Item 3. Key
information
Operations
ICTS International N.V. (“ICTS”) was registered at the Department of Justice
in Amstelveen, Netherlands on October 9, 1992. ICTS and subsidiaries (collectively referred to as “ICTS” or the “Company”)
operate in three reportable segments: (a) airport security (b) other aviation related services and (c) authentication technology. The
Company also incurs general corporate expenses and costs which are not allocated to the reportable business segments but have been included
in the “unallocated corporate” component which does not generate revenue and contains primarily non-operational expenses.
The airport security segment includes the I-SEC International group. The airport security segment provides security services primarily
to airlines and airport authorities in Europe. The other aviation related services segments include Huntleigh USA. The other aviation
related services segment provides various services to airlines within airports in the United States of America. The authentication technology
represents the AU10TIX Technologies group. The authentication technology segment provides authentication services to financial and other
companies, predominantly in the United States of America.
Selected Financial Data
Selected data set forth below have been derived from the ICTS Consolidated
Financial Statements, which have been prepared in accordance with accounting principles generally accepted 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, the ICTS Consolidated Financial Statements and the Notes to those Consolidated Financial Statements
included in Item 18 in this Annual Report.
For the year ended December 31, 2022, the Dutch government has
provided financial assistance of €3.7 million ($3.9 million as of December 31, 2022) regarding COVID -19. The Dutch government terminated
the support program in March 2022. For the years ended December 31, 2024 and 2023, the Company did not receive any financial assistance
from the Dutch government regarding COVID-19.
In the Netherlands wage tax, social security and VAT payments for
the period March 2020 until September 2021 were postponed and were to be paid in 60 monthly installments beginning October 2022. Beginning
July 2022, the debt incurs annual interest of 1% and increases every six months to a maximum of 4% from January 1, 2024. As of December
31, 2024 and 2023, the Company accumulated debt of €18.2 million and €24.9 million ($19.0 million and $27.3 million as
of December 31, 2024 and 2023), respectively, to the Dutch tax authorities.
In July 2019, AU10TIX Technologies B.V. (together with its subsidiaries,
“AU10TIX”, a subsidiary of ICTS issued preferred shares to an investor for a subscription price of $60 million in cash representing
24% of the outstanding share capital of AU10TIX and 23.077% of the outstanding share capital of AU10TIX on a fully diluted basis. AU10TIX
retained $20 million of the sale proceeds for general working capital purposes and $40 million was transferred to its parent company,
ICTS International N.V.
In November 2019, AU10TIX issued preferred shares to a new investor
for a subscription price of $20 million in cash representing 7.401% of the outstanding share capital of AU10TIX and 7.143% of the outstanding
share capital of AU10TIX on a fully diluted basis.
On June 28, 2021, TPG, Oak, GF GW LLC (“GF”) and AU10TIX,
entered into a Sale and Purchase Agreement (the “SPA”), pursuant to which Oak and GF purchased preferred shares in AU10TIX
from TPG. In connection with the SPA, (i) such parties and ICTS entered into an amended and restated shareholders agreement and
an amended and restated registration rights agreement and (ii) AU10TIX’s Articles of Association (the “Articles”) were
amended by a deed of amendment. Following the completion of the sales and purchases contemplated by the SPA: (i) ICTS owned 68.69% of
the outstanding share capital of AU10TIX in the form of Class B Ordinary Shares; (ii) Oak owned 12.87% of the outstanding share capital
of AU10TIX in the form of New Series A Preferred Shares; (iii) GF owned 10.93% of the outstanding share capital of AU10TIX in the
form of New Series A Preferred Shares; and (iv) TPG owned 7.51% of the outstanding share capital of AU10TIX in the form of New Series
A Preferred Shares. In addition, AU10TIX has an option plan which grants rights to subscribe for up to 1,000,000 class
A ordinary shares.
The following table summarizes certain balance sheet data
for the Company at December 31, 2024, 2023, 2022, 2021 and 2020:
| |
|
(U.S. Dollars in Thousands) |
|
| |
|
December 31, |
|
| |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
|
Cash and cash equivalents |
|
$ |
64,668 |
|
|
$ |
55,222 |
|
|
$ |
50,937 |
|
|
$ |
88,753 |
|
|
$ |
51,602 |
|
|
Restricted cash |
|
|
2,858 |
|
|
|
9,766 |
|
|
|
15,867 |
|
|
|
14,699 |
|
|
|
9,472 |
|
|
Bank deposits |
|
|
18,083 |
|
|
|
34,002 |
|
|
|
24,568 |
|
|
|
- |
|
|
|
- |
|
|
Total current assets |
|
|
161,133 |
|
|
|
176,557 |
|
|
|
155,483 |
|
|
|
174,562 |
|
|
|
116,554 |
|
|
Total assets |
|
|
185,782 |
|
|
|
197,096 |
|
|
|
184,633 |
|
|
|
195,880 |
|
|
|
140,388 |
|
|
Total current liabilities |
|
|
79,190 |
|
|
|
80,495 |
|
|
|
68,326 |
|
|
|
60,887 |
|
|
|
59,334 |
|
|
Other liabilities |
|
|
13,966 |
|
|
|
22,038 |
|
|
|
29,214 |
|
|
|
40,867 |
|
|
|
25,684 |
|
|
Total liabilities |
|
|
101,452 |
|
|
|
106,178 |
|
|
|
105,019 |
|
|
|
111,234 |
|
|
|
95,551 |
|
|
Redeemable non-controlling interests |
|
|
90,737 |
|
|
|
93,521 |
|
|
|
89,974 |
|
|
|
90,478 |
|
|
|
75,322 |
|
|
Shareholders' deficit |
|
|
6,407 |
|
|
|
2,603 |
|
|
|
10,360 |
|
|
|
5,832 |
|
|
|
30,485 |
|
The following table summarizes certain statement of operations
data for the Company for the years ended December 31, 2024, 2023, 2022, 2021, and 2020:
| |
|
U.S. Dollars in Thousands Year ended December 31, |
|
| |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
2021 |
|
|
2020 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
483,310 |
|
|
$ |
431,542 |
|
|
$ |
324,977 |
|
|
$ |
324,934 |
|
|
$ |
248,419 |
|
|
Cost of revenue |
|
|
413,469 |
|
|
|
351,558 |
|
|
|
261,181 |
|
|
|
209,771 |
|
|
|
196,569 |
|
|
GROSS PROFIT |
|
|
69,841 |
|
|
|
79,984 |
|
|
|
63,796 |
|
|
|
115,163 |
|
|
|
51,850 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
14,372 |
|
|
|
12,325 |
|
|
|
13,601 |
|
|
|
12,114 |
|
|
|
6,541 |
|
|
Selling, general and administrative |
|
|
61,249 |
|
|
|
56,927 |
|
|
|
53,799 |
|
|
|
50,882 |
|
|
|
37,239 |
|
|
Goodwill impairment |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
139 |
|
|
|
- |
|
|
Total operating expenses |
|
|
75,621 |
|
|
|
69,252 |
|
|
|
67,400 |
|
|
|
63,135 |
|
|
|
43,780 |
|
|
OPERATING INCOME (LOSS) |
|
|
(5,780 |
) |
|
|
10,732 |
|
|
|
(3,604 |
) |
|
|
52,028 |
|
|
|
8,070 |
|
|
Equity Income (loss) from investment in affiliates |
|
|
- |
|
|
|
- |
|
|
|
(97 |
) |
|
|
(983 |
) |
|
|
(790 |
) |
|
Other income (expenses), net |
|
|
1,427 |
|
|
|
1,584 |
|
|
|
113 |
|
|
|
(537 |
) |
|
|
(1,288 |
) |
|
INCOME (LOSS) BEFORE INCOME TAX EXPENSES |
|
|
(4,353 |
) |
|
|
12,316 |
|
|
|
(3,588 |
) |
|
|
50,508 |
|
|
|
5,992 |
|
|
Income tax benefits (expenses) |
|
|
452 |
|
|
|
(1,745 |
) |
|
|
(1,646 |
) |
|
|
(9,220 |
) |
|
|
(590 |
) |
|
NET INCOME (LOSS) |
|
|
(3,901 |
) |
|
|
10,571 |
|
|
|
(5,234 |
) |
|
|
41,288 |
|
|
|
5,402 |
|
|
Net income (loss) attributable to non-controlling interests
|
|
|
331 |
|
|
|
3,490 |
|
|
|
(509 |
) |
|
|
6,481 |
|
|
|
999 |
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO ICTS INTERNATIONAL N.V.
|
|
$ |
(4,232 |
) |
|
$ |
7,081 |
|
|
$ |
(4,725 |
) |
|
$ |
34,807 |
|
|
$ |
4,403 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC NET INCOME (LOSS) ATTRIBUTABLE TO ICTS INTERNATIONAL N.V.
PER SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(0.11 |
) |
|
$ |
0.19 |
|
|
$ |
(0.13 |
) |
|
$ |
0.66 |
|
|
$ |
0.12 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average number of shares |
|
|
37,433,333 |
|
|
|
37,433,333 |
|
|
|
37,433,333 |
|
|
|
37,433,333 |
|
|
|
35,827,854 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED NET INCOME (LOSS) ATTRIBUTABLE TO ICTS INTERNATIONAL
N.V. PER SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(0.11 |
) |
|
$ |
0.18 |
|
|
$ |
(0.13 |
) |
|
$ |
0.61 |
|
|
$ |
0.11 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted weighted average number of shares |
|
|
37,433,333 |
|
|
|
39,423,506 |
|
|
|
37,433,333 |
|
|
|
40,237,340 |
|
|
|
38,424,718 |
|
Risk Factors
You should carefully consider the risks described below regarding
the business and the ownership of our shares. If any of the risks are realized, our business, financial condition or results of operations
could be adversely affected, and the price of our common stock could decline significantly.
Labor Concerns
Our subsidiaries operate in many different jurisdictions in Europe,
the United States of America and Asia and are therefore subject to the different labor laws of such jurisdictions. Any changes in such
laws, for example, the establishment or change of minimum wages, could have an adverse effect on the business of the Company.
In addition, some of our employees are covered by collective bargaining
agreements with unions. Such collective agreement detail, inter alia, financial and non-financial
entitlements to our employees that effect our financial results. Relationship with unions, including work stoppages or changes in work
rules, could have an adverse impact on our financial results.
In some jurisdictions and subject to legislation related to employees’
entitlements during sick leave, increase in employees’ sick rate could have an adverse impact on our financial results. Lack of
manpower and/or employees’ turnover may lead to additional costs. As an example, recruitment and training cost, and therefore an
increase in employees’ turnover rate could have an adverse impact on our financial results.
If any of such changes and/or circumstances have a financial impact
on the Company and the Company is not able to fully adjust its fees for its services to accommodate such changes and/or circumstances,
of which there is no assurance, there could be a material adverse effect on our business.
Further, escalating costs of providing employee benefits and other
labor issues may lead to labor disputes and disruption of our business.
