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, 2009

                                       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
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                    (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

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

<PAGE>

                   Common Stock, 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: 7,890,137
        ---------

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 .....  5
Item 2            Offer Statistics and Expected Timetable ...................  5
Item 3            Key Information ...........................................  5
Item 4            Information on the Company ................................ 12
Item 5            Operating and Financial Review and Prospects .............. 21
Item 6            Directors, Senior Management and Employees ................ 37
Item 7            Major Shareholders and Related Party Transactions ......... 47
Item 8            Financial Information ..................................... 49
Item 9            The Offer and Listing ..................................... 52
Item 10           Additional Information .................................... 53
Item 11           Quantitative and Qualitative Disclosures about
                    Market Risk ............................................. 66
Item 12           Description of Securities other than Equity Securities .... 66

Part II
-------
Item 13           Defaults, Dividend Arrearages and Delinquencies ........... 66
Item 14           Material Modifications to the Rights of Security Holders
                    and the Use of Proceeds ................................. 66
Item 15           Controls and Procedures ................................... 66
Item 16A          Audit Committee Financial Expert .......................... 68
Item 16B          Code of Ethics ............................................ 68
Item 16C          Fees Paid to our Independent Registered Public
                    Accounting Firm ......................................... 68
Item 16D          Exemptions from Listing Standards for Audit Committees .... 68
Item 16E          Purchases of Equity Securities by the Issuer
                    and Affiliated .......................................... 68
                  Purchasers ................................................ 68
Item 16F          Change in Accountant's Disclosure ......................... 68
Item 16G          Corporate Governance ...................................... 69

Part III
--------
Item 17           Financial Statements ...................................... 69
Item 18           Financial Statements ...................................... 69
Item 19           Exhibits .................................................. 69

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. ("ICTS") was established by the Department of Justice in
Amstelveen,  Netherlands on October 9, 1992. ICTS and subsidiaries (collectively
referred  to as, the  "Company")  operate in two main  businesses:  (a)  airport
security and other aviation  services and (b) technology.  The airport  security
and other aviation  services  business  provides  security and other services to
airlines and airport authorities,  predominantly in the United States of America
and Europe. The technology business is predominantly involved in the development
and sale of identity  security  software to financial  institutions  and airport
authorities, predominantly in Europe and Israel.

      In December 2005, the Company  committed to a plan to cease the operations
of its entertainment business in the United States of America.  Accordingly,  as
of  that  date,  the  assets,  liabilities  and  results  of  operations  of the
entertainment  business  were  classified  as  discontinued  operations  in  the
Company's  consolidated   financial  statements.   The  nature  of  the  ongoing
discontinued  operations  of  the  entertainment  business  consists  mainly  of
activities  associated  with the  settlement  of ongoing  litigation,  including
disputes  related to unpaid  vendor  and rent  obligations.  In July  2009,  the
Company  entered into a settlement  arrangement  with the former landlord of the
entertainment  business to resolve the disputes  between the parties  related to
unpaid rent obligations.

      Selected Financial Data

      Selected data set forth below have been derived from the ICTS Consolidated
Financial  Statements  which have been  prepared in  accordance  with  generally
accepted accounting  principles in the United States of America ("US GAAP"). The
Selected  Consolidated  Financial  Data  set  forth  below  should  be  read  in
conjunction  with Item 5 Operating  and  Financial  Review and Prospects and the
ICTS  Consolidated  Financial  Statements  and  the  Notes  to  those  Financial
Statements included in Item 18 in this Annual Report.


                                       5
<PAGE>

      The following table summarizes certain balance data for ICTS for the years
ended December 31, 2009, 2008, 2007, 2006, and 2005:

                                          (U.S. Dollars in thousands)
-------------------------------------------------------------------------------
                               2009       2008       2007       2006      2005
-------------------------    -------    -------    -------    -------    ------
Cash and cash equivalents     $4,835     $3,750     $2,095     $1,743    $5,927
Current assets                21,198     16,571     18,644     17,519    25,444
Total assets from
  discontinued operations         --         --      2,873        130       537
Total assets                  26,827     25,396     27,103     26,555    32,213
Current liabilities           31,832     31,869     30,305     33,577    28,101
Total liabilities from
  discontinued operations      1,222      9,174     10,619     13,441    11,424
Shareholders' deficiency     (18,290)   (22,965)   (20,610)   (19,002)   (5,148)
-------------------------------------------------------------------------------

Selected Financial Data Statement of Operations

      The following table  summarizes  certain  statement of operations data for
ICTS for the years ended December 31, 2009, 2008, 2007, 2006, and 2005:

<TABLE>
<CAPTION>
                                                                  (U.S. Dollars in thousands except per share data)
                                                                                 Year ended December 31,
                                                            -------------------------------------------------------------
                                                                 2009         2008         2007         2006         2005
                                                            ---------    ---------    ---------    ---------    ---------
<S>                                                           <C>          <C>          <C>          <C>          <C>
Revenue                                                       $95,861      $98,809      $64,780      $60,791      $57,713
Cost of revenue                                                83,491       85,107       52,397       55,284       53,721
                                                            ---------    ---------    ---------    ---------    ---------
GROSS PROFIT                                                   12,370       13,702       12,383        5,507        3,992
Selling, general and administrative expenses                   14,313       15,341       13,338       14,878       11,690
                                                            ---------    ---------    ---------    ---------    ---------
OPERATING LOSS                                                 (1,943)      (1,639)        (955)      (9,371)      (7,698)
Other income (expense), net                                    (1,638)        (856)      (3,580)         527         (761)
                                                            ---------    ---------    ---------    ---------    ---------
LOSS BEFORE EQUITY LOSS FROM INVESTMENTS IN
AFFILIATES AND INCOME TAX BENEFIT (EXPENSE)                    (3,581)      (2,495)      (4,535)      (8,844)      (8,459)

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

Income tax benefit (expense)                                      418         (402)        (966)        (846)      (2,387)
                                                            ---------    ---------    ---------    ---------    ---------
LOSS FROM CONTINUING OPERATIONS                                (3,163)      (2,897)      (7,980)      (9,822)     (11,332)

Income (loss) from discontinued operations                      6,086          928        5,422       (4,248)     (13,548)
                                                            ---------    ---------    ---------    ---------    ---------
NET INCOME (LOSS)                                              $2,923      $(1,969)     $(2,558)    $(14,070)    $(24,880)
                                                            =========    =========    =========    =========    =========

NET INCOME (LOSS) PER SHARE, BASIC AND DILUTED:
Continuing Operations                                          $(0.47)      $(0.44)      $(1.22)      $(1.51)      $(1.74)
Discontinuing Operations                                         0.90         0.14         0.83        (0.65)       (2.07)
                                                            =========    =========    =========    =========    =========
Net income (loss) per share                                      0.43       $(0.30)      $(0.39)      $(2.16)      $(3.81)
                                                            =========    =========    =========    =========    =========
Weighted average number of shares outstanding               6,790,707    6,528,100    6,528,100    6,528,100    6,528,100
                                                            =========    =========    =========    =========    =========
</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.


                                       6
<PAGE>

      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.

      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.

      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. Most of those claims are in the process of being  settled
at no cost to the Company.

      Losses in recent years

      We incurred  losses  from  continuing  operations  of $3.2  million,  $2.9
million, $8.0 million, $9.8 million, and $11.3 million in 2009, 2008, 2007, 2006
and 2005 respectively. The losses were accompanied by net cash provided by (used
in) operating activities of $(4.6) million, $3.9 million, $(3.6) million, $(7.6)
million and $(5.2) million in 2009, 2008, 2007, 2006 and 2005, respectively, and
at  December  31, 2009 the Company  had a working  capital  deficiency  of $10.6
million and negative  equity of $18.3 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.


                                       7
<PAGE>

      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 of
December  31, 2009 and for the year then ended,  the Company had a net loss from
continuing operations of $3.2 million, a net working capital deficiency of $10.6
million and shareholders' deficiency of $18.3 million.

      Loans from principal stockholder

      Our  financing  activities  have  consisted  primarily  of loans  from our
principal  shareholder.  We do not  have  any  other  continual  commitments  or
identified  sources  of  additional  capital  from  third  parties.  There is no
assurance that our principal  shareholder  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

      One of our U.S.  subsidiaries,  ICTS USA,  Inc and its  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 $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
consolidated 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.

      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 2011 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.

                                       8
<PAGE>
      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 include 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 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 such as banking,  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.  For  example,  during 2007,  the TSA took over part of
Huntleigh's business related to ticketing.  Annual loss of revenue due to taking
of the business was approximately $5 million.


                                       9
<PAGE>

      Legislation designed to protect privacy rights.

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

      A substantial portion of our revenue is generated 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
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, 2009, there are three main shareholders in the Company,
which own  together  approximately  81.3% of our  shares  (excluding  conversion
rights). Their interests could conflict with yours;  significant sales of shares
held by them could have a negative effect on our stock price.


                                       10
<PAGE>

      Mr. Menachem Atzmon,  a director and chairman of the Supervisory  Board of
the Company,  as a representative  of the Atzmon Family Trust,  owns or controls
approximately  61.4% of our  issued  and  outstanding  common  stock  (excluding
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.

      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.  Pursuant to mandatory  Dutch corporate law,
adoption of our annual accounts by the general meeting of shareholders  does not
automatically  discharge the  Supervisory  Board and Management  Board and their
members  from  liability  in respect  of the  exercise  of their  duties for the
particular  financial  year.  In order to discharge  the  Supervisory  Board and
Management Board and their members from liability a separate  resolution thereto
needs to be adopted by the general meeting of shareholders (which resolution


                                       11
<PAGE>

can be  adopted  in the  same  meeting  in which  the  annual  accounts  will be
adopted).  Such discharge of the Supervisory  Board and the Management Board and
their  members by the  shareholders  is subject to the  provisions of Dutch 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 Dutch Civil Code and is furthermore  not absolute and will not
be effective as to matters  misrepresented or not disclosed to the shareholders.
An individual  member of the Supervisory  Board or the Management  Board who can
prove that he is not at fault for such an  omission or  misrepresentation  would
not be liable.

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

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

      There is no treaty between the United States and the  Netherlands  for the
mutual recognition and enforcement of judgments (other than arbitration  awards)
in civil and commercial matters.  Therefore, a final judgment for the payment of
money rendered by any federal or state court in the United States based on civil
liability,  whether or not predicated  solely upon the federal  securities laws,
would not be directly  enforceable in the Netherlands.  The party that wishes to
enforce  such  judgment  in  the  Netherlands  will  have  to  institute  second
proceedings  before a competent  court in the  Netherlands  in order to obtain a
similar  decision  that is capable of  enforcement.  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 assumed jurisdiction on international  recognized grounds, (ii) the
judgment was obtained in compliance  with  principles of due process,  (iii) the
judgment is final and conclusive  and (iv)  recognition of 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.


                                       12
<PAGE>

      Aviation Security and Other Aviation Services Business

      ICTS is a public limited liability company organized under the laws of The
Netherlands  in  1992.  Our  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 was transferred to ICTS  International  B.V. ("ICTS
International"). Thereafter, ICTS International purchased from a third party all
of the  outstanding  shares of ICTS Holland,  incorporated in The Netherlands in
1992 without any operations prior to its acquisition by ICTS  International.  As
of January 1, 1996,  the Company  acquired  all of the assets and assumed all of
the liabilities of ICTS International.

      As of  January  1,  1999,  the  Company  acquired  80% of the  issued  and
outstanding capital stock of Huntleigh and in January 2001 the Company exercised
its  option to  acquire  the  remaining  20%  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.


                                       13
<PAGE>

      Technology Business

      Our technology  business is predominantly  involved in the development and
sale  of  identity   security   software  to  aviation   market  and   financial
institutions, predominantly in Europe and Israel.

      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
operation of motion-based entertainment theaters.

      In early 2006, the Company closed its motion-based entertainment theaters.
From this date on, the financial results of the entertainment business have been
included in  discontinued  operations  on the Company's  consolidated  financial
statements.   The  nature  of  the  ongoing   discontinued   operations  of  the
entertainment  business  consists  mainly  of  activities  associated  with  the
settlement of ongoing  litigation,  including  disputes related to unpaid vendor
and rent obligations.

      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,   I-SEC  Technologies  B.V.  and  its  subsidiaries  develop
technological  systems and  solutions for the  following  markets:  aviation and
non-aviation security, banking and other markets.

      Business Strategy

      We are currently pursuing the following business strategy:

      Developing Security Related Technology

      We are 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

      Through the I-SEC  subsidiary,  we supply  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

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

      Services

      Services Offered in Europe

      In 2005,  the Company  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,  United Kingdom;
Paris, France; Barcelona, Spain; Budapest, Hungary; Edinburgh,  Scotland, Tokyo,
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.

      We also provide  consulting  services to airlines and airports through the
I-SEC subsidiary.  We recommend the adoption of specified  security  procedures,
develop recruitment and training programs for clients to hire necessary security
personnel  and work with  airport  authorities  to ensure  that they comply with
applicable local  requirements.  We train 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 27 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.

      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.


                                       15
<PAGE>

      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 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.

      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.


                                       16
<PAGE>

      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

      The Company,  through its  subsidiaries is involved in the development and
sale of the technology listed below.

      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.

      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


                                       17
<PAGE>

      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

      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.


                                       18
<PAGE>

      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

      We  market  our  technologies  by  establishing  projects  with  airports,
airlines, banks and other existing and potential customers.

      Main Customers

      In 2009 we had two main customers,  each one  constituting  10% or more of
the Company's consolidated  revenues,  which accounted together for 56%, 55% and
29% of our revenue  during the years ended  December  31,  2009,  2008 and 2007,
respectively.

      Revenue

      Revenue in the U.S.

      Our revenue in the USA during the years 2009,  2008 and 2007 totaled $36.8
million (38% of total revenue),  $40.4 million (41% of total  revenue) and $46.7
million (72% of total revenue) respectively.

      Revenue in Europe, Japan and other locations

      Our revenue in Europe,  Japan and other  locations  during the years 2009,
2008 and 2007 totaled $59.1 million (62% of total  revenue),  $58.0 million (59%
of total revenue) and $18 million (28% 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.


                                       19
<PAGE>

      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

      Our  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.

      We are 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 we operate, a license to operate is required from
the respective airport authority.  ICTS currently holds the licenses required to
operate in such locations.

      Climate Change Regulation

      Our business is not affected directly or indirectly in any way by existing
and pending, local, state, regional, federal or international legal requirements
and agreements related to climate change.

      Organizational Structure

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

            ICTS USA, Inc. (New York - 100%) and its wholly-owned subsidiaries.

            I-SEC   Technologies   B.V.   (The   Netherlands  -  100%)  and  its
            wholly-owned subsidiaries.

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

      Property, Plant and Equipment

      We lease premises under  long-term  operating  leases,  in most cases with
renewal options.  Lease expenses from continuing  operations for the years ended
December  31,  2009,  2008 and 2007 were $1.9  million,  $1.5  million  and $1.2
million, respectively.


                                       20
<PAGE>

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

                             Year Ended
                         December 31, 2009
                         -----------------

                                2010               $ 1,196
                                2011                 1,139
                                2012                 1,131
                                2013                 1,019
                                2014                 1,004
                                                   -------
                                                   $ 5,489
                                                   -------

Item 5. Operating and Financial Review and Prospects

      This section contains forward-looking statements within the meaning of the
U.S. Private  Securities  Litigation Reform Act of 1995 concerning our 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.

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

      Overview

      We operate in two  reportable  segments  (a)  airport  security  and other
aviation  services and (b) technology.  The corporate  segment does not generate
revenue and contains primarily  non-operational  expenses.  The airport security
and other  aviation  services  segment  provide  security and other  services to
airlines and airport authorities,  predominantly in the United States of America
and Europe. The technology segment is predominantly  involved in the development
and sale of identity  security  software to financial  institutions  and airport
authorities, predominantly in Europe and Israel.


                                       21
<PAGE>

      In December  2005,  we committed to a plan to cease the  operations of our
entertainment segment in the United States of America.  Accordingly,  as of that
date,  the assets,  liabilities  and results of operations of the  entertainment
segment were classified as discontinued operations in the Company's consolidated
financial statements.  The nature of the ongoing discontinued  operations of the
entertainment   segment  consists  mainly  of  activities  associated  with  the
settlement of ongoing  litigation,  including  disputes related to unpaid vendor
and rent  obligations.  In July 2009,  the  Company  entered  into a  settlement
arrangement with the former landlord of the entertainment segment to resolve all
disputes between the parties related to unpaid rent obligations.

      Critical Accounting Policies

      The  consolidated  financial  statements  have been prepared in accordance
with U.S. GAAP. 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.  Actual  results
could differ from those estimates. Our critical accounting policies that require
the use of judgment and estimates  are listed  below.  Please refer to Note 2 of
ICTS's consolidated  financial statements included in this Annual Report for the
year ended  December  31,  2009 for a summary of ICTS's  significant  accounting
policies.

      Accounts Receivable

      Accounts  receivable  represent  amounts due to the  Company for  services
rendered  and are  recorded  net of an  allowance  for  doubtful  accounts.  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.

      Long-Lived Assets

      We review long-lived assets, other than goodwill,  for impairment whenever
events or changes in circumstances  indicate that the carrying value of an 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.

