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The following is an excerpt from a 20-F SEC Filing, filed by ICTS INTERNATIONAL N V on 9/15/2006.
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ICTS INTERNATIONAL N V - 20-F - 20060915 - LEGAL_PROCEEDINGS

Legal Proceedings

As a result of the September 11th terrorists attacks numerous lawsuits have commenced against Huntleigh and ICTS. Huntleigh has been named in approximately 70 lawsuits and ICTS in approximately 70 lawsuits. All of the cases were filed in the United States District Court, Southern District of New York. The cases arise out of Huntleigh's airport security service for United Flight 175 out of Logan Airport in Boston, Massachusetts. At the present time Huntleigh and ICTS are in 65 remaining cases. All of the cases involve wrongful death except 16 which involve property damage. The cases are in their early stages with depositions to begin on September 12, 2006.

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

Under current legislation Huntleigh and one other security company have their liability limited to the amount of insurance coverage that they carry. The legislation applies to Huntleigh, but not ICTS.

The Company has commenced an action against the U.S. Government with regard to the Fifth Amendment rights relating to the taking of its business. In December 2004 the Court denied the Government's Motion to Dismiss the case. A motion for reconsideration was filed by the defendant and denied. Fact and expert discovery have been completed and the U.S. Government has filed a motion for summary judgment which is scheduled to be argued on October 12, 2006. The trial for this action has been scheduled to commence on November 13, 2006.

The company is in dispute with Fraport A.G. International Airport Services Worldwide in relation to alleged unlawful use of the letter combination "ICTS" by the company. Fraport initiated proceedings before the district court of Amsterdam, which are still pending. The principal amount claimed is (euro)57.65 million ($68.1 million as of December 31, 2005). However, this claim is based on an alleged incorrect interpretation of the underlying contractual obligation. If the court follows the Company's interpretation, the maximum liability is
(euro)700 thousand. ($827 thousand as of December 31, 2005). The Company filed a counter claim of (euro)2.45 million ($2.9 million as of December 31, 2005) (or, under the condition that Fraport's interpretation is followed, (euro)73.5 million ($86.9 million as of December 31, 2005)). Currently, this action is stayed, pending settlement discussions between the parties.

In September 2005, Avitecture, Inc, (f/k/a Audiovisual-Washington, Inc.) ("Avitecture"), filed a Demand for Arbitration and Mediation against ITA-Atlantic City, LLC ("ITA") with the American Arbitration Association in Somerset, NJ. The Demand for Arbitration alleges that pursuant to a written agreement dated March 20, 2003, ITA owes Avitecture $222 thousand for audio, video and control systems it provided for ITA's use in a tourist attraction in Atlantic City, New Jersey, but for which Avitecture claims it has not been paid. The case is currently pending in a New Jersey arbitration proceeding before an arbitrator assigned by the American Arbitration Association. In October 2005, ITA filed its answer, generally denying the allegations in the Demand and asserting numerous affirmative defenses. This action is currently in discovery.

In November 2005, Turner Construction Company ("Turner") filed a Demand for Arbitration and Mediation against Explore Atlantic City, LLC ("Explore") with the American Arbitration Association in Somerset, NJ. The Demand for Arbitration alleges that pursuant to a written agreement dated October 28, 2003, Explore owes Turner $948 thousand for work and/or services performed pursuant to the contract, but for which Explore has not paid Turner. The case is currently pending in a New Jersey arbitration proceeding. An arbitrator has been assigned to the case so the parties can explore settling the matter. At this time, Explore has responded to the demand by denying any liability, and has asserted defenses to the amount of the claim and to challenge Turner's right to make

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any demand for payment. A motion for summary judgment has been made by Turner and the action is currently in discovery, with several depositions having been taken. Based on the discovery taken place thus far, Explore is of the opinion that there are several material factual disputes which it believes should defeat this motion.

In December 2005, Barlo & Associates ("Barlo") filed a Demand for Arbitration and Mediation against Explore with the American Arbitration Association in Somerset, NJ. The Demand for Arbitration alleges that pursuant to a written agreement dated April 16, 2002, Explore owes Turner $21 thousand for architectural work and/or services performed pursuant to the contract, but for which Explore has not paid Barlo. The case is currently pending in a New Jersey arbitration proceeding. An arbitrator has been assigned to the case so the parties can explore settling the matter. Explore has served discovery requests on Barlo's counsel and Explore anticipates taking a number of depositions to develop the factual support for its opposition to Barlo's claim and to support a potential motion for summary judgment.