Potential Liability Claims
From time to time, lawsuits have been commenced against the Company
or its subsidiaries usually claiming injury or damage to property. In addition, labor related issues, such as employee dismissal, may
lead to labor disputes. Most of these claims are covered by insurance. In the event such claims are not covered by the insurance, there
could be an adverse impact on the Company.
Our Contracts with Airports or Airlines may
be Cancelled or not Renewed
Our revenues are primarily provided from services pursuant to contracts,
which are cancellable on short notice at any time with or without cause. We cannot assure you that existing clients won’t terminate
our contracts or that we won’t renew our contracts. In some jurisdictions and operations, contracts are subject to a tender detailing, inter
alia, participation terms, cap pricing and award criteria. In addition, consolidation in the airline industry could also result
in a loss of customers. Any such termination, failure to renew a contract with us and/or failure in tenders could have a material adverse
effect on our results of operations and financial condition. If our relationships with our major customers are impaired there may be a
material adverse effect on our results of operations and financial condition. Our major customers include airports in Europe and major
airlines servicing the United States of America. The aviation industry might encounter difficulties which may have a material adverse
impact on our business.
Terrorism, War or Risk of War
Our business is affected by numerous factors outside of our control,
such as terrorist attacks and acts of war. Future terrorist attacks against the countries where the Company has a presence, rumors or
threats of war, actual conflicts involving those countries or their allies, or military or trade disruptions affecting customers may materially
adversely affect operations. Our facilities and equipment could be direct targets or indirect casualties of terrorist attacks and acts
of war. Strategic targets such as high-technology aviation security assets, passenger terminals or aircrafts may be at greater risk of
future terrorist attacks than other targets. It is possible that any, or a combination, of these occurrences could have a material impact
on the business of the Company, on cash flows, results of operations, financial condition, business reputation, claims etc. In addition,
insurance premiums for some or all of our current coverages could increase dramatically, or certain coverages may not be available to
us in the future.
Results from Operations
The Company incurred a net income (loss) of $3.9 million, $10.6
million and $(5.2) million in 2024, 2023 and 2022, respectively. The 2022 loss includes a special grant provided by the Dutch government
as COVID-19 assistance to the Company. The Company has a shareholders’ deficit of $6.5 million and $2.6 million as of December 31,
2024 and 2023, respectively. If we are unable to obtain new service contracts, increase revenues, increase profitability and reduce the
Company’s shareholders deficit, our financial condition and results of operations might be affected and our share price may
decline.
Loans from Third Parties
Our financing activities have consisted in the past of loans from
banks and other third parties. Currently, three of the Company’s subsidiaries have a line of credit and loan facilities and factoring
agreements, while the Company is looking for additional lines of credit for other of its subsidiaries. There is no assurance that third
parties will provide loans to the Company and even if loans are made, there is no assurance that the terms will be favorable to the Company.
Key Personnel
Our success largely depends 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 an adverse impact on our operations.
Our success is also 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.
Development of New Technology
As part of our technology business strategy we develop technological
solutions and systems for financial and other industries and seek other revenue producing business 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.
Acquiring or Investing in Other Businesses
From time to time, the Company may seek to acquire or invest in
other business, which may or may not be related to the business of the Company. No assurance can be given that the Company will acquire
or invest in any companies. If the Company decides to acquire or invest, no assurance can be given that such acquisition or investment
will be successful.
Cyber Security Measures
We rely on computer systems and information technology in our business
and have established security programs for protection. We might be the target of attempted cyber and other security threats and despite
our security measures, our systems might be vulnerable to interruption or damage from computer hackings, viruses, worms or other destructive
or disruptive software, process breakdowns, denial of service attacks, social engineering or other malicious activities or any combination
of the foregoing. The Company has in place policies and procedures to identify and manage cybersecurity risks. We must continuously monitor
and develop our information technology networks and infrastructure to prevent, detect, address and mitigate the risk of unauthorized access,
misuse, computer viruses and other events that could have a security impact. Insider or employee cyber and security threats are increasingly
a concern for all companies including ours. It is not possible to determine the cost to the Company in the event of a cyber security incident
because costs are a function of the size and nature of the incident. For more information see item 5 – Operating and Financial Review
and Prospects in this 20F report for additional information on cybersecurity.
Use of Artificial Intelligence
We have increasingly integrated artificial intelligence (“AI”)
technologies into certain aspects of our authentication technology operations, including customer support, internal process automation,
and business analytics, in addition to developing our own AI models and capabilities. While AI contributes to improved efficiency
and scalability, its use presents several risks. The evolving regulatory landscape surrounding AI, including potential restrictions on
data usage, transparency, and accountability, may limit our ability to deploy or expand these technologies. In addition, AI systems can
produce inaccurate or biased outputs, which may lead to operational errors, reduced service quality, or reputational harm. We also rely
on third-party AI platforms and services, exposing us to risks related to availability, intellectual property rights, and compliance with
applicable laws and ethical standards. If we fail to manage these risks effectively, our business, financial condition, and results of
operations could be adversely affected.
Competition
Competition in the aviation security and aviation related services
industry as well as in the technology industry is intense. Many of our competitors have greater financial, technical and marketing resources.
Our competitors might 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 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.
Operations in International Environments Risk
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,
conflict, trade restrictions, wars and strikes. 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.
Our R&D facility is located in Israel and currently remain
largely unaffected following the war declared in Israel and the military activity in the region. However, the duration, severity and global
implications of these and other geopolitical conflicts that may arise in the future, cannot be predicted at this time and could have an
effect on our business if our employees who are military reservists are called to active military duty, and if the war impacts the economic,
social and political stability of Israel.
Governmental Regulation
Industries on which we operate are subject to extensive governmental
regulation, the impact of which is difficult to predict. In the past, the Aviation and Transportation Security Act (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 the Company. The likelihood of such new legislation is difficult to
predict.
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 comply with legislation designed to protect privacy rights, the market for our products may be
adversely affected.
Licenses for Operations
A license to operate is required by 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 existing clients or the inability to compete for contracts in the airports in which we currently have licenses or
limit our growth in new airports.
Poor Economic Conditions
Poor economic conditions could adversely affect our business. Deterioration
in the global economic environment may result in decreased demand for our services. Weakening economic conditions could also affect our
customers, which may result in redirection of their request for our services.
Inflation
In some of the last years, record levels of inflation have resulted
in significant volatility and disruptions in the global economy. In response to rising inflation, central banks in the markets in which
we operate, including the United States Federal Reserve, have tightened their monetary policies and raised interest rates, and such measures
may continue if there is a period of sustained heightened inflation. Higher interest rates and volatility in financial markets could lead
to additional economic uncertainty or recession. Increased inflation rates have increased our operating costs, primarily labor costs.
There is no assurance that we will be able to promptly increase our pricing to offset our increased costs, or that our operations will
not be materially impacted by rising inflation and its broader future effect on the markets in which we operate. We have implemented certain
measures in response to such inflation pressures, including negotiating with major customers for reimbursement for salary increases
following the inflation adjustments in the employees’ salaries. There is no assurance that we will be fully or partly successful
in those negotiations. In addition, the Company has loan facilities, factoring agreements and a line of credit for three of its subsidiaries.
The increased interest rates will increase the Company's financing costs. We are continuing to monitor the effects of inflation on our
business performance and financial condition. However, we cannot accurately predict whether we will be able to effectively and timely
mitigate their impact on our business.
Currency Risk
A substantial portion of our revenue is generated in foreign countries.
We usually 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 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. The market price of our common stock may be volatile and the volume may be low, which may make it more difficult for you to sell
your shares.
Main Shareholders
As of May 1st, 2025, the MacPherson Trust, its beneficiaries and
Mr. M.J. Atzmon, own or control together approximately 74.0% of our issued and outstanding common stock (excluding conversion rights).
Mr. Atzmon, the Chairman of the Supervisory Board, disclaims any benefit or interest in the MacPherson Trust. As a result of such ownership
and conversion rights, the MacPherson Trust and its beneficiaries together with Mr. Atzmon are able to significantly influence and/or
control 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. Their interests could conflict with yours.
In addition, significant sales of shares held by them could have a negative effect on our stock price.
Dividends
There is no assurance the Company will pay any cash dividends on
our common stock in the foreseeable future.
The Ability of Shareholders to Bring Action
or Enforce Judgments Against the Company, the Managing Directors and the Supervisory Directors may be Limited Since ICTS is a Foreign
Company
The ability of shareholders of ICTS (Shareholders) to bring actions
against ICTS, the members of the management board of ICTS (“Management Board” and its members “Managing Directors”)
and the members of the supervisory board of ICTS (“Supervisory Board” and its members “Supervisory Directors”)
or to enforce liabilities predicated upon non-Dutch laws may be limited.
The Company is a public company with limited liability (naamloze
vennootschap met beperkte aansprakelijkheid) incorporated under the laws of the Netherlands. The corporate affairs of ICTS are governed
by the articles of association of ICTS (the Articles of Association) and by the laws governing companies incorporated in the Netherlands.
Significant number of ICTS’ assets and activities are located outside the United States of America. In addition, Managing Directors
and some of the Supervisory Directors are residents of countries other than the United States of America.
The United States of America and the Netherlands currently do not
have a treaty providing for reciprocal recognition and enforcement of judgments, other than arbitration awards, in civil and commercial
matters. In addition, the countries of residence of the Managing Directors, the Supervisory Directors and of the Company’s employees
may also not have a treaty providing for the reciprocal recognition and enforcement of judgments. Consequently, a final judgment for payment
rendered by an US court that is enforceable in the United States of America, whether or not predicated solely upon US securities laws,
will not be recognized and enforced by the Dutch courts. In order to obtain a judgment which is enforceable in the Netherlands, the claim
must be relitigated before a competent Dutch court. A Dutch court will, under current practice, generally grant the same judgment without
relitigating on the merits if the judgment by the US court (i) results from proceedings compatible with the Dutch concept of due process,
(ii) does not contravene public policy (openbare orde) of the Netherlands, (iii) has been based on an internationally acceptable ground
and (iv) is not incompatible with a judgment rendered between the same parties by a Dutch court, or with an earlier judgment rendered
between the same parties by a non-Dutch court in a dispute that concerns the same subject and is based on the same cause, provided that
the earlier judgment qualifies for recognition in the Netherlands. Dutch courts may deny the recognition and enforcement of punitive damages
or other awards. Moreover, a Dutch court may reduce the amount of damages granted by a US court and recognize damages only to the extent
that they are necessary to compensate actual losses or damages. Enforcement and recognition of judgments of US courts in the Netherlands
governed exclusively by the Dutch Civil Procedure Code (Wetboek van Burgerlijke Rechtsvordering) and relevant case law.
ICTS is a Dutch Public Limited Liability Company.
The rights of the Shareholders may be Different from the Rights of Shareholders in Companies Governed by the Laws of US Jurisdictions.