      Contingent Liabilities

      We are  subject to various  investigations,  claims and legal  proceedings
covering a wide range of matters that arise in the normal course of its business
activities.   Liabilities  for  such  contingencies  are  recognized  when:  (a)
information  available  prior  to the  issuance  of the  consolidated  financial
statements  indicates  that it is probable that a liability had been incurred at
the date of the consolidated financial statements and (b) the amount of loss can
reasonably be estimated.


                                       22
<PAGE>

      Stock-Based Compensation

      Share-based  payment awards to employees,  including  stock  options,  are
measured  at the  fair  value of the  award  on the  date of grant  based on the
estimated  number of awards that are  ultimately  expected to vest.  Share-based
compensation  awards issued to non-employees  for services rendered are recorded
at either  the fair  value of the  services  rendered  or the fair  value of the
share-based payment,  whichever is more readily  determinable.  The compensation
expense resulting from share-based  payments is recorded over the vesting period
of the award in selling,  general and administrative expense in the accompanying
consolidated statements of operations.

      Income Taxes

      We account for income taxes using the liability method. 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.

      Uncertain tax positions are  determined  based upon the  likelihood of the
positions being sustained upon examination by taxing authorities. The benefit of
a tax position is recognized  in the  consolidated  financial  statements in the
period  during  which  management  believes  it is more likely than not that the
position will not be sustained. Tax positions taken are not offset or aggregated
with  other  positions.   Tax  positions  that  meet  the   more-likely-than-not
recognition  threshold are measured as the largest amount of tax benefit that is
more  than 50  percent  likely  of  being  realized  upon  settlement  with  the
applicable  taxing  authority.  The portion of the benefits  associated with tax
positions  taken that  exceeds the amount  measured is reflected as income taxes
payable in the accompanying consolidated balance sheets.

      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.

      Recently Issued Accounting Pronouncements

      In December 2007, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 141(R),  "Business Combinations"
("SFAS  141(R)").   SFAS  141(R)  replaces  Statement  of  Financial  Accounting
Standards No. 141, "Business Combinations," and was primarily codified into FASB
Accounting  Standards  Codification  Topic 805,  "Business  Combinations"  ("ASC
805").  ASC 805 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. ASC 805
also requires  acquisition-related  transaction expenses and restructuring costs
be expensed as incurred  rather than  capitalized as a component of the business
combination.  The Company  adopted ASC 805 on


                                       23
<PAGE>

January  1,  2009.  ASC  805  will  have an  impact  on the  accounting  for any
businesses acquired by the Company after its date of adoption.

      In  December  2007,  the FASB issued  Statement  of  Financial  Accounting
Standards  No.  160,   "Non-controlling   Interests  in  Consolidated  Financial
Statements  - an  amendment  of ARB No. 51" ("SFAS  160").  SFAS 160,  which was
primarily  codified  into FASB  Accounting  Standards  Codification  Topic  810,
"Consolidation" ("ASC 810"),  establishes accounting and reporting standards for
the non-controlling interest in a subsidiary (previously referred to as minority
interests).  ASC 810  requires  non-controlling  interests  to be  reported as a
separate component of stockholder's deficiency and present any net income (loss)
allocable  to  non-controlling  interests  and  stockholders  separately  in its
statement of operations.  ASC 810 also requires that a retained  non-controlling
interest, upon the deconsolidation of a subsidiary, be initially measured at its
fair value. The Company adopted ASC 810 on January 1, 2009. ASC 810 did not have
a material effect on the Company's consolidated  financial position,  results of
operations or cash flows.

      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,  which  was  primarily  codified  into  FASB  Accounting  Standards
Codification  Topic 350,  "Goodwill  and Other  Intangible  Assets" ("ASC 350"),
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  this  guidance.  The  objective  of  this  guidance  is  to  improve  the
consistency between the useful life of a recognized  intangible asset under this
guidance and the period of expected cash flows used to measure the fair value of
the asset  under ASC 805 and other US GAAP.  The  Company  adopted ASC 350 as of
January 1, 2009.  The adoption of ASC 350 did not have a material  effect on the
Company's consolidated financial position, results of operations, 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
07-05").  EITF 07-5, which was primarily codified into FASB Accounting Standards
Codification  Topic  815,   "Derivatives  and  Hedging  ("ASC  815"),"  provides
framework  for  determining  whether an instrument is indexed to an entity's own
stock.  The Company  adopted ASC 815 as of January 1, 2009.  The adoption of ASC
815 did not have a  material  effect  on the  Company's  consolidated  financial
position, results of operations, or cash flows.

      In May 2009, the FASB issued Statement of Financial  Accounting  Standards
No.  165,  "Subsequent  Events"  ("SFAS  165").  SFAS 165,  which was  primarily
codified into FASB  Accounting  Standards  Codification  Topic 855,  "Subsequent
Events" ("ASC 855"),  establishes standards for the accounting and disclosure of
subsequent  events.  ASC 855 introduces new terminology,  defines a date through
which management must evaluate  subsequent  events,  and lists the circumstances
under  which an entity  must  recognize  and  disclose  events  or  transactions
occurring  after the balance sheet date. The Company adopted ASC 855 on December
31,  2009.  The  adoption  of ASC 855  did not  have a  material  effect  on the
Company's consolidated financial position, results of operations or cash flows.


                                       24
<PAGE>

      In  June  2009,  the  FASB  issued  SFAS  No.  167,  "Amendments  to  FASB
Interpretation  No.  46(R)." SFAS 167,  which was  primarily  codified into FASB
Accounting Standards  Codification Topic 810,  "Consolidation" ("ASC 810") seeks
to improve  financial  reporting by enterprises  involved with variable interest
entities. The Company adopted ASC 810 as of January 1, 2009. The adoption of ASC
810 did not have a  material  effect  on the  Company's  consolidated  financial
position, results of operations, or cash flows.

      In June 2009, the FASB issued Statement of Financial  Accounting Standards
No. 168,  "The FASB  Accounting  Standards  Codification  and the  Hierarchy  of
Generally Accepted  Accounting  Principles - a replacement of FASB Statement No.
162" ("SFAS 168").  SFAS 168, which was primarily  codified into FASB Accounting
Standards  Codification Topic 105, "Generally  Accepted  Accounting  Principles"
("ASC 105"),  established  the FASB  Accounting  Standards  Codification  as the
source of authoritative nongovernmental generally accepted accounting principles
in the United States of America ("GAAP"). Rules and interpretive releases of the
Securities and Exchange Commission ("SEC") under authority of federal securities
laws  are  also  sources  of  authoritative  GAAP  for SEC  registrants.  On the
effective   date  of  these   provisions,   the   codification   superseded  all
then-existing   non-SEC   accounting   and   reporting   standards.   All  other
non-grandfathered non-SEC accounting literature not included in the codification
became non-authoritative. The Company adopted ASC 105 on December 31, 2009.

      In December 2009, the FASB issued  Accounting  Standards  Update  2009-17,
"Consolidations  - Improvements to Financial  Reporting by Enterprises  Involved
with Variable Interest Entities" ("Update 2009-17"). Update 2009-17 amends Topic
810,  "Consolidations" of the Accounting Standards Codification by replacing the
quantitative-based risks and rewards calculation for determining which reporting
entity,  if any, has a  controlling  financial  interest in a variable  interest
entity with an approach  focused on identifying  which reporting  entity has the
power  to  direct  the  activities  of a  variable  interest  entity  that  most
significantly impact the entity's economic performance and (a) the obligation to
absorb  losses  of the  entity  or (b) the right to  receive  benefits  from the
entity.  The amendments also require  additional  disclosures  about a reporting
entity's  involvement  in variable  interest  entities,  which will  enhance the
information  provided to users of financial  statements.  The adoption of Update
2009-17 is not expected to have a material impact on the Company's  consolidated
financial position, results of operations or cash flows.

      In February  2010,  the FASB issued  Accounting  Standards  Update 2010-9,
"Subsequent   Events,   Amendments  to  Certain   Recognition   and   Disclosure
Requirements"  ("Update  2010-9").  Update 2010-9 amends Topic 855,  "Subsequent
Events," of the Accounting Standards Codification by eliminating the requirement
to disclose the date through which  subsequent  events were evaluated for public
entities  and  clarifying  the  application  of  ASC  855 in  revised  financial
statements.  The amendments in Update 2010-9 are effective  upon  issuance.  The
Company  adopted  Update  2010-9 on December  31,  2009.  The adoption of Update
2010-9 did not have a material  effect on the Company's  consolidated  financial
position, results of operations or cash flows.


                                       25
<PAGE>

      Results of Operations

      The following  table  summarizes  our results of operations  for the years
ended December 31, 2009, 2008 and 2007:

<TABLE>
<CAPTION>
                                                                                             (U.S. Dollars in thousands)
                                                                                                Year Ended December 31,
                                                                                 --------------------------------------------------
                                                                                   2009                 2008                 2007
                                                                                 --------             --------             --------
<S>                                                                              <C>                  <C>                  <C>
Revenue                                                                          $ 95,861             $ 98,809             $ 64,780
Cost of revenue                                                                    83,491               85,107               52,397
                                                                                 --------             --------             --------
GROSS PROFIT                                                                       12,370               13,702               12,383
Selling, general and administrative expenses                                       14,313               15,341               13,338
                                                                                 --------             --------             --------
OPERATING LOSS                                                                     (1,943)              (1,639)                (955)
Other income (expense), net                                                        (1,638)                (856)              (3,580)
                                                                                 --------             --------             --------
LOSS BEFORE EQUITY LOSS FROM INVESTMENTS IN
AFFILIATES AND INCOME TAX BENEFIT (EXPENSE)                                        (3,581)              (2,495)              (4,535)

Equity loss from investments in affiliates                                             --                   --               (2,479)

Income tax benefit (expense)                                                          418                 (402)                (966)
                                                                                 --------             --------             --------
LOSS FROM CONTINUING OPERATIONS                                                    (3,163)              (2,897)              (7,980)

Income from discontinued operations                                                 6,086                  928                5,422
                                                                                 --------             --------             --------

NET INCOME (LOSS)                                                                $  2,923             $ (1,969)            $ (2,558)
                                                                                 ========             ========             ========
</TABLE>

      The following table sets forth, for the annual periods indicated,  certain
results  of  operations  data as a  percentage  of revenue  for the years  ended
December 31, 2009, 2008 and 2007:

                                                      Year Ended December 31,
                                                    --------------------------
                                                     2009       2008      2007
                                                    -----      -----     -----
Revenue..........................................    100%       100%      100%
Cost of revenue .................................   87.1%      86.1%     80.9%
Gross profit.....................................   12.9%      13.9%     19.1%
Selling, general and administrative expenses.....   15.0%      15.5%     20.6%
Operating loss...................................   (2.1)%     (1.7)%    (1.5)%
Loss from continuing operations..................   (3.3)%     (2.9)%   (12.3)%
Income from discontinued operations..............    6.4%       0.9%      8.4%
Net income (loss)................................    3.1%      (2.0)%    (3.9)%

The  following  table sets  forth,  for the annual  periods  indicated,  revenue
generated by country:

                                                 (U.S. Dollars in thousands)
                                                   Year ended December 31,
                                             -----------------------------------
                                               2009          2008          2007
                                             -----------------------------------
United States of America                     $36,794       $40,421       $46,745
Netherlands                                   42,344        44,173         7,619
Other                                         16,723        14,215        10,416
                                             -------       -------       -------

Total                                        $95,861       $98,809       $64,780
                                             =======       =======       =======


                                       26
<PAGE>

Year Ended  December  31, 2009  Compared to Year Ended  December  31, 2008 (U.S.
Dollars in thousands unless otherwise indicated)

      Revenue.  Revenue  decreased  from  $98.8  million  during  the year ended
December 31, 2009 to $95.9 million during the year ended December 31, 2009. Such
decrease resulted from a decrease in revenue from operations in the U.S. of $3.6
million and  operations in Netherlands  of $1.9 million  partially  offset by an
increase in operations in other locations of $2.6 million.

      The decrease in revenue in the U.S.  relates mostly to the slowdown in the
global economy,  which resulted in the provision of less services.  In addition,
during 2009, the Company evaluated its service contacts and elected to terminate
certain unprofitable contracts.

      The  decrease  in revenue  in the  Netherlands  is mainly due to  currency
fluctuations  as the 2008 average  exchange rate (1.47 Dollar to Euro) decreased
in 2009 (1.39 Dollar to Euro).  Revenue in 2009 based on the 2008  exchange rate
would total $44.7 million compared to $44.2 million in 2008.

      The increase in revenue from other  locations  is mainly  attributed  to a
full year of operations in Tokyo, Japan.

      Cost of Revenue.  The cost of revenue decreased from $85.1 million in 2008
to $83.5  million in 2009.  The decrease was mainly due to a decrease in payroll
and  related  costs as a result of the decline in  revenue.  However,  our gross
margin also  decreased  from 13.9% to 12.9% mainly due higher  costs  associated
with providing technology-related support services in Israel.

      Selling,  General and Administrative Expenses ("SG&A".) SG&A expenses were
$14.3 million for the year ended  December 31, 2009 or 15% of revenue,  compared
to $15.3 million or 15.5% of revenue for the year ended December 31, 2008.  This
decrease  mainly  results  from  a  decrease  in  legal  and  professional  fees
associated  with the Company  defending  itself against various legal claims and
the  elimination  of start-up  costs we incurred  during year ended December 31,
2008 to  expand  our  operations  in Europe  and  Japan,  partially  offset by a
one-time  non-cash charge of $0.6 million related to the issuance of shares to a
related party.

      Other Income  (Expense),  net.  Other expenses for the year ended December
31, 2009 totaled $1.6 million compared to $0.9 million in 2008. This increase in
other  expenses  is due to a one-time  recovery of $0.4  million  related to the
release of a guarantee in 2008 that the Company  previously  provided to a third
party and the  increase  in foreign  currency  losses  related  to  transactions
denominated in Euros.

      Income Tax  Benefit  (Expense).  In 2009,  the  Company  had an income tax
benefit of $0.4 million  compared to income tax expense of $0.4 million in 2008.
In 2009,  the  Company  recognized  a benefit  of $0.4  million  related  to its
activities in Europe. The decrease in the income tax expense in 2009 compared to
2008 is primarily  due to the decrease in income from  continuing  operations at
certain European locations.


                                       27
<PAGE>

Income from Discontinued Operations. Income from discontinued operations totaled
$6.1  million in 2009  compared to $0.9 million in 2008.  The  increase  results
mainly from the recovery of $4.7 million  related to the settlement of a dispute
with the former  landlord  of the  Company's  entertainment  segment  related to
unpaid rent  obligations  of $7.3  million and the  recovery of $1.2  million in
vendor disputes resulting from management's  assessment that payments to resolve
the dispute are unlikely.

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

      Revenue.  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.

      Cost of Revenue.  The cost of revenue in 2008 was reduced by $4.3  million
related to the agreement of the Company with the DOL. In addition,  in 2008, the
Company expanded its operations in Europe,  which resulted in additional cost of
revenue related to labor and start-up costs in the Netherlands. These additional
labor and start-up costs resulted in the decrease in the gross margin percentage
from 19.1% in 2007 to 13.9% in 2008.

      Selling,  General  and  Administrative  Expenses.   Selling,  general  and
administrative  expenses were $15.3 million for the year ended December 31, 2008
or 15.5% as  percentage  of  revenue,  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.

      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.


                                       28
<PAGE>

            (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.

      Income Tax Benefit  (Expense).  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.

      Equity Loss from  Investment in Affiliates.  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.

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

      There  are  two  legal  claims   outstanding   against  us  regarding  our
discontinued  operations.  We have 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 $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.


                                       29
<PAGE>

      The following table sets forth, for the annual periods indicated,  certain
financial data related to the Company's reportable segments.

                           (U.S. Dollars in thousands)

<TABLE>
<CAPTION>
                                                                 Airport
                                                                 Security
                                                                    and
                                                                   Other
                                                                 Aviation
                                                    Corporate    Services    Technology    Total
                                                    ----------------------------------------------
<S>                                                  <C>         <C>          <C>         <C>
Year ended December 31, 2009:
  Revenue                                            $    --     $ 95,146     $   715     $ 95,861
  Depreciation and amortization                           11          681          23          715
  Income (loss) from continuing operations            (3,729)       2,777      (2,211)      (3,163)

Year ended December 31, 2008:
  Revenue                                                 --       97,930         879       98,809
  Depreciation and amortization                           12          741          29          782
  Income (loss) from continuing operations            (5,120)       2,965        (742)      (2,897)

Year ended December 31, 2007:
  Revenue                                                 --       63,982         798       64,780
  Depreciation and amortization                           25        1,163          30        1,218
  Loss from continuing operations                     (4,825)      (2,722)       (433)      (7,980)
</TABLE>

Corporate Segment

      Loss from continuing  operations decreased for the year ended December 31,
2009 as  compared  to the year ended  December  31,  2008  primarily  due to the
recognition  of income tax expense  associated  with  uncertain tax positions in
2008 and a decrease in legal and professional fees in U.S. during the year ended
December 31, 2009.

      Loss from continuing  operations increased for the year ended December 31,
2008  compared to the year ended  December  31, 2007  primarily  due to one-time
expenses  incurred in 2007 related to the  Company's  new contract with Schiphol
Airport in the  Netherlands as well as the  recognition of certain tax positions
in the U.S.

Airport Security and Other Aviation Services Segment

      The decrease in revenue for the year ended  December 31, 2009  compared to
the year ended  December 31, 2008 relates mostly to a decrease in revenue in the
U.S.  and Europe  offset by an  increase in revenue  from the newly  established
operation in Japan.  The decrease in income from  continuing  operations for the
year ended December 31, 2009 compared to 2008 is primarily due  fluctuations  in
the currency exchange rates and a decrease in the U.S. business.