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

Huntleigh intends to vigorously challenge the TSA's claim which it asserts is devoid of any factual or legal merit. The TSA's filing comes on the heels of a recent decision by ODRA granting Huntleigh's motion for partial Summary Judgment against the TSA. ODRA has granted Huntleigh's motion for partial Summary Judgment on Huntleigh's claim that the TSA breached the contract by failing to give appropriate notice for transitioning airport locations. A separate hearing will be held to determine the amount of damages due to Huntleigh on this claim. With regards to the claim for the $59,2 million overpayment, Huntleigh has filed a motion to dismiss the action. The TSA's response to this motion is due on September 15, 2006 and Huntleigh's reply brief is due on September 29, 2006.

The company's 40% owned subsidiary, Ramasso, which operated the Time Elevator in Rome filed for bankruptcy. The receiver in the bankruptcy has filed a proceeding against the financial institution which provided loans to Romasso to recover a security deposit in the amount of (euro)866 thousand ($1 million as of December 31, 2005) which the financial institution held as security and applied against its outstanding indebtedness as a result of Romasso's defaults. The financial institution has impleaded the company on its guarantee to the financial institution if the financial institution is required to return the security deposit to the receiver in the bankruptcy.

Last year the Company's subsidiary ICTS USA, Inc. filed a refund claim with the Internal Revenue Service ("IRS") in an amount in excess of $2 million which was to be reflected on the December 31, 2005 year end financial statements as a receivable. The refund has not yet been received by the Company. The Company made a demand to the IRS for the refund. Thereafter, by letter dated August 15, 2006, the Company was advised that a criminal investigation by the United States Department of Justice, Tax Division is ongoing by a grand jury regarding possible criminal tax violations by the subsidiary for the tax years 2002 and 2003 regarding certain royalty payment made to the Company. As a result of the investigation the Company believes that the refund had been put on hold. Although it is not possible at this time to determine the outcome of this matter, should the result of the IRS investigation prove unsatisfactory to the Company, this will have a material adverse effect on the Company.

On August 30, 2006 the Company filed a complaint in the United States District Court for the Southern District of New York against the United States and Area Director - Technical Compliance, Internal Revenue Service to recover the refund in the amount of $2,470,365. In addition, the Company has filed an administrative claim against the IRS in order to recover the same refund as well as damages. The Company is currently waiting for a response from the defendants.

Two of the Company's subsidiaries have been sued by their landlord (which is the same entity for both properties) alleging breach of the respective leases. One suit is in Circuit Court for Baltimore City affecting the Company's Explore Baltimore facility, and the other is in the Superior Court of New Jersey affecting the Company's Explore Atlantic City facility. Through legally defective service, the landlord was able to obtain orders for possession of both of these locations. A petition to open the Atlantic City action has been filed and one is being prepared for the Baltimore action. In addition to seeking possession, in both the cases the landlord is seeking unpaid

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rent for the entire term of the leases. In the Atlantic City case the amount sought is $5,970.197 and in the Baltimore case, the amount is $ 4,443,513.01. While a resolution of both actions is being discussed, a standstill of the proceedings is being negotiated.

On August 2006 the Company was informed that Rogozin Industries Ltd (in liquidation) filed a litigation regarding a payment of $340 it paid during 2001, which according to the litigation ICTS is guaranteeing.
.
Discontinued Operations:

1) On December 28, 2005 the Company sold its lease equipment to the lessee and by that terminated its business in the Lease segment. The loss associated with the selling of the equipment totaled to $4,774. The cost of the equipment was $23.5 million and impairment losses were recorded in 2004 and 2003 of $2,247 and $6,042 respectively.

2) After reviewing the financial results of the Entertainment segment, the Company decided in December 2005 to cease its operations in this field. As a result of this decision the company recorded an expense of $9,701 associated with rent expenses that the company is obligated to pay until the year 2019. ICTS is guarantying this commitment.

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

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

Goodwill

As from January 1, 2002, pursuant to Statement of Financial Accounting Standard ("FAS") No.142 of the Financial Accounting Standards Board of the United States (the "FASB"), "Goodwill and Other Intangible Assets", goodwill is no longer amortized but rather is tested for impairment annually. During 2002, the Company identified its various reporting units, which consist of its operating segments. The Company has utilized expected future discounted cash flows to determine the fair value of the reporting units and whether any impairment of goodwill existed as of the date of adoption of FAS 142. As a result of the application of the transitional impairment test, the Company does not have to record a cumulative effect of accounting change for the estimated impairment of goodwill. The Company has designated December 31 of each year as the date on which it will perform its annual goodwill impairment test.