The rights of Shareholders and the responsibilities of Managing
Directors and Supervisory Directors may be different from the rights and obligations of shareholders in companies governed by the laws
of US jurisdictions. Such differences include, among others, voting requirements for important shareholder resolutions regarding capital
measures, corporate reorganizations and certain shareholder rights, such as assertion of liability claims. In the performance of its duties
the Management Board and Supervisory Board are required by Dutch law to solely act in the best interests of the Company, which in principle
is determined by the continued success of the Company with a view to sustainable long-term value creation. It is generally accepted that,
in discharging this duty, the Management Board and Supervisory Board must take into account the reasonable interests of all the Company’s
stakeholders, including its shareholders, employees and creditors. There will generally not be one prevailing stakeholder interest and
so directors will often have discretion in balancing those interests. It is possible that some of these parties will have interests that
are different from, or in addition to, the interests of the Shareholders.
Item 4. Information
on the Company
ICTS is a public limited liability company organized under the
laws of The Netherlands since 1992. Our offices are located at Walaardt Sacréstraat 425-5, 1117 BM Schiphol-Oost, The Netherlands
and its telephone number is +31-20-347-1077.
History and Development of the Company:
Aviation Security
The Company provides aviation security through its subsidiary I-SEC
International Security B.V. and its subsidiaries.
In 2001 and 2002, ICTS sold its European aviation security operations
in two stages for an aggregate purchase price of $103 million. As a result of the sale ICTS divested itself at that time from most of
its European operations.
In February 2005, the Company decided to re-enter the European
aviation security market. In March 2005, the Company established a wholly owned subsidiary, I-SEC International Security B.V. and Subsidiaries
(“I-SEC”), under which all the airport security activities provided by ICTS are operated. Thereafter, I-SEC established new
subsidiaries throughout Europe and the Far East.
Other Aviation Related
Services Businesses
The Company provides other aviation related services in the United
States of America through its subsidiary Huntleigh U.S.A. (“Huntleigh”).
Authentication Technology
Business
Our technology business is primarily involved in the services of
authentication security to financial and other companies, mainly in the United States of America and Europe through its subsidiary AU10TIX
(the Company holds 67.51% of AU10TIX as of December 31, 2024).
Business Overview
General
ICTS provides the following services through its subsidiaries:
I-SEC provides mainly aviation security services at airports in
Europe and the Far East.
Huntleigh provides for the most part non-security other aviation
related services in the United States of America.
AU10TIX develops technological systems and provides authentication
solutions for financial and other companies.
Business Strategy
We are currently pursuing the following business strategy:
Aviation Security and Critical Infrastructure Operations in Europe
and the Far East
Through the I-SEC subsidiaries, we supply aviation and other high-end
security services to airports, airlines, governments and critical infrastructure facilities in Europe and the Far East. Currently, I-SEC
provides aviation security services to two out of the five largest airports in Europe. I-SEC is focused on the critical infrastructure
operations in the countries where we are present that are adjacent to our core business (airports, airlines, cargo). I-SEC is continuously
looking for ways to extend its operations mostly in its existing locations.
Other Aviation Related Services in the United States of America.
Through Huntleigh, we provide limited security services and non-security
other aviation related services in the United States of America. Huntleigh is continuously looking for ways to extend its operations in
new and existing locations.
Developing Authentication Technologies
Through AU10TIX, we are focusing on developing authentication technologies
in order to provide authentication services to financial and other markets worldwide. AU10TIX is continuously looking for ways to extend
the services it provides worldwide, both to new and existing customers.
Services
Services Offered in Europe
and the Far East
I-SEC specializes in the provision of advanced aviation security
services worldwide. These include services in four fields: Airports, Airlines, Cargo and General (High-risk) Security. Furthermore, I-SEC
offers Consulting, Training, Auditing and Technology in all those fields.
The Company benefits from the broad know-how and international
operational experience it has acquired in more than three decades of intensive activity in the field of aviation security. I-SEC’s
management and key personnel are widely recognized in the industry as developers of pioneering aviation security solutions, methods and
technologies, focusing on airport security and high-risk environments. With its highly skilled and experienced professional staff supported
by proprietary technological innovations, I-SEC is ideally positioned to deliver cost-effective aviation security solutions and services
to airports and airlines with varying operational volumes and needs.
I-SEC has operations in The Netherlands, Germany, Spain, Italy,
Denmark, Sweden and Japan.
Building on its management’s strong reputation and on its
broad know-how and experience, I-SEC is committed to providing its clients with security services at the highest professional level, while
offering unprecedented cost savings. The Company constantly upgrades its services, trains its employees and applies a state-of-the-art
quality management system in order to ensure that amendments in regulatory requirements as well as changes in the threat environment and
developing needs are at all times respected.
I-SEC Aviation Security Services
Airports:
I-SEC offers a wide range of services to airports. These services
include Security Screening of passengers as well as hold baggage, vehicles and employees and are performed at the highest level for its
clients. The Company trains its staff to perform screening at checkpoints, both efficiently and effectively, fully complying with regulatory
and client requirements on one hand and focusing on hospitality and customer service requirements on the other hand.
Upon clients’ requirements, the services may be extended
to cover behavior detection on crowds and queues while at all times maintaining passenger privacy and confidentiality in accordance with
all relevant regulations issued by both the US and EU regulators. Furthermore, I-SEC is actively engaged in delivering Perimeter guarding,
CCTV surveillance and Vehicle marshalling if required.
Services related to Airports:
|
o |
Passenger and hand luggage |
|
o |
Access control and vehicles |
|
• |
Behavior detection on crowds and queues |
|
• |
Perimeter guarding / patrolling |
|
• |
CCTV surveillance and/or alarm resolution |
Airlines:
Delivering services to airlines requires a high proficiency in
security services combined with hospitality requirements of the client, operational processing and knowledge of regulatory requirements
from international authorities (e.g. TSA) and authorities at the location of the operations. I-SEC is well equipped to deliver a wide
variety of such integrated services linking security with customer service. I-SEC’s performance is based on numerous years of experience
and expertise and fully complies with all local, national and international regulatory requirements. Included in I-SEC’s offerings
are many customer service functions enabling airlines to improve customer services while reducing manpower needs and operational costs.
Services related to Airports:
|
o |
Escort of valuables and weapons |
|
• |
Handling (Check-in, Ticketing, Boarding, etc) |
|
• |
Interior and exterior searches |
Cargo Security
I-SEC provides a range of services that focuses on screening of air cargo for global
forwarding companies and Cargo Centers applying only the highest standards. The Company supports not only related services but also implements
dedicated security programs, trains the client’s staff and management team and deploys explosives detection dogs to support the
efficient screening of goods.
Services related to Cargo:
|
• |
Explosives Detection Dogs |
|
• |
Access control (Guard duties and airside gate checks) |
General
(high-risk) Security:
The requirements, especially in the EU, for a higher degree of
security in Critical Infrastructure has led I-SEC to offer its services in these areas as well. I-SEC delivers a variety of services which
are similar to those offered to airports and airlines stemming from a different legal requirement and based on a different regulatory
framework. I-SEC’s professionalism and experience in these fields establish an advantageous position for I-SEC to offer general
security services worldwide.
Services related to General Security:
|
• |
Security search and screening services |
|
• |
Perimeter guarding / patrolling
(Including weapons and dogs) |
|
• |
Security host & reception services |
|
• |
CCTV surveillance and/or alarm resolution |
Training
/ Consulting / Auditing
I-SEC’s Training Programs are the product of over 30 years
of expertise and experience in the development of training materials covering every aspect of airline and airport as well as cargo security
operations and their implementation worldwide. They are similarly suitable to be implemented in Critical Infrastructure facilities and
for High-End guarding services.
Aviation security and security awareness training courses are offered,
which are modular in nature and are adapted to meet the specific needs of each client. The courses are constantly being updated to ensure
that they cover all relevant material relating to new regulations, new threats, etc. Many of the courses include simulations, role play,
situational exercises, case studies and on-the-job training. Sophisticated training aids are employed to make the training experience
more efficient and interesting, thus ensuring optimal results.
The identification of the risks relevant to the particular site
or operation, and the grading according to their potential damage and probability enables I-SEC to develop security solutions that effectively
deal with these risks. I-SEC security experts possess broad experience in the design and development of modular aviation security systems
which are customized to meet local needs as well as complying with international standards. For over three decades, I-SEC specialists
have been assisting their clients implement and assimilate proven work methods and security solutions designed on the basis of extensive
know-how and experience and tailored to meet their specific needs.
Furthermore, I-SEC’s expert security consultants specialize
in the performance of airport security surveys and audits. Surveys can range from individual aspects of airport security to comprehensive,
all-encompassing operations. Special attention is put on the verification of compliance with applicable regulation and the presentation
of recommendations regarding any amendments that may be required. As security systems are only effective if they continue to address existing
and anticipated threats and to fully comply with international, national and local regulatory requirements, periodical aviation security
audits are of vital importance. I-SEC experts possess vast international experience in the performance of such audits and the resulting
recommended steps to ensure full compliance and suitability of the aviation security system.
Aviation Security Technology
In the interest of enabling clients to maintain the required level
of security while reducing operational costs, I-SEC utilizes several innovative, proprietary products.
X-CHECK & I-CHECK
X-Check and I-Check support airline staff, security or filtering
agents with customer processing. Using NAPS to perform automated customer filtering for different reasons, like security vetting, reducing
in-admissible and optimizing customer flow by reducing touchpoints. The application turns a tablet or cell phone into an extremely fast
and accurate passport and barcode scanner. Once the X-Check tablet app is connected to the X-Check infrastructure, a wide variety of functionalities
including NAPS customer filtering, becomes available guiding the airline, security and or filtering agents and supervisors intuitively
through the features and functionalities.
Services Offered in the
United States of America
As of December 31, 2024 Huntleigh provides limited aviation security
services and other aviation related services at approximately 31 airports in 22 states.
The limited security services provided by Huntleigh involve the
following:
• Private
Charter Flight Screening for Airlines - which includes security check of passengers’ body and carry-on items.
• Cargo
Security Screening – for some international and domestic carriers.
• Catering
Security Screening – for some international and domestic carriers.
• Aircraft
Security Screening – for some international and domestic carriers.
• Aircraft
Search – search of the entire aircraft to detect dangerous objects.
• Employee Screening
- check of employees entering and leaving a facility.
Each of the non– security services involve one of the following
specific job classifications:
Agent
Services for Airlines
Agent services include vendor behind counters and baggage service
(BSO). Although an agent is a Huntleigh employee, the employee is considered a representative of specific airlines.
Guard Services
Guard services involve guarding secured areas including aircraft.
Huntleigh also provides guard services to schools, places of worship, homeowners association, events, etc. In addition, Huntleigh provides
camera security monitoring services.
Queue Monitors
Huntleigh provides queue monitors assisting passengers before the
checkpoint.
Aircraft Cleaning
Huntleigh provides employees who perform aircraft cleaning services
such as:
• Cleaning the aircraft interior
• Conducting cabin searches
• Waxing the aircraft exterior
Janitorial
Huntleigh provides janitorial services to airline airport offices,
airline terminal areas, airline gates and office buildings.
