280 and
$113 for the years ended December 31, 2008, 2007 and 2006, respectively.

In May 2009,  the Company  entered  into a new  financing  arrangement  with the
related party (See Note 17).

NOTE 10 - OTHER LIABILITIES

Other liabilities are as follows:

                                                              December 31,
                                                        ------------------------
                                                          2008           2007
                                                        ------------------------

Liability to the Department of Labor (Note 16)           $ 3,000        $ 3,000
Other                                                        144            234
                                                        ------------------------

Total other liabilities                                  $ 3,144        $ 3,234
                                                        ========================

NOTE 11 - STOCK-BASED COMPENSATION

In 1999, the Company adopted a share option plan and reserved  600,000 shares of
common stock for future issuance. The plan expires in 2009.

In February  2005,  the  Company  adopted  the 2005  Equity  Incentive  Plan and
reserved 1,500,000 shares of common stock for future issuance.  The plan expires
in 2015.

In  December  2008,  the  Company  adopted  the  2008  Employees  and  Directors
Commitment  Stock Option Plan and reserved  1,500,000 shares of common stock for
future  issuance.  No stock  options have been issued under this plan.  The plan
expires in 2018.

As of December 31, 2008, the Company has stock options  outstanding  under these
plans to  purchase  1,632,000  shares of  common  stock  and  1,968,000  options
available for future grants.

Under the  Company's  stock  option  plans,  stock  options  may be  granted  to
employees,  officers,  directors and  consultants  of the Company at an exercise
price equivalent to at least the fair market value of the Company's common stock
on the date of grant with expiration  terms of not more than ten years.  Options
granted under the plans generally vest over a period of three years.


                                      F-24
<PAGE>

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

NOTE 11 - STOCK-BASED COMPENSATION (CONTINUED)

The Company uses the Binomial  Lattice Model to estimate the fair value of stock
option grants.  This method incorporates  calculations for expected  volatility,
risk-free interest rates,  employee exercise patterns and post-vesting  employee
termination behavior. These factors affect the estimate of the fair value of the
Company's  stock options.  There were no stock options  awarded during the years
ended December 31, 2008 and 2007. The weighted-average  assumptions reflected in
the chart below are used in estimating  the fair value of stock  options  awards
during the year ended December 31, 2006.

Expected life of options                                 5 years
Expected volatility                                       75.0%
Risk-free interest rate                                    5.1%
Expected dividend yield                                    0.0%
Forfeiture rate - executives                               4.2%
Forfeiture rate - employees                                3.0%

The Company  calculates  the expected  volatility  for stock option awards using
comparable industry data because sufficient historical trading data does not yet
exist for the Company's  stock.  The Company  estimates the forfeiture  rate for
stock option  awards based on  historical  data.  The  risk-free  rate for stock
options  granted  during the period is determined  by using a  zero-coupon  U.S.
Treasury rate for the period that coincides with the expected option terms.  The
Company has elected to use the simplified  method  described in Staff Accounting
Bulletin  107,  "Share-Based  Payment",  to estimate the expected  term of stock
option awards.

A summary of the Company's stock option activity is as follows:

<TABLE>
<CAPTION>
                                                                                               Weighted
                                                                           Weighted       Average Remaining
                                                                           Average         Contractual Term    Intrinsic
                                                            Number      Exercise Price        (in years)         Value
                                                            ------      --------------    -----------------    ---------
<S>                                                       <C>                <C>                  <C>            <C>
Outstanding as of January 1, 2008                         1,723,000          $1.19                2.80           $ --
Granted                                                        --             --                  --               --
Exercised                                                      --             --                  --               --
Forfeited / Expired                                         (91,000)         $1.19                1.80             --
                                                          -----------------------------------------------------------

Outstanding as of December 31, 2008                       1,632,000          $1.19                1.80           $ --
                                                          -----------------------------------------------------------

Exercisable as of December 31, 2008                       1,632,000          $1.19                1.80           $ --
                                                          ===========================================================
</TABLE>

There were no stock options granted during the years ended December 31, 2008 and
2007. The weighted average grant date fair value of stock options granted during
the year ended December 31, 2006 is $0.62.