      The increase in revenue for the year ended  December 31, 2008  compared to
the year ended  December  31,  2007  results  mainly  from a new  contract  with
Schiphol Airport in the Netherlands,  which added $34.4 million of revenue.  The


                                       30
<PAGE>

increase in income from  continuing  operations  for the year ended December 31,
2008  compared  to 2007 was mainly due to the  expansion  of  operations  in the
Netherlands,  which were  profitable  and a  decrease  in  amortization  expense
related to the customer relationship, which was fully amortized in 2008.

Technology Segment

      During the year ended  December 31, 2009,  the Company  expanded its costs
for the  technology  activities  mostly  by  recruiting  more  employees,  which
resulted in an increase in payroll and related costs.

      Liquidity and Capital Resources

      The most significant expenditures for all of our businesses are related to
payroll and  related  costs,  legal fees and other  professional  fees.  We have
historically  financed such expenditures  through cash flows from operations and
funding  received  from a line of credit  with a  commercial  bank in the United
States of America and  borrowings  from a convertible  note  arrangement  with a
related party.

      As of December 31, 2009, the Company has cash on hand of $4.8 million (not
including a short-term  certificate of deposit of $3.5 million,  which serves as
collateral for its line of credit in the United States of America).

      We have a history of  recurring  losses  from  continuing  operations  and
working  capital  deficiencies.  The Company  incurred  losses  from  continuing
operations of $3.2 million,  $2.9 million and $8 million  during the years ended
December 31, 2009,  2008, and 2007,  respectively.  As of December 31, 2009, the
Company had a working  capital  deficit and  shareholders'  deficiency  of $10.6
million and $18.3 million,  respectively. In addition, the Company is subject to
potential material contingencies in connection with: (a) its exposure to certain
tax assessments  made against it 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) certain  claims  made  against the Company by the United
States  Department of Labor,  and (d) certain claims made against the Company by
the United States Transportation Security  Administration ("TSA").  Furthermore,
one of the  subsidiaries  of ICTS is in  default  of its line of  credit  in the
United  States of America,  which  expires on September 30, 2010, as a result of
violations  of  certain  required  financial  covenants.   These  factors  raise
substantial doubt about the Company's ability to continue as a going concern.

      The report of our  independent  registered  public  accounting firm on our
2009 consolidated financial statements includes an explanatory paragraph stating
that there is  substantial  doubt with  respect to our  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 2009  consolidated
financial  statements do not include any adjustments  that might be necessary if
the Company is unable to continue as a going concern.


                                       31
<PAGE>

      Cash Flows from Operating Activities

      Our cash flows from operating  activities vary  significantly from year to
year,  depending  on our  operating  results  and  timing of cash  receipts  and
disbursement on accounts receivable and payable.

      Net cash used in operating activities for the year ended December 31, 2009
was $4.6  million.  This use of cash  resulted  from a net loss from  continuing
operations of $3.2 million and net cash used by operating assets and liabilities
of $2.7  million,  partially  offset by  non-cash  charges of $0.7  million  for
depreciation and amortization and $0.6 million relating to an issuance of common
stock to a related party.  The net cash used in operating assets and liabilities
is primarily  attributable to a decrease in accounts payable of $1.4 million and
cash used in  discontinued  operations of $1.9 million,  partially  offset by an
increase in accrued expenses and other current liabilities of $0.6 million.

      For the year ended  December  31,  2008,  net cash  provided by  operating
activities  was $3.9  million.  This  resulted  from a net loss from  continuing
operations  of $2.9  million  and net cash  provided  by  operating  assets  and
liabilities  of $5.9  million,  partially  offset by  non-cash  charges  of $0.8
million for depreciation and amortization, offset by $0.1 million in stock-based
compensation.  The net cash  provided by  operating  assets and  liabilities  is
primarily attributable to an increases in accrued expenses and other liabilities
of $4.9 million,  net cash provided by discontinued  operations of $2.4 million,
partially offset by increase in accounts receivable of $1.3 million.

      For the  year  ended  December  31,  2007,  net  cash  used  in  operating
activities  was $3.6  million.  This use of cash  resulted  from a net loss from
continuing  operations of $8.0 million and net cash provided by operating assets
and liabilities of $3.9 million,  partially  offset by non-cash  charges of $1.2
million  for  depreciation  and  amortization,   $3.1  million  related  to  the
impairment of marketable  equity  securities and investment in affiliates,  $0.4
million in stock-based compensation and a gain on a settlement of a liability of
$4.3  million.  The net cash  provided by operating  assets and  liabilities  is
primarily  attributable  to  increases  in accounts  payable of $0.6 million and
accrued expenses and other current liabilities of $2.8 million.

      Cash Flows from Investing Activities

      Net cash used in investing activities for the year ended December 31, 2009
was $0.8 million and consisted primarily of capital expenditures.

      Net cash provided by investment activities for the year ended December 31,
2008 was $0.6 million and consisted  primarily of capital  expenditures  of $1.0
million and an increase in other assets of $0.2 million,  partially  offset by a
decrease in restricted cash of $1.8 million.

      Net cash used in investing activities for the year ended December 31, 2007
was $1.1 million and consisted primarily of capital expenditures of $0.8 million
and an increase in restricted cash of $0.8 million, partially offset by proceeds
from sale of  property  and  equipment  and equity  method  investments  of $0.4
million.


                                       32
<PAGE>

      In March 2010, we purchased 5,400,000 shares of Inksure's common stock for
$0.7  million  pursuant to a private  placement  of Inksure  Technologies,  Inc.
securities.  We do not anticipate  making any other  significant  investments at
this time, except for routine capital expenditures.

      Cash Flows from Financing Activities

      Net cash provided by financing  activities for the year ended December 31,
2009 was $6.2 million,  which consisted  primarily of $1.2 million increase in a
line of credit with a  commercial  bank in the United  States of  America,  $3.9
million of proceeds from  convertible  note arrangement with a related party and
$1.2 million in proceeds from the exercise of stock options.

      Net cash used in financing activities for the year ended December 31, 2008
was $2.1 million and consisted primarily of a $1.8 million decrease in a line of
credit with a commercial  bank in the United  States of America and $0.2 million
in repayments on a convertible note payable arrangement with a related party.

      Net cash provided by financing  activities for the year ended December 31,
2007 was $5.0 million,  which consisted  primarily of $1.6 million increase in a
line of credit with a  commercial  bank in the United  States of  America,  $4.0
million of proceeds from a convertible  note  arrangement  with a related party,
partially  offset by $0.2 million in  repayments on other  liabilities  and $0.4
million of net cash used in discontinued operations.

      The Company  expects to continue to draw down from its lines of credit and
related party  financing as necessary to meet its short-term  cash needs. In May
2010, the Company  increased its borrowing  capacity from on a convertible  note
arrangement with a related party from $10 million to $12 million and received an
additional  $0.8  million  in  financing  from  the  related  party  to fund its
operations.

      Borrowings

      One of the  subsidiaries of ICTS has an arrangement with a commercial bank
in the United States of America,  which  provides up to $8,000 in borrowings and
letters of credit.  The borrowing  base of the  arrangement is limited to 85% of
the  subsidiary's  eligible  accounts  receivable,  as  defined,  and 95% of the
subsidiary's  cash  collateral.  Borrowings under the arrangement are secured by
the  subsidiary's  accounts  receivable  of $6,213 and a $3,500  certificate  of
deposit.  Borrowings  under the  arrangement  are also  guaranteed by ICTS.  The
original term of the arrangement, which was set to expire on March 31, 2010, was
extended to June 30, 2010 and can be  automatically  extended for an  additional
one-year  term  unless  either  the  Company  or the  commercial  bank  elect to
terminate  the  arrangement  prior to the  expiration  date.  In June 2010,  the
original term of the arrangement was extended to September 30, 2010.  Borrowings
made under the arrangement will be designated as either prime rate or LIBOR rate
loans at the option of the subsidiary.  Prime rate loans bear interest, which is
payable  monthly,  at the bank's prime rate plus 1% per annum.  LIBOR rate loans
bear  interest,  which are payable  monthly,  at LIBOR plus 350 basis points per
annum.  For the years ended  December  31,  2009,  2008 and 2007,  the  weighted
average  interest  rate  on  this   arrangement  is  4.25%,   5.25%  and  6.00%,
respectively.  The arrangement  subjects the subsidiary to certain financial and
non-financial covenants,  including minimum tangible net worth, minimum interest
coverage ratio, minimum EBITDA, a required excess availability


                                       33
<PAGE>

under the borrowing base and a capital  expenditure  limitation.  As of December
31, 2009 and for the year then ended,  the  subsidiary  is in  violation  of its
minimum EBITDA and capital expenditure limitation covenants.  As of December 31,
2009, the subsidiary has approximately $6,070 in borrowings, $444 in outstanding
letters of credit and $864 in unused  borrowing  capacity under the arrangement.
As of December 31, 2008, the subsidiary had approximately  $4,848 in borrowings,
$575 in outstanding  letters of credit and $1,518 in unused  borrowing  capacity
under the arrangement.

      One of the  subsidiaries of ICTS had an arrangement with a commercial bank
in Europe to provide it with up to (euro)650 in borrowings. Borrowings under the
arrangement  were  limited  to  60%  of  the  subsidiary's   eligible   accounts
receivable,  secured by the assets of the  subsidiary,  and  guaranteed by ICTS.
Borrowings made under the arrangement  bear interest,  which is payable monthly,
at the commercial  bank's euro base rate plus 2% per annum.  For the years ended
December  31,  2008  and  2007,  the  weighted  average  interest  rate  on this
arrangement  is 7.30%  and  6.73%,  respectively.  The  arrangement  expired  in
February 2008.

      In February 2008, two of the  subsidiaries  of ICTS 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.  For the  years  ended
December  31,  2009  and  2008,  the  weighted  average  interest  rate  on this
arrangement is 7.30% and 6.73%.  Borrowings under the arrangement are secured by
the assets of the  subsidiaries and guaranteed by ICTS. As of December 31, 2008,
there are no outstanding  borrowings and  (euro)1,200 in outstanding  guarantees
under the arrangement. On May 1, 2009, the credit agreement expired.

      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.

      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 holder 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.

      In April 2008, the Company entered into a new  arrangement  with an entity
related  to its main  shareholder,  which  replaced  all  previous  arrangements
between the parties,  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 holder 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


                                       34
<PAGE>

that the  conversion  feature  did not  qualify  as a free  standing  derivative
instrument or contain any intrinsic value which would be considered beneficial.

      In April 2009, the Company entered into a new  arrangement  with an entity
related  to its main  shareholder,  which  replaced  all  previous  arrangements
between the parties,  to provide it with up to $7,310 in revolving loans through
November 2011. The term of the  arrangement  can be  automatically  extended for
four  additional six month periods at the option of the holder.  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 compounded  semi-annually and payable at maturity,  at the prime rate charged
by the Company's European  commercial bank on March 31, 2010. The arrangement is
secured by a 26% interest in one of the  Company's  subsidiaries.  In connection
with the  arrangement,  the holder was granted an option to convert  outstanding
notes payable under the arrangement  into the Company's  common stock at a price
of $2.10 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.

      In September  2009,  the Company  entered into a new  arrangement  with an
entity related to its main shareholder, which replaced all previous arrangements
between the parties, to provide it with up to $10,000 in revolving loans through
November 2011. The term of the  arrangement  can be  automatically  extended for
four  additional six month periods at the option of the holder.  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 compounded  semi-annually and payable at maturity,  at the prime rate charged
by the Company's European  commercial bank on March 31, 2010. The arrangement is
secured by a 26% interest in one of the  Company's  subsidiaries.  In connection
with the  arrangement,  the holder was granted an option to convert  outstanding
notes payable under the arrangement  into the Company's  common stock at a price
of $2.10 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.

      In May 2010, the borrowing capacity under the Company's  convertible notes
payable to a related party was increased to $12,000 and the term was extended to
November 2012 pursuant to an oral amendment between the parties.

      At December 31, 2009 and 2008,  notes payable to related party consists of
$9,066 and $5,501, respectively, in principal and $1,078 and $571, respectively,
in accrued  interest.  Interest expense related to these notes is $514, $297 and
$280 for the years ended December 31, 2009, 2008 and 2007, respectively. For the
years ended December 31, 2009, 2008 and 2007, the weighted average interest rate
on this arrangement is 5.54%, 5.31% and 6.27%, respectively.

      In June 2010,  two of the  subsidiaries  of ICTS  jointly  entered  into a
credit  arrangement  with a commercial bank to provide them with up to (euro)400
in revolving loans through February 2012.  Borrowings under the arrangement bear
interest,  which is payable  monthly,  at 1.8% above the European Libor rate per
annum, are secured by the accounts receivable of the subsidiaries and guaranteed
by ICTS.


                                       35
<PAGE>

      Research and Development Costs

      Research  and  development  costs are  expensed  as  incurred  and consist
primarily  of payroll  and  related  costs  related to  development  of identity
security software.  Research and development costs are $1 million,  $0.3 million
and $0.3  million  during the years ended  December 31,  2009,  2008,  and 2007,
respectively.

      Trend information

      Labor  market  conditions  may require the Company to increase its prices.
Cost of  labor is the main  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 a party to two employment  agreements and various operating
lease  arrangements.  In addition,  ICTS has no  unconsolidated  special purpose
entities.

The following  table  summarizes  ICTS's future  contractual  obligations  as of
December 31, 2009:

<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>
Line of credit (1)                                                 $ 6,070        $ 6,070        $    --        $   --        $--
Convertible notes payable -
  related party (including interest) (2)                            10,144             --         10,144            --         --
Operating lease obligations                                          5,489          1,196          3,289         1,004         --
Employment contracts                                                   648            331            317
Settlement with former landlord (3)                                  1,300          1,300             --            --         --
Liability to Department of Labor                                     3,000             --          3,000            --         --
Interest and fees on line of credit and
  Convertible notes payable -
  related party (4)                                                  1,600          1,050            550            --         --
Other                                                                  558             94            384            --         80
                                                                   -------        -------        -------        ------        ---
                                                                   $28,809        $10,041        $17,684        $1,004        $80
                                                                   -------        -------        -------        ------        ---
</TABLE>

(1)   In June 2010, the expiration date was extended to September 30, 2010.

(2)   In May 2010, the maturity date was extended to November 2012.

(3)   Included  in  current  liabilities  from  discontinued  operations  on the
      consolidated financial statements.

(4)   Interest and fees are estimated based on future interest rates expected to
      be applicable.

      The following table summarizes ICTS's other future commercial  obligations
as of December 31, 2009:

<TABLE>
<CAPTION>
Other 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>
Letters of credit                                                   $ 444          $ 444          $ --           $ --         $ --
                                                                    -----          -----          ----           ----         ----
                                                                    $ 444          $ 444          $ --           $ --         $ --
                                                                    -----          -----          ----           ----         ----
</TABLE>


                                       36
<PAGE>

Item 6. Directors, Senior Management and Employees

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

                           Age     Position
                          -----    ----------
Menachem Atzmon            66      Chairman of the Supervisory Board
David W. Sass              74      Member of the Supervisory Board

Eytan Barak                66      Member of the Supervisory Board, Member of
                                   Compensation and Audit Committee
Elie Housman               73      Member of the Supervisory Board, Chairman
                                   of the Compensation Committee
Gordon Hausmann            64      Member of the Supervisory Board, Member of
                                   the Compensation Committee and Member of the
                                   Audit Committee
Philip M. Getter           73      Member of the Supervisory Board, Chairman
                                   of the Audit Committee
Avraham Dan                65      Managing Director
Ran Langer                 64      Managing Director
Raanan Nir                 61      Managing Director
Alon Raich                 34      Chief Financial Officer

      Menachem  J.  Atzmon is a CPA (Isr).  Since  1996 Mr.  Atzmon has been the
managing  director of Albermale  Investment Ltd., an investment  company.  Since
January 1998 he has served as the chairman of the  management  board of Seehafen
Rostock.  Mr.  Atzmon  acts as a member of the board of Capital  Points,  Ltd. a
listed Company on the Tel Aviv Stock Exchange in Israel. He has been a member of
the Supervisory Board of ICTS since 1999.

      David W. Sass for the past 49 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 is 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 a director of the Temple  University  Law Foundation and an
Honorary Trustee of Ithaca College.

      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 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


                                       37
<PAGE>

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.

      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.

      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 was  appointed  as the  Chairman of the
Board in 2008.  In 2009,  Mr.  Getter  resigned from  Inksure's  Board.  Inksure
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 is  currently on the Board of Inksure
Technologies Inc.  ("Inksure"),  serving as the Chairman of the Audit Committee.
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 2009 (in thousands):

<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,                2009         180          --         60              --              --           --        --      240
Managing                    2008         180          68         60              --              --           --        --      308
Director                    2007         180          --         60              --              --           --        --      240
------------------------------------------------------------------------------------------------------------------------------------
Ran Langer,                 2009          --          --         --              --              --           --        --       --
Managing                    2008          --          --         --              --              --           --        --       --
Director                    2007          --          --         --              --              --           --        --       --
------------------------------------------------------------------------------------------------------------------------------------
Raanan Nir,                 2009          --          --         58              --              --           --        --       58
Managing                    2008          --          --         --              --              --           --        --       --
Director                    2007          --          --         --              --              --           --        --       --
------------------------------------------------------------------------------------------------------------------------------------
Doron Zicher,               2009         284         336         36              --              --           --        --      656
Managing                    2008         294         321         36              --              --           --        --      651
Director of                 2007         242         174         39              --              --           --        --      455
Subsidiary
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

      Each member of the Supervisory Board who is not an employee of the Company
receives an annual fee of $10,000 and a fee for each Board or committee  meeting
attended of $1,000.  The Chairman of the Audit Committee  receives an additional
$20,000 per year. As of December 31, 2009, no director's fees have been paid for
the past two years.