Shuttle Service
Huntleigh provides shuttle services to airline crews between hotel
and airport.
Skycap Services Provider
A skycap assists passengers with their luggage. Located at the
curb side of the check-in at airports, a skycap checks in passengers’ luggage and screens passengers for security requirements established
by the TSA. 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 curb side
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
utilizing various wheelchair dispatch technologies.
Baggage
Handling Services
Huntleigh provides employees who move passengers’ baggage from the check-in counter to screening
machines and/or vice versa, move oversized baggage from check-in to appropriate bag belts and move the baggage which was not collected
by passengers to a Baggage Service Office (BSO).
VIP Meet and Greet Services
Huntleigh provides VIP passenger meet and greet services transitioning
through the airport on arrival and or departure.
Equipment for Passengers
with Restricted Mobility
In December 2019, Aviation Mobility Solutions Inc. a subsidiary
of Huntleigh, was formed in order to find, evaluate and deliver new and innovative products for passengers with restricted mobility. Equipment
examples are: E-mobby, Multi Mobby and Mobby wheelchairs.
Authentication Systems and Solutions
AU10TIX, an identity management company, has as its mission to obliterate fraud and
further a more secure and inclusive world. The Company provides critical, modular solutions to verify and link physical and digital identities
so businesses and their customers can confidently connect. Over the past decade, AU10TIX has become the preferred partner of major global
brands for customer onboarding and customer verification automation and continues to work on the edge of what’s next for identity’s
role in society. AU10TIX’s proprietary technology provides results in less than 8 seconds, enabling businesses to onboard customers
faster while preventing fraud, meeting compliance mandates and, importantly, promoting trust and safety.
AU10TIX stands at the forefront of identity management, dedicated
to stamping out fraud and building a safer business environment. With decades of mature technology, our award-winning and innovative products
offer modular, cutting-edge solutions to verify and link physical and digital identities so businesses and their customers can confidently
connect. Our scalable and flexible technology adapts in real-time to the shifting dynamics of fraud, offering a versatile solution for
any business, industry, and use case. Delivering an exceptional user experience, AU10TIX's system achieves verification results within
seconds, driving higher conversion rates by meeting diverse customer onboarding and verification needs with precision. As a trusted partner
for global brands, our commitment to trust, safety, and compliance is unwavering, enabling businesses to grow confidently with the assurance
that every identity challenge they face is met.
Product & Technology
AU10TIX’s modular SaaS offering for identity verification
and fraud prevention automates the capture, extraction and validation from physical and digital ID documents. AU10TIX speeds up customer
screening and enrollment while enhancing security and identity fraud prevention with fully automated (i.e., no data entry or back-office
dependencies) multi-level fraud protection, counterfeiting and risk factor detection and higher conversion rates of borderline quality
images. AU10TIX technology, in addition, is data-rich and has fast-response exception reporting and multi-lingual document content support
while providing rapid processing (typically 8 seconds or less for the complete verification process).
AU10TIX technology is designed for security-sensitive and business-sensitive
environments such as airports, border control, financial services, etc., which require hi-resolution document imaging, auto image optimization,
auto-classification of documents up to version level, extraction of readable + encoded content including MRZ lines and barcodes. The automated
technology provides real-time verification of both data and visual elements across multi-factor identity verification. It offers immediate,
detailed exception alerts, supports integration with chip and barcode readers, enables biometric input processing and allows queries against
databases and watchlists
AU10TIX’s core IDV engine along with products like the Identity
Verification Suite, KYB solution, and Digital services, automates all essential components of KYC and KYB initiation in regulated markets
including ID document authentication, face matching, Proof-Of-Address processing, identity data verification and screening (eIDVS), and
business and UBOs verification.
AU10TIX enables fully automated ID image recognition and optimization,
pre-screening, content retrieval, forgery, counterfeiting collateral risk flag detection and exception reporting. Customers are also offered
SDK packages to improve and control ID and face image capturing by customers.
This portfolio of services enables service providers to rapidly
automate customer onboarding and AML/KYC/ KYB processes.
AU10TIX incorporates advanced AI algorithms and advanced neural
networks that increase the accuracy of analyzing images at a broad range of image quality levels for various types of official ID documents.
The system is designed to handle images that originate from any common imaging device including mobile phones, tablets, computer webcams,
etc.
AU10TIX is relevant for a variety of commercial and government
global markets many of which are required to comply with KYC/AML regulations. The technology can be integrated with additional Identity
Data Verification and Screening (eIDV/eIDVS) as a client or 3rd party augmented service or seamlessly integrated into AU10TIX’s
ID verification and POA handling components, enabling automated submission of customer data to the required person and address verification
services, as well as screening services such as PEPs & Sanctions, watchlists, etc., through a single API call.
Artificial Intelligence
Artificial intelligence is expected to play an increasingly important role in shaping
the identity authentication market and our strategic direction. The widespread adoption of AI in the identity space may intensify
competition. It may also create demand for hybrid solutions - such as combining human review with AI screening - for high-assurance
use cases. Our ability to adapt our offerings, integrate advanced AI tools and continue developing and improving our AI models and
capabilities responsibly and maintain trust in our systems might be material to sustaining our competitive position and meeting evolving
customer expectations.
Target Markets
Key markets for AU10TIX are financial services including banking,
insurance, payments, wallets, money transfer, lending, remittance, online investments, trading and forex, cryptocurrency exchanges, rental
services, sharing economy, professional services, telecommunications and social media, etc.
Investments
A summary of investments in unconsolidated subsidiaries and affiliates
as of December 31, 2024, and 2023 is as follows (in thousands):
| |
|
|
December 31, |
|
|
December 31, |
|
| |
|
|
2024 |
|
|
2023 |
|
|
|
Measurement
Method
|
|
Carrying Value |
|
|
Ownership Percentage |
|
|
Carrying Value |
|
|
Ownership Percentage |
|
|
Manuka, Inc. (Previously Artemis Therapeutics, Inc.) (1) |
Measurement alternative |
|
$ |
- |
|
|
Less than 1% |
|
|
$ |
- |
|
|
Less than 1% |
|
|
Mesh Technologies, Inc. (2) |
Measurement alternative |
|
|
36 |
|
|
Less than 1% |
|
|
|
36 |
|
|
Less than 1% |
|
|
Arrow Ecology & Engineering Overseas (1999) (3) |
Equity method |
|
|
0 |
|
|
22.6% |
|
|
|
0 |
|
|
22.6% |
|
|
GreenFox Logistics LLC. (2) |
Measurement alternative |
|
|
100 |
|
|
Less than 1% |
|
|
|
100 |
|
|
Less than 1% |
|
|
SardineAI Corp. (2) (4) |
Measurement alternative |
|
|
8 |
|
|
Less than 1% |
|
|
|
8 |
|
|
Less than 1% |
|
|
Silver Circle One (2)(5) |
Measurement alternative |
|
|
58 |
|
|
Less than 1% |
|
|
|
38 |
|
|
Less than 1% |
|
|
Justt Fintech Ltd (previously Acrocharge Ltd) (2) |
Measurement alternative |
|
|
50 |
|
|
Less than 1% |
|
|
|
50 |
|
|
Less than 1% |
|
|
Nilus OS Ltd (2) |
Measurement alternative |
|
|
25 |
|
|
Less than 1% |
|
|
|
25 |
|
|
Less than 1% |
|
|
Total investments in unconsolidated subsidiaries and affiliates |
|
|
$ |
277 |
|
|
|
|
|
$ |
257 |
|
|
|
|
|
(1) |
The market value of the Company’s investment in MNKA as of December 31, 2024, and 2023 is $0 and
$9 thousands, respectively. The Company evaluated the stock price of MNKA but as MNKA share price is low, the number of shares that are
being traded is thin and as MNKA still does not have any material revenue or profitable operations, the Company previously determined
that the value of the investment is impaired and accordingly, valued the investment at zero |
|
(2) |
Private, closely held company, with no active market for the investment. Therefore, the Company applies the measurement alternative
and measures the investment at cost minus impairment. |
|
(3) |
The investment includes few types of shares representing 22.6% of Arrow’s equity and shareholders loans ($4.1 million stated
value less $2.4 million allowance for credit losses, which have not changed since the acquisition). |
|
(4) |
The Company has an agreement with an entity related to its main shareholder, according to which, if the value of the investment decrease,
the related party entity has guaranteed to repurchase this full investment at a minimum amount of $1.7 million. The guarantee is effective
immediately as of the date of purchase and terminates on January 1, 2027. Some Directors, managers and shareholders of Arrow are related
parties of the Company. |
|
(5) |
The Company suspended its use of the equity method to accounting for this investment in 2023 after its investment balance was reduced
to zero. |
|
(6) |
On January 2023, the Company sold approximately 85% of its investment for a total amount of $0.8 million. |
|
(7) |
A capital fund which aims to invest in private emerging companies with focus on consumer, commerce and technology companies. The
company committed to invest up to $100 thousands on the pool while as of December 31, 2024, the Company invested a total amount of
$58 thousands. |
Revenue
Revenue generated from customers by geographical area based on
the geographical location of the customers invoicing address is as follows:
Revenue in Germany
Revenue in Germany during the years 2024, 2023 and 2022 totaled
$128.3 million (27% of total revenue), $114.2 million (26% of total revenue) and $111.8 million (34% of total revenue), respectively.
Revenue in the U.S.
Revenue in the United States of America during the years 2024,
2023 and 2022 totaled $97.0 million (20% of total revenue), $99.7 million (23% of total revenue) and $88.3 million (27% of total revenue),
respectively.
Revenue in The Netherlands
Revenue in The Netherlands during the years 2024, 2023 and 2022
totaled $106.0 million (22% of total revenue), $101.5 million (24% of total revenue) and $63.8 million (20% of total revenue), respectively.
Revenue in Spain
Revenue in Spain during the years 2024, 2023 and 2022 totaled $113.2
million (23% of total revenue), $82.2 million (12% of total revenue) and $39.4 million (12% of total revenue), respectively.
Revenue in Other Locations
Revenue in other locations during the years 2024, 2023 and 2022
totaled $38.8 million (8% of total revenue), $33.9 million (8% of total revenue) and $21.5 million (7% of total revenue), respectively.
Major
Customers
Revenue from three customers represented 47% of total revenue during
the year ended December 31, 2024, of which customer A accounted for 18%, customer B accounted for 17% of total revenue and customer D
accounted for 12% of total revenue. Accounts receivable from these three customers represented 24% of total accounts receivable as of
December 31, 2024.
Revenue from two customers represented 34% of total revenue during
the year ended December 31, 2023, of which customer A accounted for 20% and customer B accounted for 14% of total revenue. Accounts receivable
from these two customers represented 20% of total accounts receivable as of December 31, 2023.
Revenue from two customers represented 52% of total revenue during
the year ended December 31, 2022, of which customer A accounted for 34% and customer C accounted for 18% of total revenue. Accounts receivable
from these two customers represented 31% of total accounts receivable as of December 31, 2022.