                                      F-25
<PAGE>

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

NOTE 11 - STOCK-BASED COMPENSATION (CONTINUED)

A summary of the status of the Company's non-vested stock options is as follows:

                                                                Weighted Average
                                                                   Grant Date
                                                      Number       Fair Value
                                                      ------    ----------------

Non-vested stock options as of January 1, 2008        192,667         $0.62
Granted                                                  --             --
Vested                                               (115,334)         0.62
Forfeited/expired                                     (77,333)         0.87
                                                     --------         -----

Non-vested stock options as of December 31, 2008         --             --
                                                     ========         =====

As of December 31, 2008, the Company did not have any unrecognized  compensation
cost related to stock options  granted under the stock option plans.  During the
years ended December 31, 2008, 2007 and 2006, the Company  recognized $101, $373
and $511 in compensation  expense related to the issuance of stock options under
the stock option plans.

NOTE 12 - OTHER INCOME (EXPENSES)

Other income (expense) is as follows:

                                                2008         2007         2006
                                              ---------------------------------
Interest expense                              $(1,660)     $(3,537)     $(1,137)
Interest income                                   228          325          327
Foreign currency gain (loss)                      141         (122)          96
Recovery of guarantee from related
  party (Note 16)                                 421         --            665
Gain from the sale of marketable
  equity securities                              --            349          576
Impairment of marketable equity
  securities                                     --           (600)        --
Other                                              14            5         --
                                              ---------------------------------

  Total other income (expense)                $  (856)     $(3,580)     $   527
                                              =================================

NOTE 13 - INCOME TAXES

The  components  of  income  (loss)  before  equity  loss  from  investments  in
affiliates and income taxes are as follows:

<TABLE>
<CAPTION>
                                                                                         Year Ended December 31,
                                                                             -----------------------------------------------
                                                                               2008                2007               2006
                                                                             -----------------------------------------------
<S>                                                                          <C>                 <C>                 <C>
The Netherlands                                                              $ 2,383             $(1,764)            $  (373)
Subsidiaries outside of the Netherlands                                       (4,878)             (2,771)             (8,471)
                                                                             -----------------------------------------------

Total income (loss) before equity loss from
   investments in affiliates and income taxes                                $(2,495)            $(4,535)            $(8,844)
                                                                             ===============================================
</TABLE>


                                      F-26
<PAGE>

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

NOTE 13 - INCOME TAXES (CONTINUED)

The components of income tax benefit (expense) are as follows:

<TABLE>
<CAPTION>
                                                                      Year Ended December 31,
                                                        -------------------------------------------------
                                                          2008                 2007                2006
                                                        -------------------------------------------------
<S>                                                     <C>                  <C>                  <C>
Current:
   The Netherlands                                      $   (19)             $  (268)             $   223
   Subsidiaries outside of the Netherlands                 (383)                (740)              (1,027)
                                                        -------------------------------------------------
                                                           (402)              (1,008)                (804)
Deferred:
   The Netherlands                                         --                   --                   --
   Subsidiaries outside of the Netherlands                 --                     42                  (42)
                                                        -------------------------------------------------
                                                           --                     42                  (42)
                                                        -------------------------------------------------

Total income tax expense                                $  (402)             $  (966)             $  (846)
                                                        =================================================
</TABLE>

The components of deferred tax assets are as follows:

                                                              December 31,
                                                       ------------------------
                                                         2008            2007
                                                       ------------------------

Operating loss carry-forwards                          $ 21,968        $ 20,987
Depreciation on property & equipment                        (43)            (22)
Allowance for doubtful accounts                              96             193
Accrued expenses                                            761             674
                                                       ------------------------

Total deferred tax assets                                22,782          21,832
Less: valuation allowance                                22,782          21,832
                                                       ------------------------

Total net deferred tax assets                          $   --          $   --
                                                       ========================

As of December 31, 2008,  the Company has net operating loss  carry-forwards  of
$40,570  in the  Netherlands  which  will  expire in 2011  through  2016.  As of
December 31, 2008, the Company has net operating loss  carry-forwards of $30,887
in the United  States of America  which will expire in 2025  through  2028.  The
ultimate  utilization  of such net operating loss  carry-forwards  is limited in
certain situations.

During the year ended  December 31, 2008, the valuation  allowance  increased by
$950.