      Mr.  Dan has  been  employed  as a  Managing  Director  under a five  year
employment  agreement  commencing February 1, 2005, at a monthly compensation of
$15,000.  Mr. Dan is also entitled to benefits and a bonus in the amount of 1.3%
of the Company's net income (excluding extraordinary items).

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

      Mr. Nir has been employed as a Managing  Director  since 2008 at an annual
salary of $58,000.

      Mr. Doron Zicher has been employed as a Managing Director of the Company's
European  subsidiaries under a five year employment agreement commencing January
1, 2005. Mr. Zicher's  employment  agreement was extended  effective  January 1,
2010 for a period of two years at a monthly  compensation  of 17,000 Euros.  Mr.
Zicher  is also  entitled  to  benefits  and a bonus in the  amount of 5% of net
income of two of the Company's  European  subsidiaries and


                                       39
<PAGE>

2.5% of net income of all other  subsidiaries  involved in the aviation business
with exception of the Company's U.S.  subsidiaries.  In addition,  Mr. Zicher is
entitled to receive a bonus, net of sale expenses, of 8% of the sale proceeds in
the event the Company's I-SEC subsidiary is sold.

      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, 2009.

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

Directors as a group (6 persons)             $  107                  $ --
All officers as a group(7 persons)           $1,432                  $104

      Background and Compensation Philosophy

      Our  Compensation  Committee  consists of Elie Housman,  Chairman,  Gordon
Hausmann and Eytan Barak, all independent directors.  The Compensation Committee
and, prior to its establishment  our Supervisory  Board of Directors  determined
the compensation to be paid to our executive officers based on our financial and
operating performance and prospects, the level of compensation paid to similarly
situated executives in comparably sized companies, and contributions made by the
officers'  to our  success.  Each of the named  officers  will be  measured by a
series of performance  criteria by the  supervisory  board of directors,  or the
compensation  committee on a yearly basis. Such criteria will be set forth based
on  certain  objective   parameters  such  as  job   characteristics,   required
professionalism,  management skills,  interpersonal skills,  related experience,
personal performance and overall corporate performance.

      Our  Supervisory  Board of Directors and  Compensation  Committee have not
adopted or established a formal policy or procedure for  determining  the amount
of compensation paid to our executive officers. The Compensation Committee makes
an independent  evaluation of appropriate  compensation  of key employees,  with
input from  management.  The  Compensation  Committee has oversight of executive
compensation plans, policies and programs.

      Our  compensation  program  for  our  executive  officers  and  all  other
employees is designed such that it will not incentivize unnecessary risk-taking.
The base salary component of our compensation program is a fixed amount and does
not  depend on  performance.  Our cash  incentive  program  takes  into  account
multiple  metrics,  thus  diversifying  the  risk  associated  with  any  single
performance  metric,  and we  believe  it does  not  incentivize  our  executive
officers to focus  exclusively  on  short-term  outcomes.  Our equity awards are
limited by the terms of our equity  plans to a fixed  maximum  specified  in the
plan,  and are  subject  to  vesting  to align the  long-term  interests  of our
executive officers with those of our stockholders.


                                       40
<PAGE>

      Elements of Compensation

      We provide our executive  officers with a base salary and certain  bonuses
to  compensate  them for  services  rendered  during  the  year.  Our  policy of
compensating our executives with a cash salary has served us well.

      Board Practices

      We have 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 Company's  financial  statements  and confers
with the auditors and the officers. The Audit Committee has an Operating Charter
as well.

      We do not have a Nominating Committee.  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.

      Employees

      As of December 31, 2009, we have 3,150  employees,  of which 950 employees
are located in Europe and 2,200 are located in the United States.

      Share Ownership

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


                                       41
<PAGE>

      Options to Purchase Securities

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

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

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

      The Plan  shall  be  administered  by the  Compensation  Committee  of the
Supervisory Board.

      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:


                                       42
<PAGE>

      1.  Menachem  Atzmon  (Chairman  of the Board) - 550,000  options of which
250,000 shall be  immediately  vested and 300,000  options to be vested  equally
over the next three years.  With respect to the Options for 200,000  shares they
are granted in lieu of a current salary for Mr. Atzmon.  Options are exercisable
at $1.35  per share  representing  the fair  market  value on the date of grant.
These options have been exercised during 2009.

      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.  These  options have been  exercised
during 2009.

      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.  These  options have been  exercised
during 2009.

      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.  These  options have been  exercised  during
2009.

      5. Directors - 30,000  options were granted to each of the  Directors,  at
that time, namely,  Elie Housman,  Philip Getter  (exercised),  M. Albert Nissim
(exercised)  and David W. Sass  (exercised).  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. These options have been exercised during
2009.

      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.


                                       43
<PAGE>

      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.

      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.  These  options have been  exercised  during
2009.

      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. These options have been exercised.

      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.

      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


                                       44
<PAGE>

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.

      A summary of the Options granted is as follows:

      As of  December  31,  2009,  there were  outstanding  options to  purchase
332,000  shares of common stock.  Options were granted to  directors,  executive
officers and employees of the Company at exercise price of $1.00 per share under
the  plans.  All these  options  are vested as of  December  31,  2009.  Options
available  for grant under the plans are  2,279,502.  The plans  expire by their
terms at various dates through 2018.

      All  current  executive  officers  (Managing  Directors)  (3 persons) as a
group: 90,000 Options.

      All current directors (6 persons) as a group: 160,000 Options.

      All  non-executive  officers  and  other (4  persons)  as a group:  82,000
Options.

      U.S. Federal Income Tax Consequences

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

      Incentive Stock Options

      ISOs  granted  pursuant to the Plan are  intended to qualify as  incentive
stock options  within the meaning of Section 422A of the Internal  Revenue Code.
If the  participant  makes no  disposition  of the shares  acquired  pursuant to
exercise  of an ISO  within  one year  after  the  transfer  of  shares  to such
participant and within two years from grant of the option, such participant will
realize no taxable  income as a result of the grant or exercise of such


                                       45
<PAGE>

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  which  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 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.


                                       46
<PAGE>

Item 7. Major Shareholders and Related Party Transactions

      Major Shareholders

      The following table sets forth certain information  regarding ownership of
the Company's Common Shares as of June 15, 2010 (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 Shareholders Holding Five Percent or More                Owned (a)         Outstanding (b)
-----------------------------------------------------------------------------------------------
<S>                                                           <C>                    <C>
Atzmon Family Trust (c)                                       4,847,226              61.4%
-----------------------------------------------------------------------------------------------
Nicholas P. Monteban, Xalladio Holding B.V. and
Galladio Capital Management B.V.                                665,000               8.4%
-----------------------------------------------------------------------------------------------
Amos Megides                                                    906,644              11.5%
-----------------------------------------------------------------------------------------------
All officers and directors as a group including
the Atzmon Family Trust
(10 persons)                                                  5,230,263              64.3%
-----------------------------------------------------------------------------------------------
</TABLE>

      (a) The amounts include common shares owned by each of the above, directly
or indirectly and options immediately  exercisable or exercisable within 60 days
from June 15, 2010.

      (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. The Atzmon  Family Trust  ("Trust")  was created for the benefit of
the family of Mr.  Menachem  J.  Atzmon.  The Trust own  Aragata  Holdings  Co.,
Limited.,  which holds  approximately 61.4% of the issued and outstanding Common
Shares on behalf of the Trust. Mr. Atzmon  disclaims any beneficial  interest in
the Atzmon Family  Trust.  Aragata  Holdings Co.,  Limited and the Atzmon Family
Trust may be able to appoint all the  directors  of ICTS and control the affairs
of ICTS.

            2. As of May 31, 2010 the Company  received loans from related party
in total amount of $9.9 million and accrued  interest of $1.2 million.  The loan
is convertible to the Company's common stock at a rate of $2.10 per share.


                                       47
<PAGE>

      Review, Approval or Ratification of Transactions with Related Persons

      All ongoing and future transactions between us and any of our officers and
directors and their respective  affiliates,  including loans by our officers and
directors,  will be on terms  believed  by us to be no less  favorable  than are
available from unaffiliated third parties. Such transactions or loans, including
any  forgiveness of loans,  will require prior  approval by the Audit  Committee
(whose  members  are   "independent"   directors)  and  by  a  majority  of  our
disinterested "independent" directors (to the extent we have any) or the members
of our board who do not have an interest in the transaction,  in either case who
had access, at our expense,  to our attorneys or independent  legal counsel.  We
will  not   enter   into  any  such   transaction   unless   our   disinterested
("independent")  directors  determine that the terms of such  transaction are no
less  favorable  to us than those that would be  available to us with respect to
such a transaction  from  unaffiliated  third parties.  We will not enter into a
business  combination or invest  alongside any of our directors,  officers,  any
affiliate of ours or of any of our directors or officers or a portfolio  company
of any affiliate of our directors or officers.

      Related Party Transactions

      We had an outstanding guarantee with respect to certain related party debt
obligations of $2.5 million, which were fully reserved. In 2007, the Company was
released  from $0.7  million of the  guarantee.  In 2008,  the Company paid $1.4
million to settle certain  outstanding  obligations  under the guarantee and was
released from its  remaining  guarantee of $0.4  million.  We  recognized  other
income  related to the recovery of its guarantee of $0, $421,  and $0 during the
years ended December 31, 2009, 2008 and 2007, respectively.

      Entities related to two of our board members provide legal services to us.
Legal expense  related to these services is $0.1 million,  $0.1 million and $0.1
million for the years ended  December  31,  2009,  2008 and 2007,  respectively.
Included in accounts payable on the accompanying  consolidated  balance sheet is
$0.1 million and $0.1 million due for these services as of December 31, 2009 and
2008, respectively.

      We  engaged  the  services  an  entity  owned  by  a  related  party  as a
subcontractor for one of its subsidiaries. The Company incurred expenses of $0.2
million and $0.1 million for such services for the years ended December 31, 2008
and 2007, respectively.

      In June 2009,  a European  bank,  issued a  performance  guarantee  in the
amount of (euro)1.2  million to one of our  customers to secure our  performance
under the  service  contract  between the  parties.  The  performance  guarantee
extends for the period  June 24,  2009  through  April 16,  2013.  To secure the
European bank's  guarantee,  an entity related to the Company's main shareholder
provided a guarantee to the European bank for the same amount.

      In July 2009,  we entered  into a settlement  arrangement  with the former
landlord  of its  entertainment  segment to resolve  all  disputes  between  the
parties  related to unpaid rent  obligations  for $2.6  million.  The  Company's
obligation  under  the  settlement  arrangement  is  secured  by a $1.3  million
irrevocable  standby letter of credit issued to the former landlord by an entity
related to the Company's main shareholder.


                                       48
<PAGE>

      On  July  15,   2009,   we  issued   300,000   shares  of  fully   vested,
non-forfeitable  common  stock  to an  entity  related  to  the  Company's  main
shareholder as  consideration  for guaranteeing  certain of our obligations.  We
recognized  the fair value of the shares on the date of issuance of $0.6 million
in selling,  general and administrative  expenses in the accompanying statements
of operations and comprehensive income (loss).

      The  Company  has an  arrangement  with  an  entity  related  to its  main
shareholder  to provide it with  revolving  loans.  See  liquidity  and  capital
resources section for further information on this arrangement.

      The  Company  has an  ownership  interest  in Inksure  Technologies,  Inc.
("Inksure")  of 27.4% as of December  31,  2009 and 2008.  The  Company's  chief
financial officer serves as a non-employee director of Inksure. In addition, one
of the members of the Company's Board of Directors also serves as a non-employee
director of Inksure.  In March 2010, the Company  purchased  5,400,000 shares of
Inksure's  common  stock for $0.7  million  pursuant to a private  placement  of
Inksure Technologies,  Inc. securities, which decreased its ownership percentage
in Inksure from 27.4% to 23.9%.

Item 8. Financial Information

      The Consolidated Financial Statements and Financial Statement Schedule are
included herein on pages F-1 through F-37

      Legal Proceedings

      United States Transportation Security Administration

      In February  2002,  the Company was awarded a security  services  contract
(the "TSA Contract") by the TSA to continue to provide security  services in all
of its  current  airport  locations  until the  earlier of either the  completed
transition of these security services on an airport-by-airport  basis to the TSA
or November 2002. In accordance  with the terms of the TSA Contract,  the United
States  Federal  government  provided  the Company with a  non-interest  bearing
advance payment of  approximately  $26 million,  which was payable to the TSA in
monthly  installments of  approximately  $1.3 million  commencing in April 2002.
Through December 31, 2009, the Company has repaid $11,700 of the advance.  As of
December 31 2009, 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 of $3  million,  net of the  remaining  unpaid  advance,  as a
receivable  from  TSA on the  accompanying  consolidated  balance  sheets  as of
December 31, 2009 and 2008.

      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 the lawsuit  which the Company had already  filed against the TSA
for repeated breach of contract. The Company is vigorously challenging the TSA's
claims,  which it asserts is devoid of any  factual  or legal  merit.  The TSA's
filing  comes on the  heels  of a  recent  decision  by the  ODRA  granting  the
Company'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.  With respect to the claim for the $59,200  overpayment,  the Company
has filed a motion to dismiss the action, which has been denied.


                                       49
<PAGE>

      On March 30, 2009,  ODRA denied both cross  motions for summary  judgment,
stating  that the TSA has not met its  burden  of proof  that the  prices in the
purported 2006  definitization  were reasonable and that ODRA was not willing to
revisit the issue of the statute of limitations in the summary  judgment  format
but left open the  possibility of deciding in the Company's  favor on this issue
until the record is complete and fully briefed.

      Settlement  negotiations  followed and the parties have reached a possible
resolution. The settlement proposal has been reduced to a writing, which has not
yet been  executed by the Company.  At this time,  the Company is not willing to
execute the proposed agreement because of its continuing dispute with the United
States  Department  of Labor  ("DOL").  If the  Company  is  unable  to reach an
acceptable  resolution  with the DOL,  then the Company  will examine its option
with the DOL and determine if it should  execute the  agreement  with the TSA or
seek to  resume  its  litigation  against  the TSA  for the  amounts  previously
asserted in that  litigation.  The collection of the receivable from the TSA and
the resolution of the liability to the DOL is currently undeterminable.

      United States Department of Labor

      During  2003,  the  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 resulting in a penalty of
$7.1  million.  In 2007,  the  Company  reached a  settlement  with the DOL with
respect to this claim and agreed to pay them $3 million. The settlement requires
the first $3 million of any  settlement  with the TSA to be  remitted to the DOL
and prohibits the DOL from pursuing any  collection  activity on its  receivable
until the TSA matter is resolved.  As of December 31, 2009 and 2008, a liability
to the DOL of $3 million is reflected on our consolidated  balance sheets.  This
amount is exclusive of any amounts which may be received from the TSA.

      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 the Company for United Flight
175 out of Logan Airport in Boston,  Massachusetts.  All but one of the wrongful
death/personal  injury cases  relating to Flight 175 have been settled,  leaving
the  focus  of  the  litigation  on  the  many  property  damage  and  insurance
subrogation lawsuits.

      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, the
Company  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  11


                                       50
<PAGE>

terrorist  attacks,  the  Company's  insurance  carriers  cancelled 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
consolidated balance sheets related to this matter.

      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.  On December 1, 2008, the Company appealed the case to the
United States Supreme Court, which refused to hear 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  in the  United  States  of  America  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. The
arbitrator's  decision was  affirmed by the Superior  Court of New Jersey in May
2007 and the  Appellate  Court in February  2008.  As of December 31, 2008,  the
Company  had  $0.2 in  accrued  expenses  and  other  current  liabilities  from
discontinued  operations  related to the judgment against it. During 2009, based
upon  management's  assessment  that payments are unlikely,  the $0.2 previously
accrued by the Company was eliminated and recognized in income from discontinued
operations.

      Turner Construction Company

      In November 2005, Turner  Construction  Company  ("Turner") filed a Demand
for Arbitration and Mediation  against one of the Company's  subsidiaries in the
United States of America 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 $1 million for work
and/or services performed. In an arbitration proceeding,  the arbitrator awarded
Turner $1 million  plus  interest.  This  award was  affirmed  on appeal.  As of
December  31,  2008,  the Company had $1 million in accrued  expenses  and other
current liabilities from discontinued operations related to the judgment against
it. During 2009, based upon management's  assessment that payments are unlikely,
the $1 million  previously  accrued by the Company was eliminated and recognized
in income from discontinued operations.


                                       51
<PAGE>

      Landlord Claims

      Two of the Company's  subsidiaries have been sued by their former landlord
(which  is the  same  entity  for  both  properties)  alleging  breach  of their
respective  leases.  The former  landlord was 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 former 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
of $2.6 million was awarded in favor of the former landlord.  The subsidiary has
filed an appeal to challenge the judgment.  As of December 31, 2008, the Company
has $7.3 million in other  liabilities from discontinued  operations  related to
the  unpaid  rent  obligations  owed to the  former  landlord  of the  Company's
subsidiaries.  In July 2009, the Company  entered into a settlement  arrangement
with the former landlord to resolve all disputes  between the parties related to
the  unpaid  rent  obligations  and  agreed to pay $2.6  million  to the  former
landlord in four equal installments during 2009 and 2010.