In 2004, as a result of the impairment of the entertainment projects, management has decided to write off the goodwill related to the entertainment acquisition amounted to $5.3 million.

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

Changes in the fair value of the reporting units following material changes in the assumptions as to the future cash flows and/or discount rates could result in an unexpected impairment charge to goodwill.

Functional and reporting currency

As of January 1, 2002, subsequent to the sale of ICTS's interest in ICTS Europe, the functional currency of ICTS and its U.S. operations is the U.S. Dollar because substantially all of the revenues and operating costs are in dollars. Prior to January 1, 2002 the functional currency was primarily the Euro. The financial statements of subsidiaries whose functional currency is not the Dollar are translated into Dollars in accordance with the principles set forth in Statement of Financial Accounting Standards ("FAS") No. 52 of the Financial Accounting Standards

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Board of the USA ("FASB"). Assets and liabilities are translated from the local currencies to dollars at year-end exchange rates. Income and expense items are translated at average exchange rates during the year.

Revenue recognition

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

Impairment in value of long-lived assets

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

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

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

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Discussion and Analysis of Results of Operations

The following table summarizes certain statement of operations data for ICTS for the years ended December 31, 2005, 2004, 2003, 2002 and 2001:

                                                                      (U.S Dollars in thousand except per share data)
                                                                                      Year ended December 31,
                                                          -----------------------------------------------------------------------
                                                              2005           2004          2003           2002           2001
                                                          -----------    -----------    -----------    -----------    -----------
REVENUES                                                  $    57,713    $    57,993    $    67,933    $   278,561    $   212,137
COST OF REVENUES                                               53,721         52,825         52,557        212,439        189,925
                                                          -----------    -----------    -----------    -----------    -----------
GROSS PROFIT                                                    3,992          5,168         15,376         66,122         22,212
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                   11,690         12,201          8,547         25,635         18,641
IMPAIRMENT OF ASSETS AND GOODWILL                                                               797          9,156            820
                                                          -----------    -----------    -----------    -----------    -----------
OPERATING INCOME (LOSS)                                        (7,698)        (7,033)         6,032         31,331          2,751
FINANCIAL INCOME (EXPENSES) - net                                (908)          (452)         4,118          3,046          1,977
OTHER INCONE (EXPENSES) - net                                     147         (2,907)          (353)        41,229         29,520
INCOME (LOSS) BEFORE TAXES                                     (8,459)       (10,392)         9,797         75,606         34,248
INCOME TAXES BENEFIT (EXPENSE)                                 (2,387)         1,529         (3,910)       (16,442)        (4,919)
SHARE IN LOSSES OF ASSOCIATED COMPANIES - net                    (486)        (1,625)        (6,661)        (1,807)          (395)
MINORITY INTERESTS IN PROFIT OF SUBSIDIARIES                                                                               (2,735)
                                                          -----------    -----------    -----------    -----------    -----------
PROFIT (LOSS) FROM CONTINUING OPERATIONS                      (11,332)       (10,488)          (744)        57,357         26,198

DISCONTINUED OPERATIONS:
Loss from discontinued operations, net of tax benefit
  of $2,525, $1,655 and $795 in 2005, 2004 and 2003,
  respectively Includes  loss of $4,774 on sale of
  assets to a related party on 2005 and after share
  in loss of associated company of $36 and $81 in 2005
  and 2004, respectively                                      (13,548)       (15,474)       (18,130)          (542)
                                                          -----------    -----------    -----------    -----------    -----------
INCOME  (LOSS) FOR THE YEAR                                   (24,880)       (25,962)       (18,904)   $    56,815    $    26,198
                                                          -----------    -----------    -----------    -----------    -----------
OTHER COMPREHENSIVE INCOME:
   Translation adjustments                                     (1,560)         1,043          3,456            710         (1,811)
   Unrealized gains (losses) on marketable securities            (214)          (616)           794            731           (345)
   Reclassification adjustment for losses for available
   for sale securities included in net income                     237           (771)           368
                                                               (1,774)           427          4,487            670         (1,788)
                                                          -----------    -----------    -----------    -----------    -----------
TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE
YEAR                                                      $   (26,654)   $   (25,535)   $   (14,417)   $    57,485    $    24,410
                                                          ===========    ===========    ===========    ===========    ===========
LOSSES PER SHARE:

Profit (Loss) from continued operations:
Profit (Loss) per common share - basic                    $     (1.74)   $     (1.61)   $   ( 0.12)    $      8.93    $      4.18
                                                          ===========    ===========    ===========    ===========    ===========
Profit (Loss) per common share - diluted                  $     (1.74)   $     (1.61)   $   ( 0.12)    $      8.88    $      4.09
                                                          ===========    ===========    ===========    ===========    ===========
(Loss) from discontinued operations:
(Loss) per common share - basic                           $     (2.07)   $     (2.37)   $     (2.78)   $     (0.08)
                                                          ===========    ===========    ===========    ===========
(Loss) per common share - diluted                         $     (2.07)   $     (2.37)   $     (2.78)   $     (0.08)
                                                          ===========    ===========    ===========    ===========
NET INCOME (LOSS):
Profit (Loss) per common share - basic                    $     (3.81)   $     (3.98)   $   ( 2.90)    $     8 .85    $      4.18
                                                          ===========    ===========    ===========    ===========    ===========
Profit (Loss) per common share - diluted                  $     (3.81)   $     (3.98)   $   ( 2.90)    $      8.80    $      4.09
                                                          ===========    ===========    ===========    ===========    ===========
Weighted average shares of common stock outstanding         6,528,100      6,524,250      6,513,100      6,419,575      6,263,909
Adjusted diluted weighted average shares of common
stock outstanding                                           6,528,100      6,524,250      6,513,100      6,453,447      6,412,535
                                                          ===========    ===========    ===========    ===========    ===========

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

                                                    Year Ended December 31,
                                               --------------------------------
                                               2005         2004         2003
                                               ----         ----         ----
Revenues ................................       100%         100%         100%
Cost of revenues ........................      93.1%        91.1%        77.4%
Gross profit ............................       6.9%         8.9%        22.6%
Selling, general and
  administrative expenses ...............      20.3%        21.0%        12.6%
Operating income  (loss) ................     (13.3)%      (12.1)%        8.9%
Loss from continuing operations .........     (19.6)%      (18.0)%       (1.1)%
Loss from discontinued operations .......     (23.5)%      (26.7)%      (26.7)%
Loss for the year .......................     (43.1)%      (44.8)%      (27.8)%

Year Ended December 31, 2005 Compared to Year Ended December 31, 2004

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

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

Revenues. Revenues for the year ended December 31, 2004 were $58 million (2003: $67.9 million), and consisted of $48.2 million (2003: $58.5 million) from U.S. operations, and $9.8 million (2003: $9.4 million) from other operations.

The decrease in revenues from U.S. operations is primarily the result of tough competition and the weakness of the aviation industry. As a result of the Security Act since November 2002, ICTS provides limited aviation security services within the United States. In 2003 the Company did not generate any revenues pursuant to a contract with the TSA.

Almost all revenues in the U.S. $48.2 million are derived from other than aviation security services.

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

Gross profit for the year ended December 31, 2004 was $5.2 million, 9%, as a percentage of revenue (2003: $15.4 million, 22.6% as a percentage of revenue). The decrease in gross profit as a percentage of revenues is primarily attributable to the fact that the gross profit for the year 2003 was positively impacted by a non-recurring contribution of $8.6 million. The non-recurring contribution is primarily the result of a reversal in the amount of $17.8 million of Warn Act related accrual made in 2002. This was partly offset by an accrual concerning a dispute with the U.S. Department of Labor totaling $7.3 million.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $12.2 million for the year ended December 31, 2004, 21% as a percentage of revenues, as compared to $8.5 million, 12.6% as a percentage of revenues for the year ended December 31, 2003. The increase in selling, general and administrative expenses is primarily attributable to the implementation of restructuring measures imposed by the new management of the Company aiming into focusing to the main core business of security and disposing of non core segments. These measures increased costs such as compensation to previous employees, hiring new professional personnel and legal fees.

Operating Loss. Operating loss for the year ended December 31, 2004 was $7 million as compared to an operating income of $6 million for the year ended December 31, 2003.

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Financial Income (Expenses). Financial expenses in 2004 was $452 thousand compared to $4.1 million income. Exchange rates totaled an expense of $84 thousand in 2004 compared to $2.6 million income in 2003. The decline in interest income is due to decrease of interest bearing deposits and marketable.