                                      F-27
<PAGE>

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

NOTE 13 - INCOME TAXES (CONTINUED)

The Company's effective income tax rate differs from the Netherlands'  statutory
rate of 25.5% (29.6% in 2006) as follows:

<TABLE>
<CAPTION>
                                                                                         Year Ended December 31,
                                                                             -------------------------------------------------
                                                                              2008                 2007                 2006
                                                                             -------------------------------------------------
<S>                                                                          <C>                 <C>                   <C>
Effective income tax at statutory rate                                       $ 399               $   404               $ 3,142

Rate differential                                                              149                  (287)                  737
Disallowable expenses                                                         (541)                1,102                  (162)
Non-taxable (expense) income                                                  --                      75                   170
Prior year tax assessments                                                    (251)                 (747)                2,846
Changes in valuation allowance and other                                      (158)               (1,513)               (7,579)
                                                                             -------------------------------------------------

Income taxes benefit (expense)                                               $(402)              $  (966)              $  (846)
                                                                             =================================================
</TABLE>

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

                                                               December 31,
                                                         -----------------------
                                                           2008            2007
                                                         -----------------------

Balance at January 1                                     $ 5,449          $4,790
Additions related to prior period tax positions            4,091             659
Reductions related to prior period tax positions          (3,888)           --
                                                         -----------------------

Balance at December 31                                   $ 5,652          $5,449
                                                         =======================

A  reconciliation  of the beginning and ending amounts of accrued interest is as
follows:

                                                               December 31,
                                                         -----------------------
                                                           2008            2007
                                                         -----------------------

Balance at January 1                                     $ 2,179          $ --
Additions charged to expense                               1,964           2,179
Reductions charged to expense                             (1,430)           --
                                                         -----------------------

Balance at December 31                                   $ 2,713          $2,179
                                                         =======================

A reconciliation of the beginning and ending amounts of accrued tax penalties is
as follows:

                                                               December 31,
                                                         -----------------------
                                                           2008            2007
                                                         -----------------------

Balance at January 1                                     $ 1,150          $ --
Additions charged to expense                                 818           1,150
Reductions charged to expense                               (778)           --
Reductions related to tax authorities notice                (243)           --
                                                         -----------------------

Balance at December 31                                   $   947          $1,150
                                                         =======================


                                      F-28
<PAGE>

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

NOTE 13 - INCOME TAXES (CONTINUED)

The total amount of unrecognized tax benefits, including interest and penalties,
is $9,312 and $8,778 as of  December  31,  2008 and 2007,  respectively,  and is
included in accrued  expenses and other current  liabilities in the accompanying
consolidated  balance  sheets.  Such  unrecognized  tax benefits would favorably
impact the Company's effective tax rate, if recognized.

The  Company  files  income tax  returns in the  Netherlands  and other  foreign
jurisdictions.  Income tax returns for the tax years 2004 to 2008 are subject to
examination  in the  Netherlands.  Income tax  returns for the tax years 2002 to
2008 are subject to examination in foreign jurisdictions.

The Company is subject to an ongoing tax examination of its  subsidiaries in the
United  States of America by the Internal  Revenue  Service  ("IRS") for the tax
years 2002 to 2004. In connection with this  examination,  the subsidiaries were
required to provide information regarding their treatment of certain expenses.

In August  2006,  the Company was advised that a criminal  investigation  by the
United States  Department  of Justice,  Tax  Division,  was commenced  regarding
possible  criminal tax violations by these  subsidiaries  for the tax years 2002
and 2003 with respect to certain royalty payments made to the Company.  In 2008,
the Company was advised that the criminal investigation was dismissed.

However,  in  connection  with the ongoing tax  examination,  the IRS proposed a
number of  adjustments  to the  Company's  filed  income tax returns for the tax
years  2002  to  2004  which  collectively  result  in an  assessed  income  tax
liability, including penalties, of $7,325.

Management is vigorously  contesting  the proposed  adjustments  and has filed a
protest with the IRS. This matter will be heard by the Appellate Division of the
IRS, at which time  management  will have an opportunity to present its position
on the various issues raised.

Based on the issues raised and the tax  authorities'  position,  the Company has
included a provision in its consolidated  financial  statements,  based upon the
advice of its tax advisors,  which the Company  considers  adequate to cover the
potential liability related to such assessments.

NOTE 14 - RELATED PARTY TRANSACTIONS

The Company had an outstanding  guarantee with respect to certain  related party
debt obligations of $2,515, which were fully reserved.  In 2007, the Company was
released from $665 of the guarantee.  In 2008, the Company paid $1,429 to settle
certain  outstanding  obligations  under the guarantee and was released from its
remaining  guarantee of $421. The Company recognized other income related to the
recovery of its guarantee of $421,  $0, and $665 during the years ended December
31, 2008, 2007 and 2006, respectively (See Note 12).