      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) 0.1 million ($0.1 million
as of December 31, 2008). This dispute was settled in 2008 without any liability
to the Company.

      Item 9. The Offer and Listing

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

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

      Year                                   High               Low
      ----                                   -----             -----
      2005                                   $3.23             $1.58
      2006                                   $2.54             $0.10
      2007                                   $2.79             $1.40
      2008                                   $2.30             $1.70
      2009                                   $2.55             $1.50

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

      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


                                       52
<PAGE>

      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

      2009                                   High               Low
      ----                                   -----             -----
      First quarter                          $2.25             $1.50
      Second quarter                         $2.55             $1.50
      Third Quarter                          $2.25             $1.80
      Fourth Quarter                         $2.25             $1.82

      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

      Our authorized share capital is currently  divided into 17,000,000  common
shares, par value 0.45 Euro per common share. The common shares may be in bearer
or registered  form. As of December 31, 2009,  7,890,137  shares were issued and
outstanding.

      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.


                                       53
<PAGE>

Voting Rights

      Members of our 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

      Our 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  votes  cast,  except  where  a  different
proportion of votes are required by the Articles of  Association  or Netherlands
law,  in a meeting in which  holders of at least  one-third  of the  outstanding
common shares are represented. Each share carries one vote.

      Amendment of Articles of Association and Winding Up

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

      Approval of Annual Accounts

      Our 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.


                                       54
<PAGE>

      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

      Our Supervisory Board has the power to issue shares. The shareholders have
by an authorizing resolution provided such authority for a five year period from
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

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

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

      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.


                                       55
<PAGE>

      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, 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.


                                       56
<PAGE>

      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.

      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.


                                       57
<PAGE>

      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 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:


                                       58
<PAGE>

      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 we 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,  agrees 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 we 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 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.


                                       59
<PAGE>

      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

      We are  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)0.2 million and 25.5% for the
excess.  In 2008 the standard  corporate  income tax rate was 20% applicable for
taxable profits up to (euro)0.3 million and 25.5% for the excess.

      We and a number of our 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 arm's  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:

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

(ii) We hold 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


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<PAGE>

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 0.5 million Euros.  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).

      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.


                                       61
<PAGE>

      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  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.


                                       62
<PAGE>

      Dividend Withholding Tax in the Netherlands

      We currently do 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  us  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.

      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 us on the Common Shares or with respect to capital gains derived
from the sale or disposal of Common Shares in case:


                                       63
<PAGE>

            (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.

      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


                                       64
<PAGE>

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

      We  are  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


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<PAGE>

Item 11. Quantitative and Qualitative Disclosure About Market Risk

      Foreign  Currency  Exchange Risk - applies to our  operations  outside the
USA. In 2009,  approximately  38% of the Companies  revenues were derived in the
United  States,  and  approximately  62% was  derived in Europe.  The Company is
subject  to  market  risks  associated  with  foreign  currency   exchange  rate
fluctuations. We do 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 of the Company's  financial  position,
results of operations, and cash flows.

      Interest Rate Risk - We are subject to changes in interest  rates based on
Federal  Reserve  actions and general  market  conditions.  The Company does not
utilize derivative  instruments to manage its exposure to interest rate risk. We
believe 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 $180 in the year ended December 31, 2009.

Item 12. Description of Securities Other than Equity Securities

      Not applicable

                                     PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

      As of December 31, 2009, one of our  subsidiaries  was in violation of its
minimum EBITDA and capital  expenditure  limitation  covenants.  The credit line
will expire on September 30, 2010.

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,  2009.  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


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<PAGE>

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
financial  reporting as of December 31, 2009.  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,  I-SEC  Japan  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, 2009 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,  2009 that have  materially
affected,  or are reasonably likely to materially  affect,  our internal control
over financial reporting.


                                       67
<PAGE>

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

      We have 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
independent  registered  public  accounting  firms,  Mayer  Hoffman  McCann CPAs
(formerly MHM Mahoney Cohen,  CPAs,  ("MHM")) and 25 MAD  LIQUIDATION  CPA, P.C.
(formerly known as Mahoney Cohen & Company,  CPA, P.C.) for services rendered to
us during the years ended  December 31, 2009 and 2008.  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 (in thousands).

                                                 2009      2008
                                                 ----      ----

                Audit fees                       $300      $300
                Audit related fees                 --        --
                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 was also a director and chairman of the Audit  Committee of one
of the Company's  affiliates  until November 2009.  Other than such  affiliation
such director meets the independence requirement for each such entity.

Item 16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers

      Not applicable.

Item 16F. Change in Accountants Disclosure.

      ICTS  International  N.V. ("the  Company")  appointed Mayer Hoffman McCann
CPAs ("MHM")  (formerly  known as MHM Mahoney  Cohen CPAs) as the  Company's new
auditor as approved by the Audit  Committee of the Board of Directors on January
8, 2009. The Company was notified that the  shareholders  of 25 MAD  LIQUIDATION
CPA, P.C. (formerly known as Mahoney Cohen & Company, CPA, P.C.) ("MAD"), became
shareholders  of  Mayer  Hoffman  McCann  P.C.  pursuant  to an  asset  purchase
agreement. The New York practice of Mayer Hoffman McCann P.C. now operates under
the name MHM Mahoney Cohen CPAs.


                                       68
<PAGE>

      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
6-K,  the  Company  did not  consult  with MHM  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  MAD  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 6-K, there were (i.) no
disagreements  between  the  Company  and  MAD  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 MAD,
would  have  caused  MAD  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.

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

      The Consolidated  Financial Statements and Financial Statement Schedule of
the  Company as of  December  31,  2009 and 2008 and for each of the three years
ended  December 31, 2009,  including  the report of our  independent  registered
public accounting firm thereon are set forth on pages F-1 to F-37.

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.**


                                       69
<PAGE>

      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.

                                   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 30, 2010


                                       70
<PAGE>

                    ICTS INTERNATIONAL N.V. AND SUBSIDIARIES

                               2009 ANNUAL REPORT

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                            Page

Consolidated Financial Statements:

Reports of Independent Registered Public Accounting Firms                    F-2

Consolidated Balance Sheets as of December 31, 2009 and 2008                 F-4

Consolidated Statements of Operations and Comprehensive Income (Loss)
   for the Years Ended December 31, 2009, 2008 and 2007                      F-5

Consolidated Statements of Changes in Shareholders' Deficiency
   for the Years Ended December 31, 2009, 2008 and 2007                      F-6

Consolidated Statements of Cash Flows for the Years Ended
   December 31, 2009, 2008 and 2007                                          F-7

Notes to Consolidated Financial Statements                                   F-9

Financial Statement Schedule:

Valuation and Qualifying Accounts                                           F-37


                                      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  sheets of ICTS
International  N.V. and Subsidiaries (the "Company") as of December 31, 2009 and
2008 and the related  consolidated  statements of operations  and  comprehensive
income (loss), changes in shareholders' deficiency, and cash flows for the years
then ended.  These financial  statements are the responsibility of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

      We  conducted  our audits in  accordance with the  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the 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 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, 2009 and 2008 and the
results  of its  operations  and its cash  flows  for the  years  then  ended in
conformity with accounting principles generally accepted in the United States of
America.

      As  disclosed  in Notes 12 and 15, the Company is involved in  significant
litigation in connection with (a) its exposure to certain tax  assessments  made
against it 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)
certain  claims  made  against the Company by the United  States  Department  of
Labor,  and (d) certain  claims made by the  Company  against 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  continuing  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 regarding 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/ Mayer Hoffman McCann CPAs
   (The New York Practice of Mayer Hoffman McCann P.C.)

New York, New York
June 30, 2010


                                      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 statements of operations and
comprehensive income (loss), changes in shareholders' deficiency, and cash flows
of ICTS  International N.V. and Subsidiaries (the "Company") for the year ending
December 31, 2007.  These  financial  statements are the  responsibility  of the
Company  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 results of operations and cash
flows of ICTS  International  N.V. and  Subsidiaries for the year ended December
31, 2007 in conformity  with  accounting  principles  generally  accepted in the
United States of America.

      As  disclosed  in Notes 12 and 15, the Company is involved in  significant
litigation in connection  with: (a) its exposure to certain tax assessments made
against it 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 Department of Labor, (e) certain claims made by
the Company against the United States  Transportation  Security  Administration,
and (f) the  successful  renewal of a material  contract by one of the Company's
subsidiaries.

      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  continuing  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 regarding 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/ 25 MAD LIQUIDATION CPA, P.C.
    (formerly known as 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 $ in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                                              December 31,
                                                                                                    -------------------------------
ASSETS                                                                                                2009                   2008
                                                                                                    -------------------------------
<S>                                                                                                 <C>                    <C>
CURRENT ASSETS:
  Cash and cash equivalents                                                                         $  4,835               $  3,750
  Restricted certificate of deposit                                                                    3,500                     --
  Accounts receivable, net                                                                            11,556                 11,448
  Prepaid expenses and other current assets                                                            1,307                  1,373
                                                                                                    -------------------------------

Total current assets                                                                                  21,198                 16,571

Property and equipment, net                                                                            1,873                  1,728
Goodwill                                                                                                 314                    314
Restricted certificate of deposit                                                                         --                  3,500
Receivable - United States Transportation
  Security Administration                                                                              3,000                  3,000
Other assets                                                                                             442                    283
                                                                                                    -------------------------------

Total assets                                                                                        $ 26,827               $ 25,396
                                                                                                    ===============================

LIABILITIES AND SHAREHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
  Notes payable-bank                                                                                $  6,070               $  4,861
  Accounts payable                                                                                     2,684                  4,087
  Accrued expenses and other current liabilities                                                      21,856                 21,023
  Current liabilities from discontinued operations                                                     1,222                  1,898
                                                                                                    -------------------------------

Total current liabilities                                                                             31,832                 31,869

Convertible notes payable to related party,
  including accrued interest                                                                          10,144                  6,072
Other liabilities                                                                                      3,141                  3,144
Non-current liabilities from discontinued operations                                                      --                  7,276
                                                                                                    -------------------------------

Total liabilities                                                                                     45,117                 48,361
                                                                                                    -------------------------------

COMMITMENTS AND CONTINGENCIES (NOTE 15)

SHAREHOLDERS' DEFICIENCY:
  Common stock, (euro) 0.45 par value; 17,000,000 shares
    authorized; 7,890,137 shares issued and outstanding
    as of December 31, 2009; 6,672,980 shares issued and
    6,528,100 shares outstanding as of December 31, 2008                                               4,409                  3,605
  Additional paid-in capital                                                                          20,661                 20,655
  Accumulated deficit                                                                                (35,904)               (38,827)
  Accumulated other comprehensive loss                                                                (7,456)                (7,499)
  Treasury stock, at cost; 144,880 shares as of
    December 31, 2008                                                                                     --                   (899)
                                                                                                    -------------------------------

Total shareholders' deficiency                                                                       (18,290)               (22,965)
                                                                                                    -------------------------------

Total liabilities and shareholders' deficiency                                                      $ 26,827               $ 25,396
                                                                                                    ===============================
</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 INCOME (LOSS)
                   (US $ in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                           Year Ended December 31,
                                                                            --------------------------------------------------------
                                                                                    2009              2008             2007
                                                                            --------------------------------------------------------
<S>                                                                         <C>                   <C>                   <C>
Revenue                                                                     $    95,861           $    98,809           $    64,780
Cost of revenue                                                                  83,491                85,107                52,397
                                                                            --------------------------------------------------------

GROSS PROFIT                                                                     12,370                13,702                12,383
Selling, general, and administrative expenses                                    14,313                15,341                13,338
                                                                            --------------------------------------------------------

OPERATING LOSS                                                                   (1,943)               (1,639)                 (955)
Other expenses                                                                   (1,638)                 (856)               (3,580)
                                                                            --------------------------------------------------------

LOSS BEFORE EQUITY LOSS FROM INVESTMENTS IN
   AFFILIATES AND INCOME TAX BENEFIT (EXPENSE)                                   (3,581)               (2,495)               (4,535)

Equity loss from investments in affiliates                                           --                    --                (2,479)
Income tax benefit (expense)                                                        418                  (402)                 (966)
                                                                            --------------------------------------------------------

LOSS FROM CONTINUING OPERATIONS                                                  (3,163)               (2,897)               (7,980)
Income from discontinued operations, net of
   income tax benefit (expense) of $0, ($2) and
   $2,470 in 2009, 2008 and 2007, respectively.                                   6,086                   928                 5,422
                                                                            --------------------------------------------------------

NET INCOME (LOSS)                                                           $     2,923           $    (1,969)          $    (2,558)
                                                                            ========================================================

INCOME (LOSS) PER SHARE - BASIC AND DILUTED
Continuing operations                                                       $     (0.47)          $     (0.44)          $     (1.22)
Discontinued operations                                                            0.90                  0.14                  0.83
                                                                            --------------------------------------------------------

Net income (loss)                                                           $      0.43           $     (0.30)          $     (0.39)
                                                                            ========================================================

Weighted average number of shares outstanding                                 6,790,707             6,528,100             6,528,100
                                                                            ========================================================

COMPREHENSIVE INCOME (LOSS)
Net income (loss)                                                           $     2,923           $    (1,969)          $    (2,558)
Translation adjustment                                                               43                  (487)                   80
Unrealized gain on marketable equity securities                                      --                    --                   497
                                                                            --------------------------------------------------------

Comprehensive income (loss)                                                 $     2,966           $    (2,456)          $    (1,981)
                                                                            ========================================================
</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 $ 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, 2007            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)
Exercise of stock options             1,062,037        674          171            --             --          310           1,155
Issuance of shares to
  related party                         300,000        130         (165)           --             --          589             554
Net income                                   --         --           --         2,923             --           --           2,923
Translation adjustment                       --         --           --            --             43           --              43
                                      ----------------------------------------------------------------------------------------------

BALANCE AT DECEMBER 31, 2009          7,890,137     $4,409     $ 20,661      $(35,904)       $(7,456)       $  --        $(18,290)
                                      ==============================================================================================
</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 $ in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                                  Year Ended December 31,
                                                                                      ----------------------------------------------
                                                                                        2009               2008               2007
                                                                                      ----------------------------------------------
<S>                                                                                   <C>                <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)                                                                     $ 2,923            $(1,969)           $(2,558)
Income from discontinued operations                                                     6,086                928              5,422
                                                                                      ----------------------------------------------

Loss from continuing operations                                                        (3,163)            (2,897)            (7,980)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
  Depreciation and amortization                                                           715                781              1,218
  Impairment of property and equipment                                                     --                  4                 48
  Deferred income taxes                                                                    --                 --                 --
  Loss on sale of property and equipment                                                   --                (12)               (59)
  Impairment of investments                                                                --                 --                855
  Equity loss in investments in affiliates                                                 --                 --              2,290
  Stock-based compensation                                                                 --                101                373
  Gain on settlement of liability                                                          --                 --             (4,266)
  Issuance of shares to related party                                                     554                 --                 --
  Changes in assets and liabilities:
    Accounts receivable, net                                                               40             (1,339)               364
    Prepaid expenses and other current assets                                              92                265                103
      Other receivable - United States Transportation
      Security Administration                                                              --                (64)                --
    Other assets                                                                         (155)                38               (202)
    Accounts payable                                                                   (1,440)              (306)               633
    Accrued expenses and other current liabilities                                        640              4,930              2,827
    Net cash provided by (used in) discontinued
      operations                                                                       (1,866)             2,356                175
                                                                                      ----------------------------------------------

Net cash provided by (used in) operating activities                                    (4,583)             3,857             (3,621)
                                                                                      ----------------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment                                                     (865)            (1,042)              (792)
  Proceeds from sale of property and equipment                                             26                 61                135
  Proceeds from sale of equity method investments                                          --                 --                295
  Decrease (increase) in restricted cash                                                   --              1,791               (770)
  Increase in other assets                                                                 --               (185)                --
  Net cash provided by discontinued operations                                             --                 --                 55
                                                                                      ----------------------------------------------

Net cash provided by (used in) investing activities                                   $  (839)           $   625            $(1,077)
                                                                                      ----------------------------------------------
</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 $ in thousands, except per share data)

<TABLE>
<CAPTION>
                                                                                                 Year Ended December 31,
                                                                                    ------------------------------------------------
                                                                                      2009                2008                2007
                                                                                    ------------------------------------------------
<S>                                                                                 <C>                 <C>                 <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
  Repayments of other liabilities                                                   $    (5)            $   (91)            $  (195)
  Net increase (decrease) in notes payable - bank                                     1,209              (1,824)              1,562
  Net proceeds (repayments of) convertible notes
    payable to related party                                                          3,872                (234)              3,991
  Proceeds from exercise of stock options                                             1,155                  --                  --
  Net cash used in discontinued operations                                               --                  --                (373)
                                                                                    ------------------------------------------------

Net cash provided by (used in) financing activities                                   6,231              (2,149)              4,985
                                                                                    ------------------------------------------------

EFFECT OF CHANGES IN FOREIGN CURRENCY EXCHANGE
  RATES ON CASH AND CASH EQUIVALENTS                                                    276                (678)                 65
                                                                                    ------------------------------------------------

INCREASE IN CASH AND CASH EQUIVALENTS                                                 1,085               1,655                 352

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                          3,750               2,095               1,743
                                                                                    ------------------------------------------------

CASH AND CASH EQUIVALENTS, END OF YEAR                                              $ 4,835             $ 3,750             $ 2,095
                                                                                    ================================================
</TABLE>

<TABLE>
<CAPTION>
                                                                                                 Year Ended December 31,
                                                                                    ------------------------------------------------
                                                                                      2009                2008                2007
                                                                                    ------------------------------------------------
<S>                                                                                 <C>                 <C>                 <C>
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES
  Cashless exercise of stock options                                                $    75             $    --             $    --
                                                                                    ================================================

SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES
  Cash paid during the year for:
  Interest                                                                          $   315             $   565             $   624
                                                                                    ================================================

  Income taxes                                                                      $   124             $   270             $   226
                                                                                    ================================================
</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. ("ICTS") was established by the Department of Justice in
Amstelveen,  Netherlands on October 9, 1992. ICTS and subsidiaries (collectively
referred  to as,  the  "Company")  operate  in three  reportable  segments:  (a)
corporate (b) airport  security and other aviation  services and (c) technology.
The  corporate  segment  does  not  generate  revenue  and  contains   primarily
non-operational  expenses.  The airport  security  and other  aviation  services
segment   provides   security  and  other   services  to  airlines  and  airport
authorities,  predominantly  in the United  States of America  and  Europe.  The
technology  segment is  predominantly  involved in the  development  and sale of
identity  security software to financial  institutions and airport  authorities,
predominantly in Europe and Israel.