Revenue and receivables from customer B used to be presented in the year ended December
31, 2022 as part of customer C. In 2023 there were some changes in the structure of customer C and consequently its revenue has been split
among a few customers since then. For comparative purposes, total revenue of customer B for the year ended December 31,2022 was 28% of
total revenue. Accounts receivable from customer B represented 18% of total accounts receivable as of December 31, 2022.
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. The Company, on behalf of its
clients, is responsible for adherence to such regulations relating to certain security aspects of their activities. The Company 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. The Company
currently holds the licenses required to operate in such locations.
Climate
Change Regulation
Our business is not affected directly in any way by existing and
pending, local, state, regional, federal or international legal requirements and agreements related to climate change. Although our
business is not affected by climate change directly, it may be affected indirectly as the airlines we serve emit significant greenhouse
gases and if flights are reduced as a result it could affect our business.
Organizational Structure
The following are the active subsidiaries of ICTS as of December
31, 2024:
I-SEC Global Security B.V. (The Netherlands - 100%) and its wholly-owned
subsidiaries:
I-SEC International Security B.V. (The Netherlands - 100%), which
holds the shares of:
I-SEC Benelux Holdings B.V. (Netherlands - 100%) which holds the
shares of:
I-SEC Nederland B.V. (Netherlands – 100%)
I-SEC Nederland Security Services B.V. (Netherlands – 100%)
I-SEC Belgium Aviation Security B.V. (Belgium – 100%)
I-SEC Spain Holdings B.V. (Netherlands - 100%) which holds the
shares of:
I-SEC Spain Services Management S.L. (Spain - 100%)
I-SEC Spain Security Management S.L. (Spain – 100%)
I-SEC Aviation Security S.L. (Spain – 100%)
I-SEC Nordic Holding B.V. (Netherlands – 100%) which holds
the shares of:
I-SEC Denmark Aviation Security A.S (Denmark – 100%)
I-SEC Norway Aviation Security A.S. (Norway – 100%)
I-SEC Finland Aviation Security O.y (Finland – 100%)
I-SEC Sweden Aviation Security A.B. (Sweden – 100%)
I-SEC German Holding B.V. (Netherlands – 100%) which holds
the shares of:
I-SEC Security Services GmbH (Germany - 100%)
I-SEC German Aviation Holdings 1 B.V. (Netherlands – 100%)*
which holds the shares of:
I-SEC Verwaltungs SE (Germany – 100%)**
I-SEC Deutsche Luftsicherheit SE&Co.KG (Germany – 100%)
Platin 2422 GmBH (Germany - 100%) ***
I-SEC German Special Operations B.V. (Netherlands – 100%)
I-SEC Tech B.V. (Netherlands – 100%)
I-SEC Italia s.r.l. (Italy - 100%), which holds the shares of:
I-SEC Italia Services s.r.l. (Italy – 100%)
I-SEC Japan K.K. (Japan - 100%)
ICTS USA, Inc. (New York - 100%) which holds the shares of:
Huntleigh USA Corporation (Missouri, USA - 100%)
Aviation Mobility Solutions, Inc (Texas, USA – 100%)
AU10TIX Technologies B.V. (The Netherlands – 68%,) which
holds the shares of:
AU10TIX Limited (Cyprus – 100%) which holds the shares of:
AU10TIX B.V. (The Netherlands – 100%) which holds the shares
of:
AU10TIX Ltd. (Israel – 100%), which holds the shares of:
AU10TIX Services Inc. (Texas, USA – 100%)
*I-SEC German Aviation Holdings 1 B.V. is a limited partner (100%)
of I-SEC Deutsche Luftsicherheit SE&Co.KG (Germany)
I-SEC German Aviation Holdings 1 B.V. is a limited partner (100%)
of I-SEC Academy GmBH & Co.KG (Germany)
**I-SEC Verwaltungs SE is a general partner (0%) of I-SEC Deutsche
Luftsicherheit SE&Co.KG (Germany).
*** Platin 2422 GmBH is a general partner (0%) of I-SEC Academy
GmBH &Co.KG
Property, Plant and Equipment
The Company leases certain premises under various operating leases.
Maturities of operating lease liabilities as of December 31, 2024 were as follows (in millions):
|
Year ended December 31, |
|
|
2025 |
|
$ |
5.5 |
|
|
2026 |
|
|
3.1 |
|
|
2027 |
|
|
2.4 |
|
|
2028 |
|
|
1.5 |
|
|
2029 |
|
|
0.7 |
|
|
Thereafter |
|
|
2.2 |
|
| |
|
$ |
15.4 |
|
Lease expenses for the years ended December 31, 2024, 2023 and
2022 are $7.9 million, $6.5 million and $6.2 million, respectively.
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 managements’ 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
The Company operates in three reportable segments (a) airport Security
(b) other aviation related services and (c) authentication technology. The Company also incurs general corporate expenses and costs which
are not allocated to the reportable business segments but have been included in the “unallocated corporate” component which
does not generate revenue and contains primarily non-operational expenses. The airport security segment includes the I-SEC International
group. The airport security segment provides security services primarily to airlines and airport authorities in Europe. The other
aviation related services segments include Huntleigh USA. The other aviation related services segment provides various services to airlines
within airports in the United States of America. The authentication technology represents the AU10TIX Technologies group. The authentication
technology segment provides authentication services to financial and other companies, predominantly in the United States of America.
Critical Accounting Estimates
The consolidated financial statements have been prepared in accordance
with US 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 policy that require the use of judgment and estimates is valuation allowance of deferred income taxes. Please
refer to Note 2 of ICTS’s consolidated financial statements included in this Annual Report for the year ended December 31, 2024
for a summary of ICTS’s significant accounting policies.
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. A valuation allowance is established for net deferred tax assets when it is more-likely-than-not
that they will not be realized.
Discussion and Analysis of the Results of Operations
The following table summarizes our results of operations for the
years ended December 31, 2024, 2023 and 2022. However, our discussion of the results of operations excludes the comparison of the results
for the years ended December 31, 2023 and 2022. Refer to item 5, Operating and Financial Review and Prospects-Results of Operations in
our Annual Report on Form 20-F for the year ended December 31, 2023 which was filed with the SEC on May 10, 2024.
| |
|
U.S. Dollars in Thousands |
|
| |
|
Year ended December 31, |
|
| |
|
2024 |
|
|
2023 |
|
|
2022 |
|
| |
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
483,310 |
|
|
$ |
431,542 |
|
|
$ |
324,977 |
|
|
Cost of revenue |
|
|
413,369 |
|
|
|
351,558 |
|
|
|
261,181 |
|
|
Gross profit |
|
|
69,841 |
|
|
|
79,984 |
|
|
|
63,796 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
14,372 |
|
|
|
12,325 |
|
|
|
13,601 |
|
|
Selling, general and administrative |
|
|
61,249 |
|
|
|
56,927 |
|
|
|
53,799 |
|
|
Total operating expenses |
|
|
75,621 |
|
|
|
69,252 |
|
|
|
67,400 |
|
|
OPERATING INCOME (LOSS) |
|
|
(5,780 |
) |
|
|
10,732 |
|
|
|
(3,604 |
) |
|
Equity loss from investment in affiliates |
|
|
- |
|
|
|
- |
|
|
|
97 |
|
|
Other income (expenses), net |
|
|
1,427 |
|
|
|
1,584 |
|
|
|
113 |
|
|
INCOME (LOSS) BEFORE INCOME TAX EXPENSES |
|
|
(4,353 |
) |
|
|
12,316 |
|
|
|
(3,588 |
) |
|
Income tax benefits (expenses) |
|
|
452 |
|
|
|
(1,745 |
) |
|
|
(1,646 |
) |
|
NET INCOME (LOSS) |
|
|
(3,901 |
) |
|
|
10,571 |
|
|
|
(5,234 |
) |
|
Less: Net income (loss) attributable to non-controlling interests |
|
|
331 |
|
|
|
3,490 |
|
|
|
(509 |
) |
|
NET INCOME (LOSS) ATTRIBUTABLE TO ICTS INTERNATIONAL N.V |
|
$ |
(4,232 |
) |
|
$ |
7,081 |
|
|
$ |
(4,725 |
) |
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, 2024, 2023 and 2022:
| |
|
Year ended December 31, |
|
| |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
Revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
Cost of revenue |
|
|
85.5 |
% |
|
|
81.5 |
% |
|
|
80.4 |
% |
|
Gross profit |
|
|
14.5 |
% |
|
|
18.5 |
% |
|
|
19.6 |
% |
|
Research and development |
|
|
3.0 |
% |
|
|
2.9 |
% |
|
|
4.2 |
% |
|
Selling, general and administrative |
|
|
12.7 |
% |
|
|
13.1 |
% |
|
|
16.5 |
% |
|
Total operating expenses |
|
|
15.7 |
% |
|
|
16.0 |
% |
|
|
20.7 |
% |
|
OPERATING INCOME (LOSS) |
|
|
(1.2 |
)% |
|
|
2.5 |
% |
|
|
(1.1 |
)% |
|
Equity loss from investment in affiliates |
|
|
- |
|
|
|
- |
|
|
|
-
|
|
|
Other income (expenses), net |
|
|
0.3 |
% |
|
|
0.4 |
% |
|
|
-
|
|
|
INCOME (LOSS) BEFORE INCOME TAX EXPENSES |
|
|
(0.9 |
)% |
|
|
2.9 |
% |
|
|
(1.1 |
)% |
|
Income tax benefits (expenses) |
|
|
0.1 |
% |
|
|
(0.5 |
)% |
|
|
(0.5 |
)% |
|
NET INCOME (LOSS) |
|
|
(0.8 |
)% |
|
|
2.4 |
% |
|
|
(1.6 |
)% |
|
Less: Net income (loss) attributable to non-controlling interests |
|
|
(0.1 |
)% |
|
|
0.8 |
% |
|
|
(0.1 |
)% |
|
NET INCOME (LOSS) ATTRIBUTABLE TO ICTS INTERNATIONAL N.V. |
|
|
(0.9 |
)% |
|
|
1.6 |
% |
|
|
(1.5 |
)% |
The following table sets forth, for the annual periods indicated,
the Company’s revenues generated from customers by geographical area based on the geographical location of the customers invoicing
address:
| |
|
(U.S. Dollars in Thousands) |
|
| |
|
Year ended December 31, |
|
| |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|
Germany |
|
$ |
128,278 |
|
|
$ |
114,176 |
|
|
$ |
111,826 |
|
|
United States of America |
|
|
97,000 |
|
|
|
99,765 |
|
|
|
88,333 |
|
|
The Netherlands |
|
|
106,027 |
|
|
|
101,512 |
|
|
|
63,842 |
|
|
Spain |
|
|
113,177 |
|
|
|
82,217 |
|
|
|
39,448 |
|
|
Other |
|
|
38,828 |
|
|
|
33,872 |
|
|
|
21,528 |
|
|
Total Revenue |
|
$ |
483,310 |
|
|
$ |
431,542 |
|
|
$ |
324,977 |
|
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
The majority of the Company’s operations are in Euros which affects the annual
results by the movements in exchange rates between the Euros and the US Dollars. The annual average exchange rate for the year 2024 was
1.08 USD to 1.00 Euro compared to 1.09 USD to 1.00 Euro in 2023, representing an increase of less 1%. Therefore exchange rate fluctuation
was not material between those years.