Entities related to two of the Company's board members provide legal services to
the Company.  Legal expense  related to these services is $93, $138 and $107 for
the years ended  December 31,  2008,  2007 and 2006,  respectively.  Included in
accounts payable on the accompanying consolidated balance sheet is $106 and $182
due for these services as of December 31, 2008 and 2007, respectively.


                                      F-29
<PAGE>

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

NOTE 14 - RELATED PARTY TRANSACTIONS (Continued)

During the year ended  December  31, 2007,  the Company  engaged the services an
entity  owned by a related  party as a  subcontractor  for one of the  Company's
subsidiaries.  The  Company  incurred  expenses  of  $176,  $91 and $0 for  such
services for the years ended December 31, 2008 and 2007 and 2006, respectively.

As of December 31, 2008 and 2007, the Company has  convertible  notes payable to
an entity related to its main shareholder (See Note 9).

NOTE 15 - GEOGRAPHICAL INFORMATION

The Company  operates in one  reportable  segment,  airport  security  and other
aviation  services,  and has its  primary  operations  in the  United  States of
America and various countries in Europe.

Revenue by country is summarized as follows:

                                                    Year ended December 31,
                                             -----------------------------------
                                               2008          2007          2006
                                             -----------------------------------

United States of America                     $40,421       $46,745       $46,844
Netherlands                                   44,173         7,619         7,200
Other                                         14,215        10,416         6,747
                                             -----------------------------------

Total                                        $98,809       $64,780       $60,791
                                             ===================================

Property and equipment,  net of accumulated  depreciation and  amortization,  by
country is summarized as follows:

                                                                December 31,
                                                           ---------------------
                                                            2008           2007
                                                           ---------------------

United States of America                                   $  521         $  689
Netherlands                                                   933            434
Other                                                         274            396
                                                           ---------------------

                                                           $1,728         $1,519
                                                           =====================


                                      F-30
<PAGE>

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

NOTE 16 - COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases certain equipment and premises under non-cancelable operating
leases. Future minimum lease payments under non-cancelable  operating leases are
as follows:

              Year Ending
              December 31,
              ------------
                  2009                     $ 1,213
                  2010                         822
                  2011                         453
                  2012                         134
                  2013                           5
                                           -------

                                           $ 2,627
                                           =======

Rent expense for the years ended  December  31,  2008,  2007 and 2006 is $1,521,
$1,191 and $1,217, respectively.

Legal Proceedings

United States Transportation Security Administration

In  February  2002,  one of the  Company's  subsidiaries  was awarded a security
services  contract  (the "TSA  Contract")  by the United  States  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  2002. In accordance  with the terms of the TSA Contract,
the U.S.  Federal  Government  provided the Company with a non-interest  bearing
advance of $26,000  which was  payable  to the TSA in  monthly  installments  of
$1,300  commencing in April 2002.  Through December 31, 2008, the subsidiary has
repaid $11,700 of the advance.  As of December 31, 2008, the amount due from the
TSA with respect to services  provided  under the TSA  Contract is $17,300.  The
Company has reflected  the amount due from the TSA, net of the remaining  unpaid
advance,  of  $3,000  as  other  receivable-United   States  government  on  the
accompanying consolidated balance sheet as of December 31, 2008 and 2007.

The TSA filed a  contract  dispute  with the Office of  Dispute  Resolution  for
Acquisition  ("ODRA") in connection with the TSA Contract seeking  reimbursement
of an alleged  overpayment  of  principal  in the amount of $59,200.  This claim
follows a lawsuit which the Company's  subsidiary  had already filed against the
TSA for repeated  breach of contract.  The  Company's  subsidiary  is vigorously
challenging  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
the subsidiary's  motion for partial summary judgment against the TSA for breach
of  contract  by failing to give  appropriate  notice for the  transitioning  of
airport  locations.  A separate  hearing will be held to determine the amount of
damages due to the  subsidiary on this claim.  With respect to the claim for the
$59,200  overpayment,  the  subsidiary  has filed a motion to dismiss the action
which  has  been  denied.  Both  claims  are now in  mediation.  At this  stage,
Management is unable to determine the outcome of the dispute or estimate a range
of  potential  loss.  Accordingly,   no  provision  has  been  included  in  the
accompanying consolidated balance sheet related to this matter.