Liquidity and Financial Condition

The Company has a history of recurring  losses from  continuing  operations  and
working  capital  deficiencies.  The Company  incurred  losses  from  continuing
operations  of $3,163,  $2,897 and $7,980  during the years ended  December  31,
2009, 2008, and 2007,  respectively.  As of December 31, 2009, the Company had a
working  capital  deficit and  shareholders'  deficiency of $10,634 and $18,290,
respectively.  In addition, as further described in Notes 12 and 15, the Company
is subject to potential  material  contingencies  in  connection  with:  (a) its
exposure  to certain tax  assessments  made  against it 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) certain  claims made  against the
Company by the United States Department of Labor, and (d) certain claims made by
the Company  against the United States  Transportation  Security  Administration
("TSA").  Furthermore, one of the subsidiaries of ICTS is in default of its line
of credit in the United States of America,  which expires on September 30, 2010,
as a result of violations of certain required financial  covenants (see Note 6).
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 ("US
GAAP"). The significant accounting policies are as follows:


                                      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)

Functional Currency

The  accompanying  consolidated  financial  statements  are  presented in United
States dollars.  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.

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 date of the  financial  statements  and the reported  amounts of revenue and
expenses  during  the  reporting  period.  The most  significant  estimates  and
assumptions included in these consolidated  financial statements consist of the:
(a) calculation of the allowance for doubtful accounts, (b) determination of the
fair  value  of  shares  of  common  stock  issued  to  a  related  party,   (c)
determination  of the fair value of stock options upon the  modification  of the
Company's  stock option  plans, (d) recognition of contingent  liabilities,  (e)
calculation of income taxes, and (f) impairment  evaluation of marketable equity
securities and equity method investments. Actual results could differ from those
estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of ICTS International
N.V. 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 Certificate of Deposit

The Company has a $3,500  certificate  of deposit  with a  commercial  bank that
serves as cash  collateral  to secure a line of credit in the  United  States of
America (see Note 6). The certificate of deposit matures on September 30, 2010.

Accounts Receivable

Accounts  receivable  represent amounts due to the Company for services rendered
and are recorded net of an allowance  for doubtful  accounts.  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,  2009 and 2008,  the
allowance for doubtful accounts is $253 and $328, 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

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  prices of the  underlying
securities) with unrealized gains (losses) being reported, net of related income
taxes, as a separate  component of shareholders'  deficiency called  accumulated
other   comprehensive   loss.  Realized  gains  (losses)  are  included  in  the
consolidated  statements of operations and comprehensive  income (loss) upon the
sale of the securities.  During 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 (see Note 11). 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 the equity securities of companies which
represent  an  ownership  interest  of 20% or more and the  ability to  exercise
significant  influence,  provided that ability does not represent control, using
the equity method. 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, internal-use software, 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
Internal-use software             7
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.

Capitalized Internal-Use Software Costs

The Company capitalizes the cost of internal-use software that has a useful life
in excess of one year in property and equipment. These costs consist of payments
made to third party consultants for the installation and integration of software
and related travel costs.  Software  maintenance and training  costs,  including
related travel costs, are expensed in the period in which they are incurred.


                                      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)

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, 2009, the customer relationship is fully amortized.  Amortization expense is
$0,  $53 and $648  for the  years  ended  December  31,  2009,  2008  and  2007,
respectively.

Goodwill

Goodwill  represents  the excess  purchase  price over the fair value of the net
tangible and intangible assets of an acquired business. Goodwill is reviewed for
impairment  by  reporting  unit on an annual  basis or when events or changes in
circumstances  indicate that the carrying value may not be  recoverable.  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, 2009,  2008 and 2007, the Company
has not recorded any impairment charges on its goodwill.

Long-Lived Assets

The Company  reviews  long-lived  assets,  other than  goodwill,  for impairment
whenever events or changes in circumstances  indicate that the carrying value of
an  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,
2009,  2008,  and 2007,  the  Company  has  recorded  impairment  charges on its
long-lived assets of $0, $4 and $48, respectively.

Convertible Debt Instruments

The Company  evaluates  convertible  debt  instruments to determine  whether the
embedded  conversion  option needs to be bifurcated from the debt instrument and
accounted for as a freestanding derivative instrument or considered a beneficial
conversion  option.  An  embedded  conversion  option  is  considered  to  be  a
freestanding derivative when: (a) the economic  characteristics and risks of the
embedded  conversion  option are not clearly and closely related to the economic
characteristics and risks of the host instrument, (b) the hybrid instrument that
embodies  both the embedded  conversion  option and the host  instrument  is not
re-measured  at fair value under  otherwise  applicable  US GAAP with changes in
fair value  reported in earnings  as they occur,  and (c) a separate  instrument
with the same terms as the  embedded  conversion  option  would be  considered a
derivative  instrument subject to certain requirements (except for when the host
instrument is deemed to be conventional). When it is determined that an embedded
conversion  option  should  not be  bifurcated  from  its host  instrument,  the
embedded  conversion  option is evaluated  to determine  whether it contains any
intrinsic  value which needs to be  discounted  from the  carrying  value of the
convertible  debt  instrument.  The  intrinsic  value of an embedded  conversion
option  is  considered  to be the  difference  between  the  fair  value  of the
underlying  security  on the  commitment  date of the  debt  instrument  and the
effective conversion price embedded in the debt instrument.


                                      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)

Contingent Liabilities

The Company is subject to various  investigations,  claims and legal proceedings
covering a wide range of matters that arise in the normal course of its business
activities.   Liabilities  for  such  contingencies  are  recognized  when:  (a)
information  available  prior  to the  issuance  of the  consolidated  financial
statements  indicates  that it is probable that a liability had been incurred at
the date of the consolidated financial statements and (b) the amount of loss can
reasonably be estimated.

Comprehensive Income (Loss)

Comprehensive  income (loss) reflects changes in  shareholders'  deficiency that
result from  transactions  and  economic  events  from  non-owner  sources.  The
Company's  comprehensive  income  (loss) for the years ended  December 31, 2009,
2008, and 2007 consists of its net income (loss),  foreign currency  translation
adjustment and unrealized gain on marketable equity securities.

Stock-Based Compensation

Share-based payment awards to employees,  including stock options,  are measured
at the fair  value of the  award  on the  date of grant  based on the  estimated
number of awards that are ultimately expected to vest. Share-based  compensation
awards issued to non-employees  for services rendered are recorded at either the
fair  value  of the  services  rendered  or the fair  value  of the  share-based
payment,  whichever  is more  readily  determinable.  The  compensation  expense
resulting from  share-based  payments is recorded over the vesting period of the
award  in  selling,  general  and  administrative  expense  in the  accompanying
consolidated statements of operations.

Revenue Recognition

Revenue is recognized as services are rendered,  based on the terms contained in
the Company's contractual arrangements with customers, provided the fee is fixed
and  determinable,  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.

Advertising Costs

Advertising  costs are expensed as incurred.  Advertising costs during the years
ended December 31, 2009, 2008 and 2007 are $48, $235 and $111, respectively.

Research and Development Costs

Research and development costs are expensed as incurred and consist primarily of
payroll and related costs.  Research and development costs are $1,001,  $330 and
$317 during the years ended December 31, 2009, 2008, and 2007, respectively.


                                      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)

Value Added Tax

Certain of the  Company's  operations  are  subject to Value  Added Tax  ("VAT")
applied on the  services  sold in those  respective  countries.  The  Company is
required to remit the VAT collected to the tax  authorities,  but may deduct the
VAT paid on certain  eligible  purchases.  The  Company  records  the VAT amount
payable  or  receivable  in  each  respective  country  on a net  basis  in  the
accompanying consolidated balance sheets.

Income Taxes

The Company  accounts for income taxes using the  liability  method.  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.

Uncertain  tax  positions  are  determined  based  upon  the  likelihood  of the
positions being sustained upon examination by taxing authorities. The benefit of
a tax position is recognized  in the  consolidated  financial  statements in the
period  during  which  management  believes  it is more likely than not that the
position will not be sustained. Tax positions taken are not offset or aggregated
with  other  positions.   Tax  positions  that  meet  the   more-likely-than-not
recognition  threshold are measured as the largest amount of tax benefit that is
more  than 50  percent  likely  of  being  realized  upon  settlement  with  the
applicable  taxing  authority.  The portion of the benefits  associated with tax
positions  taken that  exceeds the amount  measured is reflected as income taxes
payable in the accompanying consolidated balance sheets.

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.

Income (Loss) Per Share

Basic  income  (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 income (loss) per share is
determined in the same manner as basic income (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 loss from continuing
operations in all periods presented,  all potentially  dilutive  securities were
excluded  from the  computation  of diluted  income (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)

Income (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 income (loss) per share:

                                                   Year Ended December 31,
                                             -----------------------------------
                                                2009         2008        2007
                                             ---------    ---------    ---------
Stock Options                                  332,000    1,632,000    1,723,000
Shares Issuable upon Conversion of
  Convertible Notes Payable to
  Related Party                              4,830,476    2,208,000    1,865,000
                                             ---------    ---------    ---------

Total                                        5,162,476    3,840,000    3,588,000
                                             =========    =========    =========

Fair Value of Financial Instruments

The fair values of cash and cash equivalents, restricted certificate of deposit,
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  values of the convertible
notes  payable  to  related  party  and  other   liabilities   are  not  readily
determinable  because:  (a) these instruments are not traded and, therefore,  no
quoted  market prices exist upon which to base an estimate of fair value and (b)
there  were no  readily  determinable  similar  instruments  on which to base an
estimate of fair value.

Concentration of Credit Risk

Financial instruments which are subject to concentrations of credit risk consist
primarily of cash and cash  equivalents,  restricted  certificate of deposit 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,  2009,  cash and cash  equivalents  being held in the United
States of America do not exceed the FDIC limit.  Bank accounts located in Europe
and Israel which hold $4,787 as of December 31, 2009 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,  results of  operations  and cash flows.  To mitigate  this risk,  the
Company  regularly  reviews the credit  worthiness of its customers  through its
credit evaluation process.

Revenue from two customers  represented 56%, 55% and 29% of total revenue during
the  years  ended  December  31,  2009,  2008 and 2007,  respectively.  Accounts
receivable  from these two customers  represented  38% and 41% of total accounts
receivable as of December 31, 2009 and 2008, 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  consolidated  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  consolidated  financial  position,
results of operations and cash flows.

Recently Issued Accounting Pronouncements

In December  2007, the Financial  Accounting  Standards  Board  ("FASB")  issued
Statement of Financial Accounting Standards No. 141(R),  "Business Combinations"
("SFAS  141(R)").   SFAS  141(R)  replaces  Statement  of  Financial  Accounting
Standards No. 141, "Business Combinations," and was primarily codified into FASB
Accounting  Standards  Codification  Topic 805,  "Business  Combinations"  ("ASC
805").  ASC 805 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. ASC 805
also requires  acquisition-related  transaction expenses and restructuring costs
be expensed as incurred  rather than  capitalized as a component of the business
combination.  The Company  adopted ASC 805 on January 1, 2009. ASC 805 will have
an impact on the accounting for any businesses acquired by the Company after its
date of adoption.

In December 2007, the FASB issued  Statement of Financial  Accounting  Standards
No. 160,  "Non-controlling  Interests in Consolidated  Financial Statements - an
amendment of ARB No. 51" ("SFAS 160").  SFAS 160,  which was primarily  codified
into FASB Accounting  Standards  Codification Topic 810,  "Consolidation"  ("ASC
810"),  establishes  accounting and reporting  standards for the non-controlling
interest in a subsidiary (previously referred to as minority interests). ASC 810
requires  non-controlling  interests  to be reported as a separate  component of
stockholder's  deficiency  and  present  any  net  income  (loss)  allocable  to
non-controlling  interests  and  stockholders  separately  in its  statement  of
operations. ASC 810 also requires that a retained non-controlling interest, upon
the  deconsolidation  of a subsidiary,  be initially measured at its fair value.
The Company  adopted ASC 810 on January 1, 2009. ASC 810 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 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, which
was primarily  codified into FASB Accounting  Standards  Codification Topic 350,
"Goodwill  and Other  Intangible  Assets"  ("ASC 350"),  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 this guidance.
The objective of this guidance is to improve the consistency  between the useful
life of a  recognized  intangible  asset under this  guidance  and the period of
expected  cash flows used to measure  the fair value of the asset  under ASC 805
and other US GAAP.  The  Company  adopted  ASC 350 as of January  1,  2009.  The
adoption of ASC 350 did not have a material effect on the Company's consolidated
financial position, results of operations, 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  07-05").
EITF  07-5,  which  was  primarily  codified  into  FASB  Accounting   Standards
Codification  Topic  815,   "Derivatives  and  Hedging  ("ASC  815"),"  provides
framework  for  determining  whether an instrument is indexed to an entity's own
stock.  The Company  adopted ASC 815 as of January 1, 2009.  The adoption of ASC
815 did not have a  material  effect  on the  Company's  consolidated  financial
position, results of operations, or cash flows.

In May 2009,  the FASB issued  Statement of Financial  Accounting  Standards No.
165,  "Subsequent  Events" ("SFAS 165"). SFAS 165, which was primarily  codified
into FASB Accounting Standards Codification Topic 855, "Subsequent Events" ("ASC
855"),  establishes  standards for the  accounting  and disclosure of subsequent
events.  ASC 855  introduces  new  terminology,  defines  a date  through  which
management must evaluate  subsequent events,  and lists the circumstances  under
which an entity must  recognize and disclose  events or  transactions  occurring
after the balance sheet date. The Company  adopted ASC 855 on December 31, 2009.
The  adoption  of ASC  855 did  not  have a  material  effect  on the  Company's
consolidated financial position, results of operations or cash flows.

In June 2009, the FASB issued SFAS No. 167,  "Amendments to FASB  Interpretation
No.  46(R)."  SFAS  167,  which was  primarily  codified  into  FASB  Accounting
Standards  Codification Topic 810,  "Consolidation" ("ASC 810") seeks to improve
financial reporting by enterprises involved with variable interest entities. The
Company  adopted ASC 810 as of January 1, 2009.  The adoption of ASC 810 did not
have a material effect on the Company's consolidated financial position, results
of operations, or cash flows.


                                      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 June 2009, the FASB issued  Statement of Financial  Accounting  Standards No.
168, "The FASB Accounting Standards  Codification and the Hierarchy of Generally
Accepted Accounting Principles - a replacement of FASB Statement No. 162" ("SFAS
168").  SFAS 168, which was primarily  codified into FASB  Accounting  Standards
Codification Topic 105, "Generally Accepted Accounting  Principles" ("ASC 105"),
established  the  FASB  Accounting  Standards  Codification  as  the  source  of
authoritative  nongovernmental  generally accepted accounting  principles in the
United  States of  America  ("GAAP").  Rules and  interpretive  releases  of the
Securities and Exchange Commission ("SEC") under authority of federal securities
laws  are  also  sources  of  authoritative  GAAP  for SEC  registrants.  On the
effective   date  of  these   provisions,   the   codification   superseded  all
then-existing   non-SEC   accounting   and   reporting   standards.   All  other
non-grandfathered non-SEC accounting literature not included in the codification
became non-authoritative. The Company adopted ASC 105 on December 31, 2009.

In  December  2009,  the  FASB  issued  Accounting   Standards  Update  2009-17,
"Consolidations  - Improvements to Financial  Reporting by Enterprises  Involved
with Variable Interest Entities" ("Update 2009-17"). Update 2009-17 amends Topic
810,  "Consolidations" of the Accounting Standards Codification by replacing the
quantitative-based risks and rewards calculation for determining which reporting
entity,  if any, has a  controlling  financial  interest in a variable  interest
entity with an approach  focused on identifying  which reporting  entity has the
power  to  direct  the  activities  of a  variable  interest  entity  that  most
significantly impact the entity's economic performance and (a) the obligation to
absorb  losses  of the  entity  or (b) the right to  receive  benefits  from the
entity.  The amendments also require  additional  disclosures  about a reporting
entity's  involvement  in variable  interest  entities,  which will  enhance the
information  provided to users of financial  statements.  The adoption of Update
2009-17 is not expected to have a material impact on the Company's  consolidated
financial position, results of operations or cash flows.