Other Income (Expense), Net. Other income for the year ended December 31, 2004 was $2.9 million negative as compared to $353 thousand for the year ended December 31, 2003. $2.7 million were attributable to a write-off of the Company's investment in Bilu.

Taxes On Income. In 2004 the Company recorded tax benefit of $1.5 million attributable mainly to tax refunds on carried back losses against tax paid on income in 2002 in the USA.

Share in Losses of Associated Companies. $1.6 million in 2004 consists mainly of write-off of the equity investment in Pioneer ($1.8 million), loss in Inksure ($1 million) and income in NAS ($1.2 million).

Loss from Continuing Operations. ICTS loss from continuing operations totaled in 2004 to $10.5 million compared to $744 thousand in 2003.

Loss from Discontinued Operations. Loss from discontinued operations total in 2004 of $15.5 million compared to $18.1 million in 2003. Write-off expenses totaled o $15,422 and $13,555 in 2004 and 2003, respectively. Financial expenses reduced from $3,334 in 2003 to $321 in 2004 mainly because exchange rates expenses that totaled $0 and $2,877 in 2004 and 2003, respectively.

Net loss. As a result of the foregoing, ICTS's loss amounted to $26 million for the year ended December 31, 2004, as compared to $18.9 million loss for the year ended December 31, 2003.

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

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

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

Revenues. Revenues for the year ended December 31, 2003 were $67.9 million
(2002: $278.6 million), and consisted of $58.5 million (2002: $272.7 million)
from U.S. operations, and $9.4 million (2002: $5.9 million) from other operations.

The decrease in revenues from U.S. operations is primarily the result of decreased sales of aviation security services pursuant to contracts with the TSA following the September 11th events. Revenues derived from such services in 2002 were $205.7 million (74% of ICTS's revenues in that year). As a result of the Security Act since November 2002, ICTS provides limited aviation security services within the United States. Therefore, in 2003 the Company did not generate any revenues pursuant to a contract with the TSA.

Almost all revenues in the U.S. ($58.5 million), are derived from other than aviation security services, compared with $37.6 million for 2002. Such increase is primarily attributable to an increase in sales to existing airline customers through expanding ICTS's location base and the offering of new services.

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

Gross profit for the year ended December 31, 2003 was $15.4 million, 22.6%, as a percentage of revenue (2002: $66.1 million, 23.7% as a percentage of revenue). Management believes that the decrease in gross profit as a percentage of revenues is primarily attributable to the decrease in aviation security services as per the TSA contract. Gross profit was positively impacted by a non-recurring contribution of $8.6 million in the third quarter. The non-recurring contribution is primarily the result of a reversal in the amount of $17.8 million of Warn Act related accrual made in 2002. This was partly offset by an accrual concerning a dispute with the US Department of Labor totaling $7.3 million.

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Selling, General and Administrative Expenses. Selling, general and administrative expenses were $8.5 million for the year ended December 31, 2003, 12.6% as a percentage of revenues, as compared to $25.6 million, 9.2% as a percentage of revenues for the year ended December 31, 2002. The decrease in selling, general and administrative expenses is primarily attributable to the decrease in aviation security services.

Operating Profit. Operating profit for the year ended December 31, 2003 was $6 million as compared to an operating profit of $31.3 million for the year ended December 31, 2002.

Financial Income, Net. Financial income, net includes interest income (net of interest expense), and adjustments due to the impact of exchange rate fluctuations. The interest and financial income increased to $1.5 million income from $689 thousand in 2002, due the sale of certain traded shares during 2003.

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

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

Profit (Loss) from Continuing Operations. ICTS loss from continuing operations totaled in 2003 was $744 compared to $57.4 profit in 2002.

Loss From Discontinued Operations. Loss from discontinued operations totaled in 2002 $18.1 million compared to 0.5 million in 2002. The leasing activities started on the second half of 2002 and its activities during 2002 were almost balanced comparing to loss of $8 million in 2004, including $6 million impairment of equipment. In 2003 the loss regarding the entertainment segment totaled $10.1 million, including $7.5 million impairment compared to 2002 in which the loss amounted to $0.5 million - establishing expenses.

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

As to the geographical segments please see note 19(a) in the financial statements. Revenues in the USA were negatively impacted by loss of the TSA contract. Revenues in The Netherlands increased due to a favorable exchange rate of the euro to the dollar and first full year of operation leasing segment.

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