                                      F-31
<PAGE>

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

NOTE 16 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

Legal Proceedings (Continued)

United States Department of Labor

During 2003, the United States  Department of Labor ("DOL")  finalized its audit
of 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. A
long-term  liability of $7,300 was  recognized  for the DOL claim as of December
31,  2006.  The DOL claim was settled  during 2007 for $3,000,  payable with the
proceeds  received  from  any  settlement  with  the  TSA.  As a  result  of the
settlement  with the DOL, the Company  recorded income of $4,300 during the year
ended  December 31, 2007,  which is reflected as a reduction in cost of revenue.
As of December 31, 2008 and 2007, a long-term  liability to the DOL of $3,000 is
reflected in accompanying consolidated balance sheet (See Note 10).

September 11, 2001 Terrorist Attacks

As a result of the  September  11, 2001  terrorist  attacks,  numerous  lawsuits
charging the Company with wrongful death and/or  property  damage were commenced
in the United States District Court,  Southern  District of New York,  resulting
from certain airport security  services  provided by one of its subsidiaries for
United  Flight 175 out of Logan  Airport in Boston,  Massachusetts.  A number of
these cases have been settled,  are in the process of being settled or have been
dismissed at no cost to the Company.

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 an  internal  review of this  matter,
Management  has not found any  evidence of  non-compliance  with  respect to the
security services provided at Boston's Logan International  Airport on September
11, 2001.

The Company maintains an aviation  insurance  policy,  which may provide limited
coverage for liabilities that may be assessed against the Company as a result of
the events of September  11,  2001.  The  liabilities  under these cases may, by
statute,  be limited to the policy coverage.  After the September 11th terrorist
attacks,  the  Company's  insurance  carriers  canceled all war risk  provisions
contained in the Company's insurance policies.

Management is unable to determine the  likelihood of an  unfavorable  outcome or
estimate a range of loss with respect to the remaining  open claims  against the
Company. Accordingly, no provision has been included in the accompanying balance
sheet related to these matters.


                                      F-32
<PAGE>

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

NOTE 16 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

Legal Proceedings (Continued)

The United States Government

The Company had commenced an action  against the United States  Government  with
respect to its Fifth Amendment rights relating to the taking of its business. In
December  2004,  the United States  Government's  motion to dismiss the case was
denied. A motion for reconsideration was also filed by the defendant and denied.
The trial for this  action was held and in March 2007,  the court ruled  against
the Company's  action.  The Company  appealed the decision and in May 2008,  the
United  States  Court of Appeals  for the  Federal  Circuit  affirmed  the lower
court's ruling. In addition,  the Company appealed the case to the United States
Supreme Court, which refused to here it.

Audiovisual-Washington, Inc.

In  September  2005,  Avitecture,  Inc.  (a/k/a  Audiovisual-Washington,   Inc.)
("Avitecture")  filed a Demand for Arbitration and Mediation  against one of the
Company's  subsidiaries with the American  Arbitration  Association in Somerset,
New  Jersey.  The  Demand  for  Arbitration  alleges  that the  subsidiary  owes
Avitecture  $222 for audio,  video and  control  systems.  The case was  decided
against the Company's subsidiary in an arbitration proceeding, which resulted in
an award to Avitecture of $200.  The  arbitrator's  decision was affirmed by the
Superior  Court of New Jersey in May 2007 and the  Appellate  Court in  February
2008.  The Company has $200 in accrued  expenses and other  current  liabilities
related to this matter as of December 31, 2008 and 2007.

Turner Construction Company

In November 2005,  Turner  Construction  Company  ("Turner")  filed a Demand for
Arbitration  and Mediation  against one of the Company's  subsidiaries  with the
American  Arbitration  Association  in  Somerset,  New  Jersey.  The  Demand for
Arbitration  alleges that pursuant to a written agreement dated in October 2003,
the  subsidiary  owes  Turner  $948 for work and/or  services  performed.  In an
arbitration  proceeding,  the arbitrator awarded Turner $956 plus interest. This
award was affirmed on appeal.  In October 2007, the subsidiary  filed a petition
of bankruptcy  with the New Jersey  Superior  Court,  which dismissed the action
again the subsidiary  without prejudice as a result of the bankruptcy filing. In
anticipation  of Turner  attempting to reinstate or reopen the case, the Company
elected not to release the $956 previously  established in accrued  expenses and
other current  liabilities related to this matter. To date, Turner has not moved
to reinstate or reopen the case.