During the years ended December 31, 2021 and 2020, the COVID-19
outbreak developed rapidly. In the Netherlands, wage tax, social security and VAT payments for the period March 2020 until September 2021
were postponed and required to be paid in 60 monthly installments, beginning October 2022. The debt incurs annual interest of 1% starting
July 2022 and increases every six months to a maximum of 4% starting on January 1, 2024. As of December 31, 2024 and 2023, the Company
accumulated debt of €18.2 million and €24.9 million ($19.0 million and $27.3 million as of December 31,
2024 and 2023), respectively owed to the Dutch tax authorities.
Revenue
Total revenue in 2024 was $483.3 million compared to $431.5 million
in 2023.
Revenue generated in Germany was $128.3 million in 2024 compared
to $114.2 million in 2023. Increase of revenue in Germany represents primarily additional services provided to our existing customers
in Germany.
Revenue generated in the Netherlands was $106.0 million in 2024
compared to $101.5 million in 2023. Increase of revenue in Germany represents primarily additional services provided to our existing customers
in the Netherlands and increase in the hourly rates paid to the employees which are being charged to the customer back to back.
Revenue generated in the United States of America was $97.0 million
in 2024, compared to $99.7 million in 2023. The decrease in revenue generated in the United States of America was primarily a result of
decrease of services provided by our authentication technology segment to its customers, from $33.2 million in 2023 to $22.5 million in
2024. The revenue decrease was offset by an increase of revenue by our other aviation related services segment which increased from $66.5
million in 2023 to $74.5 million, primarily following increase in operations and increases in minimum wage rates.
Revenue generated in Spain was $113.2 million in 2024 compared
to $82.2 million in 2023. The increase in revenue generated in Spain represents both new contracts in Spain and an increase of services
to existing customers.
Revenue outside Germany, the Netherlands, Spain and the United
States of America totaled $38.8 million in 2024 compared to $33.9 million in 2023. The increase in revenue generated in those locations
represents both new contracts and an increase of services to existing customers.
Cost of Revenue
Cost of revenue in 2024 was $413.4 million or 85.5% of revenue, compared to $351.6
million or 81.5% of revenue in 2023. The majority of cost of revenue relates to payroll and related costs. During 2024, the cost of sales
increased due to an increase in sickness rates, decrease in efficiency, wage inflation adjustments and contracts with lower profitability.
Research and Development
Expenses (“R&D”)
Research and development costs in 2024 were $14.4 million or 3.0%
of revenue, compared to $12.3 million or 2.9% of revenue in 2023. The increase in R&D relates mostly to increase in cloud expenses
which increased by $2.2 million during 2024 compared to 2023. R&D expenses as representing of revenue represents a stable percentage
compared to previous year.
Selling, General and Administrative Expenses
(“SG&A”)
SG&A expenses in 2024 were $61.2 million or 12.7% of revenue
in 2024, compared to $56.9 million or 13.1% of revenue in 2023. The Company’s payroll, related expenses and commissions increased
by $2.8 million compared to 2023, mainly following the increase in revenue which required more employees in order to manage the operations.
The Company’s legal expenses increased by $1.6 million. The legal costs in 2024 and 2023 related primarily to legal costs regarding
(1) a minority shareholder claim against the Company which increased from $0.7 million in 2023 to $1.4 million in 2024 and (2) costs related
to legal claims and settlements in the other related services segment which increased in 2024 from $0.1 million in 2023 to $0.8 million
in 2024 following changes in segment’s operations, insurance policy and higher deductibles per claim according to the new terms.
Other Income (Expenses),
net
Other income (expenses) net, were $1.4 million or 0.3% of revenues
in 2024, compared to $1.6 million or 0.4% of revenues in 2023, respectively. In 2024 and 2023, The Company recognized interest expense
of $0.9 million and $1.2 million owed to the Dutch tax authorities in relation to the debt following the COVID-19 assistance. Other interest
expenses and bank charges were $0.7 million in 2024 compared to $0.5 million in 2023. Offsetting those expenses were interest income of
$3.1 million in 2024 and $2.1 million in 2023 resulting from an increase in market interest rates which allowed the Company to exchange
its cash-in-bank deposits for higher interest. In 2023, the Company recorded a one-time profit of $0.7 million following the sale of part
of its investment in SardiAI. In addition, in 2024 the Company recorded an exchange rate loss of $0.1 million compared to an exchange
rate income of $0.4 million in 2023.
Income Tax Benefits (Expenses)
Income tax benefits were $0.5 million or 0.1% of revenue in 2024
compared to income tax expenses of $1.7 million or 0.5% of revenue in 2023. Income tax benefits relating to the authentication technology
segment were $0.2 million in 2024 compared to income tax expenses of $0.9 million in 2023. Income tax benefits relating to the airport
security segment were $0.7 million in 2024 compared to $0.8 million in 2023. Income tax expenses relating to the other aviation related
services segment were $0.0 million in both in 2024 and in 2023. Previous net operating losses were utilized to reduce the yearly income
tax expenses in some of the countries we operate.
Reportable Segment
The following table sets forth for the annual periods indicated
certain financial data related to the Company’s reportable segments. However, our discussion of the reportable segments excludes
the comparison for the year ended December 31, 2022. Refer to item 5, Operating and Financial Review and Prospects – Results of
Operations in our Annual Report on Form 20-F for the year ended December 31, 2023, which was filed with the SEC on May 10, 2024.
| |
|
U.S. Dollars in Thousands |
|
| |
|
Unallocated Corporate |
|
|
Airport
Security |
|
|
Other
Aviation
related
Services |
|
|
Authentication
Technology |
|
|
Total |
|
|
Year ended December 31, 2024: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
- |
|
|
$ |
362,799 |
|
|
|
74,526 |
|
|
$ |
45,985 |
|
|
$ |
483,310 |
|
|
Labor costs (1) |
|
|
1,324 |
|
|
|
338,226 |
|
|
|
63,105 |
|
|
|
27,000 |
|
|
|
429,755 |
|
|
Depreciation and amortization |
|
|
68 |
|
|
|
678 |
|
|
|
354 |
|
|
|
1,271 |
|
|
|
2,371 |
|
|
Other costs and expenses |
|
|
2,472 |
|
|
|
25,612 |
|
|
|
10,513 |
|
|
|
16,488 |
|
|
|
55,085 |
|
|
Net income (loss) |
|
|
(3,864 |
) |
|
|
(1,817 |
) |
|
|
554 |
|
|
|
1,226 |
|
|
|
(3,901 |
) |
|
Goodwill |
|
|
- |
|
|
|
633 |
|
|
|
- |
|
|
|
- |
|
|
|
633 |
|
|
Total assets |
|
|
19,791 |
|
|
|
80,422 |
|
|
|
18,832 |
|
|
|
66,737 |
|
|
|
185,782 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2023: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
- |
|
|
$ |
309,335 |
|
|
|
66,463 |
|
|
$ |
55,744 |
|
|
$ |
431,542 |
|
|
Labor costs (1) |
|
|
1,091 |
|
|
|
284,083 |
|
|
|
56,346 |
|
|
|
29,507 |
|
|
|
371,027 |
|
|
Depreciation and amortization |
|
|
5 |
|
|
|
904 |
|
|
|
307 |
|
|
|
1,463 |
|
|
|
2,679 |
|
|
Other costs and expenses |
|
|
2,215 |
|
|
|
21,771 |
|
|
|
9,796 |
|
|
|
13,483 |
|
|
|
47,265 |
|
|
Net income (loss) |
|
|
(3,311 |
) |
|
|
2,577 |
|
|
|
14 |
|
|
|
11,291 |
|
|
|
10,571 |
|
|
Goodwill |
|
|
- |
|
|
|
668 |
|
|
|
- |
|
|
|
- |
|
|
|
668 |
|
|
Total assets |
|
|
17,740 |
|
|
|
81,733 |
|
|
|
19,325 |
|
|
|
78,298 |
|
|
|
197,096 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2022: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
- |
|
|
$ |
224,037 |
|
|
$ |
53,954 |
|
|
$ |
46,986 |
|
|
$ |
324,977 |
|
|
Labor costs (1) |
|
|
1,174 |
|
|
|
201,371 |
|
|
|
47,144 |
|
|
|
32,953 |
|
|
|
282,642 |
|
|
Depreciation and amortization |
|
|
71 |
|
|
|
779 |
|
|
|
286 |
|
|
|
1,318 |
|
|
|
2,454 |
|
|
Other costs and expenses |
|
|
1,676 |
|
|
|
20,759 |
|
|
|
8,753 |
|
|
|
13,927 |
|
|
|
45,115 |
|
|
Net income (loss) |
|
|
(2,921 |
) |
|
|
1,128 |
|
|
|
(2,229 |
) |
|
|
(1,212 |
) |
|
|
(5,234 |
) |
|
Goodwill |
|
|
- |
|
|
|
646 |
|
|
|
- |
|
|
|
- |
|
|
|
646 |
|
|
Total assets |
|
|
8,698 |
|
|
|
82,016 |
|
|
|
25,072 |
|
|
|
68,847 |
|
|
|
184,633 |
|
|
(1) |
Labor costs includes employee payroll, share-based compensation, bonus, and employee benefits, insurances and other. |
Unallocated Corporate
Segment
The Company’s loss in the corporate segment increased from
$3.3 million in 2023 to $3.9 million in 2024. During 2024, the corporate segment legal expenses relating to the claim by a minority shareholder
against the Company increased by $0.7 million compared to 2023 while other expenses of the corporate segments reduced net by $0.3 million.
Airport Security Segment
Increase in revenue from the airport security segment from $309.3
million in 2023 to $362.8 million in 2024 relates primarily to increase in the operations of the Company in Spain which increased from
$82.2 million in 2023 to $113.2 million in 2024. The increase in revenue relates to additional services provided both to new and existing
customers during 2024. Operations in Germany continued to grow from $114.2 million in 2023 to $128.3 million in 2024. Increase in revenue
in Germany relates to additional services provided to existing customers during 2024.
The Company’s net loss from the airport security segment
was $1.8 million in 2024 compared to net profit of $2.6 million in 2023. The main reasons for the loss in 2024 relate to increase
in sickness rate of employees, wage increases following inflation and increase in unproductivity rate.
Other Aviation Related
Services Segment
Increase in revenue from the aviation related services segment from $66.5 million in
2023 to $74.5 million in 2024 relates to increase of services provided to certain existing and new customers. In addition, in a few states
in the United States of America there have been increases in minimum wages, which increased both our revenues and our labor costs, though
not always by the same amounts.