In  February  2010,  the  FASB  issued   Accounting   Standards  Update  2010-9,
"Subsequent   Events,   Amendments  to  Certain   Recognition   and   Disclosure
Requirements"  ("Update  2010-9").  Update 2010-9 amends Topic 855,  "Subsequent
Events," of the Accounting Standards Codification by eliminating the requirement
to disclose the date through which  subsequent  events were evaluated for public
entities  and  clarifying  the  application  of  ASC  855 in  revised  financial
statements.  The amendments in Update 2010-9 are effective  upon  issuance.  The
Company  adopted  Update  2010-9 on December  31,  2009.  The adoption of Update
2010-9 did not have a material  effect on the Company's  consolidated  financial
position, results of operations 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 the  entertainment
segment were classified as discontinued operations in the Company's consolidated
financial statements.  The nature of the ongoing discontinued  operations of the
entertainment   segment  consists  mainly  of  activities  associated  with  the
settlement of ongoing  litigation,  including  disputes related to unpaid vendor
and rent obligations (see Notes 15).


                                      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)

In July 2009, the Company entered into a settlement  arrangement with the former
landlord  of the  entertainment  segment to resolve  all  disputes  between  the
parties  related  to  unpaid  rent  obligations.   Pursuant  to  the  settlement
arrangement,  the  Company  agreed to pay $2,600 to the former  landlord in four
equal  installments  of $650.  The  first  two  installments  were paid upon the
execution of the settlement  arrangement and on December 31, 2009. The remaining
payments are payable on June 30, 2010 and December 31, 2010.  As a result of the
settlement  arrangement,  the Company recognized a gain of $4,756 in its results
from discontinued operations.

The payment of the Company's  obligation  under the  settlement  arrangement  is
secured by a $1,300  irrevocable  standby  letter of credit issued to the former
landlord by an entity related to the Company's main shareholder (see Note 13).

Furthermore,  during 2009, based upon management's  assessment that payments are
unlikely,  the remaining disputes of the entertainment segment related to unpaid
vendor  obligations of $1,156 which were previously  accrued by the Company were
eliminated and recognized as income from discontinued operations.

A summary of the Company's assets and liabilities from  discontinued  operations
as of December 31, 2009 and 2008 are as follows:

                                                                  December 31,
                                                              ------------------
                                                                2009       2008
                                                              ------------------

Accrued expenses and other current liabilities                $ 1,222     $1,898
                                                              ------------------
    Total current liabilities from discontinued
      Operations                                              $ 1,222     $1,898
                                                              ==================

Other liabilities                                             $    --     $7,276
                                                              ------------------
    Total non-current liabilities from
      discontinued operations                                 $    --     $7,276
                                                              ==================

A summary of the Company's  results from  discontinued  operations for the years
ended December 31, 2009, 2008 and 2007 are as follows:

                                                          December 31,
                                                --------------------------------
                                                 2009        2008        2007
                                                --------------------------------

Operating income                                $6,086      $ 932       $ 2,634
Impairment loss                                     --         --           (55)
Other income (expense), net                         --         (2)          373
Income tax benefit (expense)                        --         (2)        2,470
                                                --------------------------------

Income from discontinued operations             $6,086      $ 928       $ 5,422
                                                ================================


                                      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

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 contract 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, 2009 and
2008, the Company's investment in NAS is $0.

The Company recognized an equity loss in affiliates related to its investment in
NAS of $0, $0 and $2,003  during the years ended  December  31,  2009,  2008 and
2007, respectively.

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,
2009,  the  Company's  share of the  underlying  net assets of NAS  exceeds  the
carrying  value  of its  investment  in NAS by  $118.  The  market  value of the
Company's investment in NAS as of December 31, 2009 is not determinable.

Balance sheet data for NAS is summarized below:

                                                                  December 31,
                                                               -----------------
                                                                  2009     2008
                                                               -----------------

Current assets                                                    $255    $1,637
                                                               -----------------
   Total assets                                                   $255    $1,637
                                                               =================

Current liabilities                                               $ 19    $1,544
Shareholders' equity                                               236        93
                                                               -----------------
   Total liabilities and shareholders' equity                     $255    $1,637
                                                               =================

Statement of operations data for NAS is summarized below:

                                              For the Year Ended December 31,
                                         ---------------------------------------
                                           2009           2008           2007
                                         ---------------------------------------

Revenue                                    $ --         $ 5,931        $ 62,684
Gross profit                                 --             625             873
Net income (loss)                           143            (565)         (4,006)

Inksure Technologies, Inc.

The Company has an ownership interest in Inksure Technologies,  Inc. ("Inksure")
of 27.4% as of December 31, 2009 and 2008. The Company's chief financial officer
serves as a non-employee director of Inksure. In addition, one of the members of
the  Company's  Board of  Directors  also serves as a  non-employee  director of
Inksure. Inksure develops,  markets and sells customized  authentication systems
designed to enhance the security of documents and branded  products.  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.


                                      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)

Inksure Technologies, Inc. (Continued)

The Company recognized an equity loss in affiliates related to its investment in
Inksure of $0, $0 and $284 during the years ended  December 31,  2009,  2008 and
2007, respectively. As of December 31, 2009, the Company's carrying value of its
investment in Inksure  exceeds the Company's  share of the underlying net assets
of Inksure by $1,918. The market value of the Company's investment in Inksure as
of December 31, 2009 is $497.

Balance sheet data for Inksure is summarized below:

                                                              December 31
                                                      --------------------------
                                                        2009             2008
                                                      --------------------------

Current assets                                        $  3,451          $ 3,090
Non-current assets                                         211              288
                                                      --------------------------
   Total assets                                       $  3,662          $ 3,378
                                                      =========================

Current liabilities                                   $ 10,063          $ 8,093
Non-current liabilities                                    598               --
Shareholders' deficiency                                (6,999)          (4,715)
                                                      --------------------------
   Total liabilities and
   Shareholder's deficiency                           $  3,662          $ 3,378
                                                      =========================

Statement of operations data for Inksure is summarized below:

                                                         December 31,
                                            ------------------------------------
                                              2009          2008          2007
                                            ------------------------------------

Revenue                                     $ 3,335       $ 2,158       $ 2,890
Gross profit                                  2,962         1,654         1,782
Net loss                                     (1,468)       (3,528)       (3,078)

NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment is as follows:

                                                                 December 31,
                                                              ------------------
                                                               2009        2008
                                                              ------------------

Equipment and facilities                                      $3,515      $3,694
Internal-use software                                            509          --
Vehicles                                                         678         693
Leasehold improvements                                           446         304
                                                              ------------------

                                                               5,148       4,691
Less: accumulated depreciation and amortization                3,275       2,963
                                                              ------------------

Total property and equipment, net                             $1,873      $1,728
                                                              ==================

Depreciation  expense is $715,  $728 and $570 for the years ended  December  31,
2009, 2008 and 2007, 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 - NOTES PAYABLE - BANK

One of the subsidiaries of ICTS has an arrangement with a commercial bank in the
United States of America,  which provides up to $8,000 in borrowings and letters
of  credit.  The  borrowing  base of the  arrangement  is  limited to 85% of the
subsidiary's   eligible  accounts  receivable,   as  defined,  and  95%  of  the
subsidiary's  cash  collateral.  Borrowings under the arrangement are secured by
the  subsidiary's  accounts  receivable  of $6,213 and a $3,500  certificate  of
deposit (see Note 2).  Borrowings  under the  arrangement are also guaranteed by
ICTS. The original term of the arrangement, which was set to expire on March 31,
2010,  was  extended to June 30, 2010 and can be  automatically  extended for an
additional  one-year term unless either the Company or the commercial bank elect
to terminate the  arrangement  prior to the  expiration  date. In June 2010, the
original  term of the  arrangement  was extended to September 30, 2010 (see Note
16).  Borrowings made under the  arrangement  will be designated as either prime
rate or LIBOR rate loans at the option of the subsidiary.  Prime rate loans bear
interest,  which is payable monthly, at the bank's prime rate plus 1% per annum.
LIBOR rate loans bear  interest,  which are payable  monthly,  at LIBOR plus 350
basis points per annum.  For the years ended  December 31, 2009,  2008 and 2007,
the weighted  average  interest  rate on this  arrangement  is 4.25%,  5.25% and
6.00%,  respectively.   The  arrangement  subjects  the  subsidiary  to  certain
financial and  non-financial  covenants,  including  minimum tangible net worth,
minimum interest coverage ratio,  minimum EBITDA, a required excess availability
under the borrowing base and a capital  expenditure  limitation.  As of December
31, 2009 and for the year then ended,  the  subsidiary  is in  violation  of its
minimum EBITDA and capital expenditure  limitation covenants (see Note 1). As of
December 31, 2009, the subsidiary has approximately  $6,070 in borrowings,  $444
in outstanding letters of credit and $864 in unused borrowing capacity under the
arrangement. As of December 31, 2008, the subsidiary had approximately $4,848 in
borrowings, $575 in outstanding letters of credit and $1,518 in unused borrowing
capacity under the arrangement.

One of the  subsidiaries  of ICTS had an arrangement  with a commercial  bank in
Europe to provide it with up to (euro)650 in  borrowings.  Borrowings  under the
arrangement  were  limited  to  60%  of  the  subsidiary's   eligible   accounts
receivable,  secured by the assets of the  subsidiary,  and  guaranteed by ICTS.
Borrowings made under the arrangement  bear interest,  which is payable monthly,
at the commercial  bank's euro base rate plus 2% per annum.  For the years ended
December  31,  2008  and  2007,  the  weighted  average  interest  rate  on this
arrangement  is 7.30%  and  6.73%,  respectively.  The  arrangement  expired  in
February 2008.

In February 2008, two of the  subsidiaries of ICTS 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.  For the years  ended  December  31,  2009 and
2008, the weighted average interest rate on this arrangement is 7.30% and 6.73%.
Borrowings  under the arrangement are secured by the assets of the  subsidiaries
and  guaranteed  by ICTS.  As of December  31,  2008,  there are no  outstanding
borrowings and (euro)1,200 in outstanding  guarantees under the arrangement.  On
May 1, 2009, the credit agreement expired.

The Company is indebted to a commercial  bank for bank  overdrafts of $0 and $13
as of December 31, 2009 and 2008,  respectively.  These  amounts bear  interest,
which is payable monthly, at 7% per annum.


                                      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 - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities are as follows:

                                                                 December 31,
                                                              ------------------
                                                                2009       2008
                                                              ------------------

Accrued payroll and related                                   $ 4,028    $ 4,774
Accrued vacation                                                2,621      2,287
Accrued VAT                                                     2,026      1,756
Income taxes payable                                            9,815      9,614
Other                                                           3,366      2,592
                                                              ------------------

Total accrued expenses and other current liabilities          $21,856    $21,023
                                                              ==================

NOTE 8 - 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 holder 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.

In April 2008, the Company entered into a new arrangement with an entity related
to its main shareholder,  which replaced all previous  arrangements  between the
parties,  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 holder 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.


                                      F-23
<PAGE>

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

NOTE 8 - CONVERTIBLE NOTES PAYABLE TO RELATED PARTY (CONTINUED)

In April 2009, the Company entered into a new arrangement with an entity related
to its main shareholder,  which replaced all previous  arrangements  between the
parties,  to provide it with up to $7,310 in revolving  loans  through  November
2011.  The  term of the  arrangement  can be  automatically  extended  for  four
additional  six month  periods  at the  option of the  holder.  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 compounded  semi-annually and payable at maturity,  at the prime rate charged
by the Company's European  commercial bank on March 31, 2010. The arrangement is
secured by a 26% interest in one of the  Company's  subsidiaries.  In connection
with the  arrangement,  the holder was granted an option to convert  outstanding
notes payable under the arrangement  into the Company's  common stock at a price
of $2.10 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.

In September  2009, the Company  entered into a new  arrangement  with an entity
related  to its main  shareholder,  which  replaced  all  previous  arrangements
between the parties, to provide it with up to $10,000 in revolving loans through
November 2011 (see Note 16). The term of the  arrangement  can be  automatically
extended for four additional six month periods at the option of the holder.  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  compounded  semi-annually  and payable at maturity,  at the
prime rate charged by the Company's European  commercial bank on March 31, 2010.
The  arrangement  is  secured  by  a  26%  interest  in  one  of  the  Company's
subsidiaries.  In  connection  with the  arrangement,  the holder was granted an
option to convert  outstanding  notes  payable  under the  arrangement  into the
Company's  common  stock at a price of $2.10 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.

In May 2010,  the  borrowing  capacity  under the  Company's  convertible  notes
payable to a related party was increased to $12,000 and the term was extended to
November 2012 pursuant to an oral amendment between the parties.

At December 31, 2009 and 2008, notes payable to related party consists of $9,066
and $5,501,  respectively,  in principal and $1,078 and $571,  respectively,  in
accrued interest. Interest expense related to these notes is $514, $297 and $280
for the years ended  December 31,  2009,  2008 and 2007,  respectively.  For the
years ended December 31, 2009, 2008 and 2007, the weighted average interest rate
on this arrangement is 5.54%, 5.31% and 6.27%, respectively.

NOTE 9 - OTHER LIABILITIES

Other liabilities are as follows:

                                                                 December 31,
                                                             -------------------
                                                              2009         2008
                                                             -------------------

Liability to Department of Labor (Note 15)                   $3,000       $3,000
Other                                                           141          144
                                                             -------------------

Total other liabilities                                      $3,141       $3,144
                                                             ===================


                                      F-24
<PAGE>

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

NOTE 10 - STOCK-BASED COMPENSATION

In 1999, the Company adopted the 2003 Equity Incentive Plan and reserved 600,000
shares of common stock for future issuance. The plan expired 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.

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.

In September 2009, the Board of Directors ratified the cashless exercise feature
contained in the Company's  2003 and 2005 Equity  Incentive  Plans to facilitate
the exercise of stock  options  which are set to expire in 2009 and 2011.  Under
the cashless  exercise  feature of these  plans,  an option  holder  electing to
exercise stock options using this feature would effectively pay for the exercise
of a portion of his/her  stock options by  surrendering  their rights to another
portion of their stock options to affect a stock for stock transfer. The Company
determined that the modification of the stock option plans did not result in any
incremental compensation cost.

As of December 31, 2009, the Company has 2,279,502  options available for future
grants.

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, 2009                             1,632,000             $1.19             1.80             $  --
Granted                                                              --                --               --                --
Exercised                                                    (1,062,037)            $1.22               --                --
Forfeited / Expired                                            (237,963)            $1.33               --                --
                                                             -----------------------------------------------------------------

Outstanding as of December 31, 2009                             332,000             $1.00             1.80             $  --
                                                             -----------------------------------------------------------------

Exercisable as of December 31, 2009                             332,000             $1.00             1.80             $  --
                                                             =================================================================
</TABLE>

There were no stock options  granted  during the years ended  December 31, 2009,
2008 and 2007. As of December 31, 2009 and 2008, all  outstanding  stock options
are fully vested.

As of December 31, 2009, 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, 2009,  2008 and 2007,  the Company  recognized $0, $101
and $373 in compensation  expense related to the issuance of stock options under
the stock option plans.


                                      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 - OTHER EXPENSES

Other expenses are summarized as follows:

                                                  2009        2008        2007
                                                --------------------------------
Interest expense                                $(1,554)    $(1,660)    $(3,537)
Interest income                                      40         228         325
Foreign currency gain (loss)                       (102)        141        (122)
Recovery of guarantee
  from related party (see Note 13)                   --         421          --
Gain from the sale of marketable
  equity securities                                  --          --         349
Impairment of marketable equity
  securities (see Note 2)                            --          --        (600)
Other                                               (22)         14           5
                                                --------------------------------

  Total other expenses                          $(1,638)    $  (856)    $(3,580)
                                                ================================

NOTE 12 - INCOME TAXES

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

                                                      Year Ended December 31,
                                                  ------------------------------
                                                    2009       2008       2007
                                                  ------------------------------

The Netherlands                                   $   484    $ 2,383    $(1,764)
Subsidiaries outside of the Netherlands            (4,065)    (4,878)    (2,771)
                                                  ------------------------------

Loss before equity loss from investments in
   affiliates and income tax benefit (expense)    $(3,581)   $(2,495)   $(4,535)
                                                  ==============================

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

                                                       Year Ended December 31,
                                                   -----------------------------
                                                    2009       2008       2007
                                                   -----------------------------
Current:
   The Netherlands                                 $ 286     $   (19)    $(268)
   Subsidiaries outside of the Netherlands           132        (383)     (740)
                                                   -----------------------------
                                                     418        (402)    (1,008)
Deferred:
   The Netherlands                                    --          --        --
   Subsidiaries outside of the Netherlands            --          --        42
                                                   -----------------------------
                                                      --          --        42
                                                   -----------------------------

Total income tax benefit (expense)                 $ 418     $  (402)    $(966)
                                                   =============================


                                      F-26
<PAGE>

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

NOTE 12 - INCOME TAXES (CONTINUED)

The components of deferred tax assets and liabilities are as follows:

                                                              December 31,
                                                        ------------------------
                                                          2009           2008
                                                        ------------------------

Deferred tax assets:
  Operating loss carry-forwards                         $ 24,375       $ 21,968
  Allowance for doubtful accounts                             90             96
  Accrued expenses                                         3,307          5,131
                                                        ------------------------
    Total deferred tax assets                             27,772         27,195

Deferred tax liabilities:
  Depreciation on property and equipment                     (76)           (43)
  Contingent advance                                      (4,370)        (4,370)
                                                        ------------------------
    Total deferred tax liabilities                        (4,446)        (4,413)
                                                        ------------------------

Net deferred tax assets                                   23,326         22,782
Less: valuation allowance                                 23,326         22,782
                                                        ------------------------
                                                        $     --       $     --
                                                        ========================

The ultimate realization of the net deferred tax assets in each jurisdiction the
Company does  business in is dependent  upon the  generation  of future  taxable
income in that  jurisdiction  during  the  periods in which net  operating  loss
carry-forwards  are available and the net deferred tax assets shown above become
deductible.  At  present,  the  Company  does not have a  sufficient  history of
generating  taxable income in the various  jurisdictions  it does business in to
conclude  that it is more  likely  than  not that  the  Company  will be able to
realize all of its net deferred tax assets in the near future and, therefore,  a
valuation  allowance  was  established  for the full  carrying  value of the net
deferred tax assets.  A valuation  allowance will be maintained until sufficient
positive  evidence  exists to support the  reversal of any portion or all of the
valuation  allowance.  Should  the  Company  become  profitable  in  any  of the
jurisdictions  in does  business  in during  future  periods,  with  supportable
trends; the valuation allowance will be reversed.