                                      F-33
<PAGE>

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

NOTE 16 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

Legal Proceedings (Continued)

Landlord Claims

Two of the Company's subsidiaries have been sued by their landlord (which is the
same entity for both properties) alleging breach of their respective leases. One
suit is in the Circuit Court of Baltimore and the other is in the Superior Court
of New Jersey.  The landlord is seeking  unpaid rent for the entire terms of the
leases  for  $2,600 in  Atlantic  City,  New  Jersey  and  $3,700 in  Baltimore,
Maryland,  plus legal fees. The Company filed a bankruptcy  petition for both of
the subsidiaries. However, the landlord was able to prevail in one of the claims
because of a guarantee  given by the Company in connection with the lease in one
of the  locations.  In  January  2008,  a  judgment  in the amount of $2,600 was
awarded  in favor of the  landlord.  The  subsidiary  has  filed  an  appeal  to
challenge the judgment. As of December 31, 2008 and 2007, the Company has $7,276
and $8,530,  respectively in other liabilities from discontinued operations (See
Note 3). The  reduction in the  Company's  reserve for these matters is based on
changes  in  the  claims  against  the  Company  and is  presented  as  part  of
discontinued operations.

Fraport A.G. International Airport Services Worldwide

The Company was in a dispute with Fraport A.G.  International  Airport  Services
Worldwide over the 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)57,700 ($80,800 as of December 31, 2008).
This dispute was settled in 2008 without any liability to the Company.

General

The Company is subject to various  investigations,  claims and legal proceedings
covering  a wide  range of  matters  that  arise in the  ordinary  course of its
business  activities.  These claims are primarily related to grievances filed by
current and former employees for unfair labor practices or  discrimination,  and
for passenger aviation claims.  Management recognizes a liability for any matter
when the likelihood of an  unfavorable  outcome is deemed to be probable and the
amount is able to be reasonably  estimated.  Management  has concluded that such
claims,  in the  aggregate,  would  not have a  material  adverse  effect on the
Company's consolidated financial position, results of operations, or cash flows.

Bonus Contingency

The  Managing  Director  of one of the  Company's  subsidiaries  is  entitled to
receive a bonus payment equivalent to 8% of the proceeds received by the Company
upon the successful sale of the subsidiary.


                                      F-34
<PAGE>

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

NOTE 17 - SUBSEQUENT EVENTS

In April 2009,  the Company  entered  into a new  borrowing  arrangement  with a
related party which replaced all previous  arrangements between the parties. The
new  arrangement  provides  the Company  with the ability to borrow up to $6,310
from the related party and is  convertible  at the option of the holder into the
Company's  common  stock at $2.10 per share.  All  outstanding  borrowings  from
previous  arrangements  were  applied  to the  borrowing  capacity  of  the  new
arrangement. Borrowings under the arrangement bear interest, which is compounded
semi-annually,  at rates equivalent to those charged by the Company's commercial
bank. Principal and interest under the arrangement are payable in November 2011.
The Company has the option to extend the  arrangement  for four  additional  six
month  periods.  The  arrangement  is  secured by a 26%  interest  in one of the
Company's subsidiaries.


                                      F-35
<PAGE>

        Financial Statement Schedule - Valuation and Qualifying Accounts
                                 (in thousands)

<TABLE>
<CAPTION>
                                                                Credits to        Charges to                            Balance
                                              Beginning          Costs and           Other                               as of
                                              of Period          Expenses          Accounts       Deductions (1)      December 31
---------------------------------------------------------------------------------------------------------------------------------
<S>                                              <C>                 <C>               <C>            <C>                  <C>
Allowance for doubtful accounts:
    Year Ended December 31, 2006                 1,237               --                --             (243)                994
    Year Ended December 31, 2007                   994             (299)               --             (188)                507
    Year Ended December 31, 2008                   507              (51)               --             (128)                328

                                                                                                     Balance
                                              Beginning                                               as of
                                              of Period          Additions        Deductions        December 31
---------------------------------------------------------------------------------------------------------------
Allowance for deferred tax assets:
    Year Ended December 31, 2006                27,077               --              (914)            26,163
    Year Ended December 31, 2007                26,163               --            (4,300)            21,832
    Year Ended December 31, 2008                21,832              950                --             22,782
</TABLE>

(1) Write-offs, net of recoveries


                                      F-36