The Company’s net income from the other aviation related
services was $0.6 million in 2024 compared to $0.0 million in 2023. The main reasons for the increase in profitability from 2023 to 2024
are the increase in revenue and changes implemented in 2024 in the operations in order to improve efficiency.
Authentication Technology
Segment
Revenue in 2024 from the authentication technology segment was $46.0 million compared
to $55.7 million in 2023. The Company has lost a few customers and the activities of some existing customers has decreased during the
year 2024. The net profit from this segment amounted $1.2 million in 2024 compared to $11.3 million in 2023. Decrease in profitability
in 2024 was a result of decrease in revenue. The technology’s segment profitability tends to increase with higher revenues while
when revenues decline, the profitability margin typically decreases due to the relatively stable level of fixed costs and the limited
amount of variable expenses.
Liquidity and Capital
Resources
The Company’s most significant expenditures consist of payroll,
related costs and professional fees. The Company has historically financed such expenditures through cash flows from operations, funding
received from lines of credit, loans and factory agreements with lenders in Europe and the United States of America.
As of December 31, 2024 and 2023, the Company had cash, cash equivalents,
restricted cash and bank deposits of $87.4 million and $101.0 million, respectively. As of December 31, 2024 and 2023, restricted cash
were $4.7 million and $11.8 million which consist of collateral for our letters of credit, derivative instruments and restricted bank
accounts in the Netherlands which are restricted for payments to local tax authorities. As of December 31, 2024 and 2023, bank deposits
were $18.1 million and $34.0 million, respectively.
As of December 31, 2024 and 2023, the Company had working capital
of $82.4 million and $96.1 million, respectively and shareholders’ deficit of $6.4 million and $2.6 million, respectively. During
the years ended December 31, 2024, 2023 and 2022, the Company incurred net income (loss) of $(3.9) million, $10.6 million and $(5.2) million
and net cash flows provided by (used in) operating activities of $(9.5) million, $4.4 million and $(2.1) million, respectively.
In September 2023, the Company signed a three-year credit facility
for its American subsidiary with a maximum borrowing limit of $7.5 million. In addition, the Company has a line of credit in Sweden up
to 4,000 SEK ($0.4 million as of December 31, 2024), as well as a loan facility in Spain to provide it with up to €1.0 million ($1.0
million as of December 31, 2024). The interest rate is determined by the bank at the time the loan is taken. The loan facility in Spain
consists of short-term loans, ranging between three to six months.
During the year ended December 31, 2023 the Company has taken from
time-to-time revolving short-term loans from the same commercial bank of variable amounts. The loans ranged between €0.2 million
to €1.4 million ($0.3 million and $1.6 million as of December 31, 2023) with interest rates between 5.25% and 5.90% and for periods
of three to six months. In December 2023, the agreement with the commercial bank was extended to provide loans up to €1.5 million
($1.6 million as of December 31, 2024). These loans can be used only for paying different taxes to the Spanish tax authorities. The interest
rate is determined at the time the loans are being taken.
In March 2024 the Company signed a non-recourse factoring agreement
with the same commercial bank under which it factors certain accounts receivable related to invoices issued to a specific customer up
to €3.0 million ($3.1 million as of December 31, 2024). The maximum amount provided by the bank cannot exceed 75% of the monthly
invoice for that customer. The agreement is in place until April 2025. Subsequently in March 2025 the agreement was extended for one year
and the facility was increased up to €4.0 million ($4.3 million as of March 31, 2025). Under the terms of this agreement, the factor
assumes all rewards and credit risks associated with the purchased receivables and the Company has no further obligation related to their
collection.
In June 2024 the Company signed a factoring agreement with a commercial
bank for an unlimited period. According to the agreement the Company factors certain accounts receivable related to invoices issued to
certain customers up to the amount of €11.6 million ($12.1 million as of December 31, 2024). The amounts can be used only for payroll
related costs in Germany.
The Company has an agreement with an entity related to its main
shareholder to provide it with up to $2.0 million in revolving loans through January 2026 with interest rate of 2.5% per annum. The lender
can convert up to 3 million shares into the Company’s shares at a price of $0.75 per share.
The Company’s business plan projects profit from operations
in 2025. The Company is dependent mostly in Europe and the United States of America for its businesses on the airline industry. ICTS is
an employee intensive company, especially its aviation security and other aviation related services segments.
The decisions taken in previous years by the Dutch government following
the COVID 19 pandemic have affected the Company’s business as following:
Wage tax, social security and VAT payments in
the Netherlands for the period March 2020 through September 2021 were postponed and have to be paid in 60 monthly installments, starting
October 2022. The debt incurs annual interest starting July 2022 of 1% and increases every six months to a maximum of 4% starting on January
1, 2024. As of December 31, 2024 and 2023, the Company accumulated debt of €18.2 million and €24.9 million ($19.0
million and $27.3 million as of December 31, 2024 and 2023), respectively to the Dutch tax authorities.
The below analysis of cash flows excludes discussions relate to
the year ended December 31, 2022. Refer to items 5, operating and Financial review and Prospects-Liquidity and Capital Resources in our
Annual Report on Form 20-F for the year ended December 31, 2023, which was filed with the SEC on May 10, 2024.
Cash Flows from Operating
Activities
Our cash flows from operating activities vary significantly from
year to year, depending on our operating results, timing of cash receipts and disbursements on accounts receivable, accounts payable,
accrued expenses and other current liabilities.
Net cash provided by (used in) operating activities for the year
ended December 31, 2024 was $(9.5) million. Net cash provided resulted primarily from a net loss for the year of $3.9 million, a decrease
of income tax and other taxes payable of $1,8 million compared to 2023, a decrease of VAT payable of $1.0 million compared to 2023,
a decrease of other liabilities of $7.0 million compared to 2023 due to payments made during 2024 by the Company in order to repay its
long-term debt to the Dutch tax authorities related to the governmental assistance to the Company during COVID-19, an increase of accounts
receivable of $1.0 million compared to 2023 due to the increase in revenue and increase of prepaid expenses of $0.7 million compared to
2023. Those amounts were offset compared to 2023 by a decrease of deposits held by customers by $1.0 million, an increase in accounts
payable of $0.3 million and an increase in accrued expenses and other current liabilities of $0.3 million. Non-cash charges of $2.4 million
for depreciation and amortization, $0.8 million for bad debt, $0.4 million for deferred taxes and $0.9 million for stock-based compensation
regarding the options granted to the AU10TIX employees were recognized in 2024.
Net cash provided by (used in) operating activities for the year
ended December 31, 2023 was $4.4 million. Net cash provided resulted primarily from net profit for the year of $10.6 million, decrease
of prepaid expenses and other current assets of $2.9 million and the last governmental assistance payment of $4.3 million paid to the
Company during 2023. In addition, cash provided by operating activities was affected by a decrease of $2.1 million deposits held by customers
following termination of agreements, accrued expenses increase of $8.3 million and an increase of VAT payable of $2.8 million from the
increase in revenue. This decrease was offset by an increase of accounts receivable of $15.7 million resulting from the increase of revenue,
decrease of accounts payable by $2.3 million and decrease of other liabilities of $8.0 million due to payments made during 2023 by the
Company in order to repay its long-term debt to the Dutch tax authorities related to the governmental assistance to the Company during
COVID-19. A non-cash charge of $2.7 million for depreciation and amortization, $0.5 million for bad debt, $0.9 million for stock-based
compensation regarding the options granted to the AU10TIX employees were recognized in 2023.
Cash Flows from Investing
Activities
Net cash used in investing activities for the year ended December
31, 2024 was $2.1 million and consisted primarily of capital expenditures of $1.9 million.
Net cash used in investing activities for the year ended December
31, 2023 was $0.6 million and consisted primarily of capital expenditures of $1.6 million offset by $0.8 million proceeds received from
the sale of investments.
Cash Flows from Financing
Activities
Net cash used in financing activities for the year ended December
31, 2024 was $0.2 million which consisted of loans received, net of $1.1 million during the year 2024. In addition, the Company withdraw
$2.0 million, net under factoring agreements. In addition, in 2024 the Company paid $3.2 million dividend to the AU10TIX external shareholders.
Net cash provided by financing activities for the year ended December
31, 2023 was $0.2 million which consisted of $0.1 million net withdraws under the factoring agreements and the convertible notes payable
to a related party totaling $0.1 million.
Borrowings
United States of America
The Company’s U.S subsidiary secured a three-year credit
facility with its primary bank in September 2023. The origination fee paid on the credit facility was $0.1 million. The credit facility
has a maximum borrowing base limit of $7.5 million. The borrowing base limitation is equivalent to: (i) 85% of eligible non-investment
grade receivables and 90% of eligible investment grade receivables, plus (ii) 80% of direct labor payroll for the previous two pay periods
plus 20%. The Company is required to maintain a fixed charge ratio of 1.00. Borrowings on the credit facility are subject to interest
at SOFR plus 2.65% and a minimum annual interest charge of $0.1 million. As of December 31, 2024 and 2023, there was an unused amount
available on the credit facility of $7.5 million. As of December 31, 2024 and 2023, the Company has not borrowed funds under the credit
facility.
Europe
The Company has a credit arrangement in Sweden to provide it with
up to 4.0 million SEK ($0.4 million as of December 31, 2024) in borrowings. Borrowings under the line of credit bear annual interest of
5.3% and are subject to an annual extension by the financial institution. The line of credit is secured by accounts receivable of the
Swedish subsidiary. As of December 31, 2024 and 2023, the Company had 2.2 million SEK and 2.1 million SEK ($0.2 million and $0.2 million
as of December 31, 2024 and 2023) respectively in outstanding borrowings under the credit facility. The weighted average interest rate
for this loan during the years ended December 31, 2024, 2023 and 2022, was 5.3%, 2.8% and 2.8% respectively.
In November 2023, the Company entered into a loan agreement with
a commercial bank in Spain to provide it with up to €1.0 million ($1.0 million as of December 31, 2024). The interest rate is determined
by the bank at the time the loan is taken. The loan agreement was renewed in November 2024. As of December 31, 2024 and 2023, the Company
had no outstanding balances under the loan agreement.
During the year ended December 31, 2023 the Company has been taken
from time-to-time revolving short-term loans from the same commercial bank, of variable amounts. The loans ranged between €0.2 million
to €1.4 million ($0.3 million and $1.6 million as of December 31, 2023) with interest rates between 5.25% and 5.90% and for periods
of three to six months. On December 2023, the agreement with the commercial bank was extended to provide loans up to €1.5 million
($1.6 million as of December 31, 2024). These loans can be used only for paying different taxes to the Spanish tax authorities. The interest
rate is determined at the time the loans are being taken. The loan agreement can be terminated by both sides at any time. During the year
ended December 31, 2024 the loans taken ranged between €0.5 million to €1.0 million ($0.5 million and $1.0 million as of December
31, 2024) with interest rates between 4.00% and 5.25% and for periods of three to six months. As of December 31, 2024 and 2023 the outstanding
balances were €1.0 million and €0 ($1.0 million and $0 as of December 31, 2024 and 2023), with interest rate of 4.00% and
0.00%, respectively.