As of December 31, 2009,  the Company has net operating loss  carry-forwards  of
$39,110  in the  Netherlands  which  will  expire in 2011  through  2017.  As of
December 31, 2009, the Company has net operating loss  carry-forwards of $30,971
in the United  States of America  which will expire in 2025  through  2029.  The
ultimate  utilization  of such net operating loss  carry-forwards  is limited in
certain situations.

In addition,  as of December  31, 2009,  the Company has $698 in tax credits for
the  welfare  to work and work  opportunity  programs  in the  United  States of
America that expire in 2024 through 2028.

During the year ended  December 31, 2009, the valuation  allowance  increased by
$544.


                                      F-27
<PAGE>

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

NOTE 12 - INCOME TAXES (CONTINUED)

The Company's effective income tax rate differs from the Netherlands'  statutory
rate of 25.5% as follows:

                                                     Year Ended December 31,
                                                --------------------------------
                                                   2009        2008       2007
                                                --------------------------------
Effective income tax benefit from
continuing operations at
statutory rate                                    $ 913       $ 636     $ 1,156

Rate differential                                  (116)        149        (287)
Non-deductible (expense) income                    (172)        203          75
Prior year tax assessments                          281        (251)       (747)
Changes in valuation allowance                     (544)       (950)     (1,513)
Other                                              (176)       (189)        350
                                                --------------------------------
Income tax benefit (expense) from
continuing operations
                                                  $ 418       $(402)    $  (966)
                                                ================================

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

                                                                 December 31,
                                                             -------------------
                                                              2009        2008
                                                             -------------------
Balance at January 1                                         $5,652     $ 5,449
Additions related to prior period tax positions                  --       4,091
Reductions related to prior period tax positions                 --      (3,888)
                                                             -------------------
Balance at December 31                                       $5,652     $ 5,652
                                                             ===================

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

                                                               December 31,
                                                         -----------------------
                                                          2009            2008
                                                         -----------------------
Balance at January 1                                     $2,713         $ 2,179
Additions charged to expense                                452           1,964
Reductions charged to expense                                --          (1,430)
                                                         -----------------------
Balance at December 31                                   $3,165         $ 2,713
                                                         =======================

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

                                                                 December 31,
                                                             -------------------
                                                               2009       2008
                                                             -------------------
Balance at January 1                                           $947     $ 1,150
Additions charged to expense                                     --         818
Reductions charged to expense                                    --        (778)
Reductions related to tax authorities notice                     --        (243)
                                                             -------------------
Balance at December 31                                         $947     $   947
                                                             ===================


                                      F-28
<PAGE>

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

NOTE 12 - INCOME TAXES (CONTINUED)

The total amount of unrecognized tax benefits, including interest and penalties,
is $9,764 and $9,312 as of  December  31,  2009 and 2008,  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 2006 to 2009 are subject to
examination  in the  Netherlands.  Income tax  returns for the tax years 2002 to
2009 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,
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, which
the Company considers adequate to cover the potential  liability related to such
assessments.

NOTE 13 - 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, $421,  and $0 during the years ended  December
31, 2009, 2008 and 2007, respectively (See Note 11).

Entities related to two of the Company's board members provide legal services to
the Company.  Legal expense  related to these services is $114, $93 and $138 for
the years ended  December 31,  2009,  2008 and 2007,  respectively.  Included in
accounts payable on the accompanying consolidated balance sheet is $140 and $106
due for these services as of December 31, 2009 and 2008, 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 13 - RELATED PARTY TRANSACTIONS (CONTINUED)

The  Company  engaged  the  services  an entity  owned by a  related  party as a
subcontractor for one of its subsidiaries. The Company incurred expenses of $15,
$176 and $91 for such  services  for the years ended  December 31, 2009 and 2008
and 2007, respectively.

In June 2009, a European bank,  issued a performance  guarantee in the amount of
(euro)1,200  to  one  of  the  Company's   customers  to  secure  the  Company's
performance  under the service  contract  between the parties.  The  performance
guarantee extends for the period June 24, 2009 through April 16, 2013. To secure
the  European  bank's  guarantee,  an  entity  related  to  the  Company's  main
shareholder provided a guarantee to the European bank for the same amount.

In July 2009, the Company entered into a settlement  arrangement with the former
landlord  of its  entertainment  segment to resolve  all  disputes  between  the
parties related to unpaid rent obligations for $2,600(see Note 3). The Company's
obligation under the settlement  arrangement is secured by a $1,300  irrevocable
standby  letter of credit issued to the former  landlord by an entity related to
the Company's main shareholder.

On  July  15,  2009,   the  Company  issued  300,000  shares  of  fully  vested,
non-forfeitable  common  stock  to an  entity  related  to  the  Company's  main
shareholder as consideration for guaranteeing certain Company  obligations.  The
Company  recognized the fair value of the shares on the date of issuance of $554
in selling,  general and administrative  expenses in the accompanying statements
of operations and comprehensive income (loss).

NOTE 14 - SEGMENT AND GEOGRAPHICAL INFORMATION

The Company  operates in three  reportable  segments:  (a) corporate (b) airport
security and other aviation  services and (c) technology.  The corporate segment
does not generate revenue and contains primarily  non-operational  expenses. The
airport security and other aviation  services segment provide security and other
services to airlines and airport authorities, predominantly in the United States
of America and Europe. The technology  segment is predominantly  involved in the
development and sale of identity security software to financial institutions and
airport  authorities,  predominantly  in Europe and  Israel.  All  inter-segment
transactions  are eliminated in  consolidation.  The accounting  policies of the
segments are the same as the accounting policies of the Company as a whole.

The operating results of these business  segments are regularly  reviewed by the
chief operating  decision maker and the performance of the business segments are
based primarily on loss from continuing operations.


                                      F-30
<PAGE>

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

NOTE 14 - SEGMENT AND GEOGRAPHICAL INFORMATION (Continued)

<TABLE>
<CAPTION>
                                                                                     Airport
                                                                                  Security and
                                                                                 Other Aviation
                                                                Corporate           Services          Technology            Total
                                                                --------------------------------------------------------------------
<S>                                                              <C>                <C>                 <C>                <C>
Year ended December 31, 2009:
  Revenue                                                        $    --            $ 95,146            $   715            $ 95,861
  Depreciation and amortization                                       11                 681                 23                 715
  Income (loss) from continuing
    operations                                                    (3,729)              2,777             (2,211)             (3,163)
  Total assets                                                       586              25,662                579              26,827

Year ended December 31, 2008:
  Revenue                                                             --              97,930                879              98,809
  Depreciation and amortization                                       12                 741                 29                 782
  Income (loss) from continuing
    operations                                                    (5,120)              2,965               (742)             (2,897)
  Total assets                                                       640              24,209                547              25,396

Year ended December 31, 2007:
  Revenue                                                             --              63,982                798              64,780
  Depreciation and amortization                                       25               1,163                 30               1,218
  Loss from continuing operations                                 (4,825)             (2,722)              (433)             (7,980)
  Total assets                                                     4,019              22,571                513              27,103
</TABLE>

Revenue by country is summarized as follows:

                                                    Year ended December 31,
                                             -----------------------------------
                                               2009          2008          2007
                                             -----------------------------------

United States of America                     $36,794       $40,421       $46,745
Netherlands                                   42,344        44,173         7,619
Other                                         16,723        14,215        10,416
                                             -----------------------------------
Total                                        $95,861       $98,809       $64,780
                                             ===================================

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

                                                                December 31,
                                                           ---------------------
                                                            2009           2008
                                                           ---------------------

United States of America                                   $  849         $  521
Netherlands                                                   803            933
Other                                                         221            274
                                                           ---------------------

                                                           $1,873         $1,728
                                                           =====================


                                      F-31
<PAGE>

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

NOTE 15 - 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 Ended
           December 31,
           ------------

               2010                $1,196
               2011                 1,139
               2012                 1,131
               2013                 1,019
               2014                 1,004
                                   ------

                                   $5,489
                                   ======

Rent expense for the years ended  December  31,  2009,  2008 and 2007 is $1,875,
$1,521 and $1,191, respectively.

Legal Proceedings

United States Transportation Security Administration

In February 2002, the Company was awarded a security services contract (the "TSA
Contract")  by the TSA to  continue to provide  security  services in all of its
current airport  locations until the earlier of either the completed  transition
of these security services on an airport-by-airport basis to the TSA or November
2002.  In  accordance  with the terms of the TSA  Contract,  the  United  States
Federal  government  provided the Company with a  non-interest  bearing  advance
payment  of  approximately  $26,000,  which was  payable  to the TSA in  monthly
installments of approximately  $1,300 commencing in April 2002. Through December
31, 2009, the Company has repaid $11,700 of the advance. As of December 31 2009,
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 of
$3,000,  net of the remaining  unpaid  advance,  as a receivable from TSA on the
accompanying consolidated balance sheets as of December 31, 2009 and 2008.

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 the lawsuit  which the  Company  had already  filed  against the TSA for
repeated  breach of contract.  The Company is vigorously  challenging  the TSA's
claims,  which it asserts is devoid of any  factual  or legal  merit.  The TSA's
filing  comes on the  heels  of a  recent  decision  by the  ODRA  granting  the
Company'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.  With respect to the claim for the $59,200  overpayment,  the Company
has filed a motion to dismiss the action, which has been denied.


                                      F-32
<PAGE>

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

NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

Legal Proceedings (Continued)

United States Transportation Security Administration (Continued)

On March 30, 2009, ODRA denied both cross motions for summary judgment,  stating
that the TSA has not met its burden of proof  that the  prices in the  purported
2006 definitization were reasonable and that ODRA was not willing to revisit the
issue of the statute of limitations in the summary judgment format but left open
the  possibility  of  deciding  in the  Company's  favor on this issue until the
record is complete and fully briefed.

Settlement  negotiations  followed  and the  parties  have  reached  a  possible
resolution. The settlement proposal has been reduced to a writing, which has not
yet been  executed by the Company.  At this time,  the Company is not willing to
execute the proposed agreement because of its continuing dispute with the United
States  Department  of Labor  ("DOL").  If the  Company  is  unable  to reach an
acceptable  resolution  with the DOL,  then the Company  will examine its option
with the DOL and determine if it should  execute the  agreement  with the TSA or
seek to  resume  its  litigation  against  the TSA  for the  amounts  previously
asserted in that  litigation.  The collection of the receivable from the TSA and
the resolution of the liability to the DOL is currently undeterminable.

United States Department of Labor

During 2003,  the 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 resulting in a penalty of $7,100.  In
2007, the Company  reached a settlement  with the DOL with respect to this claim
and agreed to pay them $3,000.  The settlement  requires the first $3,000 of any
settlement  with the TSA to be  remitted to the DOL and  prohibits  the DOL from
pursuing  any  collection  activity  on its  receivable  until the TSA matter is
resolved.  As of December 31, 2009 and 2008, a liability to the DOL of $3,000 is
reflected on the  accompanying  consolidated  balance  sheets (see Note 9). This
amount is exclusive of any amounts which may be received from the TSA.

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 the Company for United Flight
175 out of Logan Airport in Boston,  Massachusetts.  All but one of the wrongful
death/personal  injury cases  relating to Flight 175 have been settled,  leaving
the  focus  of  the  litigation  on  the  many  property  damage  and  insurance
subrogation lawsuits.

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, the
Company  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.


                                      F-33
<PAGE>

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

NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

Legal Proceedings (Continued)

September 11, 2001 Terrorist Attacks (Continued)

The Company maintains an aviation  insurance  policy,  which may provide limited
coverage for liabilities that may be assessed against the Company as a result of
the events of September  11,  2001.  The  liabilities  under these cases may, by
statute,  be limited to the policy  coverage.  After the  September 11 terrorist
attacks,  the Company's  insurance  carriers  cancelled 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
consolidated balance sheets related to this matter.

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. On December 1, 2008, the Company appealed the case to the United
States Supreme Court, which refused to hear 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  in the  United  States  of  America  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. As of December 31, 2008, the Company had $200
in accrued expenses and other current  liabilities from discontinued  operations
related to the  judgment  against  it.  During  2009,  based  upon  management's
assessment  that  payments  are  unlikely,  the $200  previously  accrued by the
Company was  eliminated and  recognized in income from  discontinued  operations
(see Note 3).


                                      F-34
<PAGE>

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

NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

Legal Proceedings (Continued)

Turner Construction Company

In November 2005,  Turner  Construction  Company  ("Turner")  filed a Demand for
Arbitration  and  Mediation  against one of the  Company's  subsidiaries  in the
United States of America 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. As of December 31, 2008,
the Company had $956 in accrued  expenses  and other  current  liabilities  from
discontinued  operations  related to the judgment against it. During 2009, based
upon  management's  assessment  that payments are unlikely,  the $956 previously
accrued by the Company was eliminated and recognized in income from discontinued
operations (see Note 3).

Landlord Claims

Two of the Company's subsidiaries have been sued by their former landlord (which
is the same  entity for both  properties)  alleging  breach of their  respective
leases.  The former landlord was 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 former 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 of $2,600 was awarded in
favor of the former  landlord.  The  subsidiary has filed an appeal to challenge
the  judgment.  As of  December  31,  2008,  the  Company  has  $7,276  in other
liabilities from discontinued  operations related to the unpaid rent obligations
owed to the former  landlord of the Company's  subsidiaries.  In July 2009,  the
Company  entered  into a  settlement  arrangement  with the former  landlord  to
resolve all disputes  between the parties related to the unpaid rent obligations
and  agreed to pay  $2,600 to the former  landlord  in four  equal  installments
during 2009 and 2010 (See Note 3).

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.


                                      F-35
<PAGE>

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

NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED)

Legal Proceedings (Continued)

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 European  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.

Employment Contracts

The Company has  non-cancellable  employment  contracts with two of its officers
which provide,  among other things,  for annual base salary and bonus based upon
the  financial  performance  of the  Company.  The annual base salary  payments,
excluding the potential  bonus,  required under the employment  contracts are as
follows:

            Year Ended
           December 31,
           ------------

               2010                  $ 331
               2011                    317
                                     -----

                                     $ 648
                                     =====

NOTE 16 - SUBSEQUENT EVENTS

In March 2010, the Company purchased  5,400,000 shares of Inksure's common stock
for  $675  pursuant  to a  private  placement  of  Inksure's  securities,  which
decreased its ownership percentage in Inksure from 27.4% to 23.9% (see Note 4).

In April 2010,  two of the  subsidiaries  of ICTS jointly  entered into a credit
arrangement  with a  commercial  bank to provide  them with up to  (euro)400  in
revolving loans through  February 2012.  Borrowings  under the arrangement  bear
interest,  which is payable  monthly,  at 1.8% above the European Libor rate per
annum, are secured by the accounts receivable of the subsidiaries and guaranteed
by ICTS.

In June 2010, an entity  related to the Company's  main  shareholder  provided a
letter of credit of $550 to a  commercial  bank to  guarantee  an extension of a
borrowing arrangement on behalf of one of the subsidiaries of ICTS (see Note 6).


                                      F-36
<PAGE>

        Financial Statement Schedule - Valuation and Qualifying Accounts
                              (U.S. $ in thousands)

<TABLE>
<CAPTION>
                                                                                 Charges to     Charges to
                                                                Beginning of      Costs and       Other      Deductions       End of
                                                                    Year          Expenses       Accounts        (1)           Year
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>          <C>              <C>          <C>             <C>
Allowance for doubtful accounts:
    Year Ended December 31, 2007                                      994          (299)            --           (188)           507
    Year Ended December 31, 2008                                      507           (51)            --           (128)           328
    Year Ended December 31, 2009                                      328            --             --            (78)           253

Allowance for net deferred tax assets:
    Year Ended December 31, 2007                                   26,163            --             --         (4,331)        21,832
    Year Ended December 31, 2008                                   21,832           950             --             --         22,782
    Year Ended December 31, 2009                                   22,782           544             --             --         23,326
</TABLE>

(1) Write-offs, net of recoveries


                                      F-37