In June 2024 the Company signed a factoring agreement with a commercial
bank for an unlimited period. According to the agreement the Company factors certain accounts receivable related to invoices issued to
certain customers up to the amount of €11.6 million ($12.1 million as of December 31, 2024). The amounts can be used only for payroll
related costs in Germany. The company is being charged fees until the collection date equal to Euribor plus 3.00% (5.89% as of December
31, 2024). The Company was also subject to a 1.5% fee at the signing date of the agreement. As of December 31, 2024, the outstanding balance
was €1.9 million ($1.9 million as of December 31, 2024).
The Following table summarizes the different loans mention above
and as reflected at the Company’s financial liabilities (in millions):
| |
|
Maximum Availability as of December 31, 2024 * |
|
|
Debt Balance as of December 31, 2024 |
|
|
Interest rate as of December 31, 2024 |
|
|
Maximum Availability as of December 31, 2023 * |
|
|
Debt Balance as of December 31, 2023 |
|
|
Interest rate as of December 31, 2023 |
|
|
Line of Credit |
|
$ |
7,500 |
|
|
$ |
- |
|
|
|
7.14 |
% |
|
$ |
7,500 |
|
|
$ |
- |
|
|
|
8.0 |
% |
|
Loan |
|
|
1,041 |
|
|
|
- |
|
|
|
3.2 |
% |
|
|
1,099 |
|
|
|
- |
|
|
|
4.4 |
% |
|
Revolving Loans |
|
|
1,561 |
|
|
|
1,041 |
|
|
|
4.00 |
% |
|
|
1,648 |
|
|
|
- |
|
|
|
5.3 |
% |
|
Factoring |
|
|
363 |
|
|
|
201 |
|
|
|
5.30 |
% |
|
|
398 |
|
|
|
209 |
|
|
|
2.8 |
% |
|
Factoring |
|
|
12,123 |
|
|
|
1,939 |
|
|
|
5.89 |
% |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Total |
|
$ |
22,588 |
|
|
$ |
3,181 |
|
|
|
5.23 |
% |
|
$ |
10,645 |
|
|
$ |
209 |
|
|
|
2.8 |
% |
In March 2024 the Company signed a non-recourse factoring agreement
with the same commercial bank under which it factors certain accounts receivable related to invoices issued to a specific customer up
to €3.0 million ($3.1 million as of December 31, 2024). The maximum amount provided by the bank cannot exceed 75% of the monthly
invoice for that customer. The agreement is in place until April 2025. In March 2025 the agreement was extended for one year and the facility
was increased up to €4.0 million ($4.2 million as of December 31, 2024). Under the terms of this agreement, the factor assumes all
rewards and credit risks associated with the purchased receivables and the Company has no further obligation related to their collection.
Accordingly, the factored receivables are derecognized from the Company’s balance sheet once the funds are received by the Company.
The arrangement does not create any liability and therefore no loan or financing obligation is recorded in the Company’s financial
statements. The Company is also subject to a 0.2% fee for every factored invoice issued under the agreement and with interest equal Euribor
plus 0.60% (3.59% as of December 31, 2024) until the date the payment is anticipated.
Maximum availability us subject to terms and conditions according
to the agreements with the different financial institutions.
Related Parties Financing
Convertible Notes Payable
to a Related Party
The Company had an agreement with an entity related to its main
shareholder to provide it with up to $2.0 million in revolving loans through January 2024. Loans received under the arrangement bear interest
at the interest rate of 2.5%, which is compounded semi-annually and payable at maturity. In connection with the arrangement, the holder
was granted in May 2019 an option to convert up to $2.0 million of the loan into a maximum of 5,000,000 shares at a price of $0.4 per
share. In October 2020, the entity converted $0.8 million into 2,000,000 shares. In November 2023, the Company and the related party agreed
to extend the length of the note until January 2026 and to adjust the terms of the option to convert the loan into a maximum of 5,000,000
shares at a price of $0.75 per share. As a result, an adjustment was made in 2023 to the per share price of the 2,000,000 shares issued
in the October 2020 conversion, resulting in an amount of $0.7 million of the loan derecognized with a corresponding increase to the additional
paid in capital.
As of December 31, 2024 and 2023, convertible notes payable to
this related party consist of $0.0 million for both years.
Sale of AU10TIX Technologies B.V. Preferred
Shares
On July 3, 2019 AU10TIX entered into a Series A Preferred Subscription
Agreement (the "Agreement") with TPG Lux 2018 SC I, S.a.r.l ("TPG") and issued 3,000,000 Series A Preferred Shares ("Series
A Shares") to TPG for a price of US$60.0 million in cash representing approximately 24% of the outstanding share capital of
AU10TIX and 23.077% of the fully-diluted share capital of AU10TIX. Transaction costs totaled $4.5 million and were deducted
from the redeemable non-controlling interests balance.
On November 7, 2019, AU10TIX issued 1,000,000 Series
A Preferred Shares and 23,622 Series A-1 Preferred Shares ("Series A-1 Shares" and together with Series A Shares – "the
Preferred Shares") to Oak for a price of US$20.0 million in cash representing approximately 7.401% of the outstanding share
capital of AU10TIX and 7.143% of the fully-diluted share capital of AU10TIX. For accounting purposes, the investment was allocated
to the Series A and Series A-1 Preferred Shares on a relative fair value basis: $19.5 million and $0.5 million, respectively. Transaction
costs totaled $1.5 million and were deducted from the respective investment amounts.
Following the Oak investment, on November 7, 2019, TPG subscribed
for 307,087 Series A-1 Shares at nominal value (US$0.001 per share) (“Bonus Issue Series A-1 Shares”) in order
to preserve its 23.077% ownership interest in the fully diluted share capital of AU10TIX.
On June 28, 2021, Oak purchased 755,906 AU10TIX Series
A Preferred shares from TPG and GF purchased 1,511,811 AU10TIX Series A Preferred Shares from TPG. In connection with such purchases,
all outstanding AU10TIX’s Series A Preferred Shares and Series A-1 Preferred Shares were re-designated as New Series A Preferred
Shares and the Ordinary Shares owned by ICTS were re-designated as Class B Ordinary Shares, as described below.
Following the modification and extinguishment of the Preferred
Shares and the reclassification of the Series A-1 Shares in 2021, the Company adjusted the carrying value of the redeemable non-controlling
interests by $9.1 million, with a corresponding decrease to additional paid-in capital and non-controlling interests in the amounts of
$10.1 million and $1.0 million, respectively. Additionally, the carrying value of the Series A-1 Shares, which were previously presented
among non-controlling interests, were reclassified to redeemable non-controlling interests due to their Exit Rights described below and
initially recognized at their fair value, following their re-designation as New Series A Preferred Shares.
Following the completion of the sales and purchases contemplated
on June 28, 2021: (i) ICTS owns 68.69% of the outstanding share capital of AU10TIX in the form of Class B Ordinary Shares; (ii) Oak
owns 12.87% of the outstanding share capital of AU10TIX in the form of New Series A Preferred Shares; (iii) GF owned 10.93%
of the outstanding share capital of AU10TIX in the form of New Series A Preferred Shares; and (iv) TPG owns 7.51% of the outstanding
share capital of AU10TIX in the form of New Series A Preferred Shares. In addition, AU10TIX may issue up to 500,000 Class A
Ordinary Shares under its existing employee stock option plan, which was increased in February 2023 up to 1,000,000 Class A Ordinary Shares.
The New Series A Preferred
The SHA and the Articles (as amended by the Deed of Amendment)
provide for the following material matters in respect of the rights attaching to the New Series A Preferred Shares and the Ordinary Shares
and the ongoing governance of AU10TIX:
The New Series A Preferred Shares are entitled to one vote per
share and rank equally with the Ordinary Shares in regards to dividends. The Ordinary Shares are divided into two classes: Class A Ordinary
Shares and Class B Ordinary Shares, which rank equally as to dividends. The Class A Ordinary Shares are entitled to one vote per share.
The Class B Ordinary Shares are entitled to three votes per share and may only be held by ICTS and its permitted transferees.
The holders of New Series A Preferred Shares (“Series A Holders”)
are entitled to a liquidation preference upon the occurrence of a certain events (as defined in the SHA), The Ordinary Shares rank equally
in liquidation. The New Series A Preferred Shares are subject to conversion into Class A Ordinary Shares on a 1:1 basis (subject
to adjustments for certain events affecting the capital of AU10TIX) at the option of the New Series A Holder; and immediately prior to
a qualifying IPO of AU10TIX. The Class B Ordinary Shares are convertible into Class A Ordinary Shares at any time upon the written request
of a holder of Class B Ordinary Shares on a 1:1 basis, subject to adjustments for certain events affecting the capital of AU10TIX.
Exit Rights: At any time from and after July 3, 2026, upon written
request by Series A Holders holding at least 60% of the then outstanding New Series A Preferred Shares (the “Preferred Majority”),
AU10TIX is required to use reasonable endeavors to facilitate a sale of AU10TIX within six months after such written request, and, thereafter,
the Preferred Majority has the right to step-in and require AU10TIX to facilitate a sale or IPO. On the exercise of such step-in right,
each other shareholder (including ICTS) is required to cooperate with the Preferred Majority regarding such sale or IPO and the Preferred
Majority has the right to exercise drag rights over the shares held by other shareholders in order to facilitate such exit event. As of
May 1, 2024, ICTS is not aware of any intention of Oak, TPG or GF to exercise their Exit Rights.
Shares of redeemable convertible preferred stock are not mandatorily
or currently redeemable. However, the Exit Right would constitute a contingent redemption event that is outside of AU10TIX’s control.
As such, New Series A Shares have been presented outside of permanent equity as redeemable non-controlling interests.
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 $14.4 million, $12.3 million and $13.6 million during the years
ended December 31, 2024, 2023 and 2022, respectively.
Trend Information
Labor market conditions may require the Company to increase its
prices when possible according to the contracts with customers. Cost of labor is the main variable in determining any cost increases.
The Company might be affected by a worldwide economic slowdown
which might affect the aviation industry. As the Company is a service provider to this industry, such trends can affect the results of
the Company.
Off-Balance Sheet Arrangements
The Company is a party to an agency agreement, so that in the event
that the operations on a specific country on which we operate are sold in the future, the third-party agent is entitled to a payment of
€3.0 million ($3.1 million as of December 31, 2024).
In 2022 the Company has signed an employment agreement with a CEO of a subsidiary
such that starting in 2023, the CEO is entitled to 10% EBIDA (excluding the applicable taxes) of that subsidiary. The employment agreement
was terminated as of March 31, 2025.
The Company has no unconsolidated special purpose entities.
Future Contractual Obligations
The following table summarizes our future contractual obligations
as of December 31, 2024:
|
Contractual Obligations |
|
Payments due by Period (U.S. Dollars in Thousands) |
|
| |
|
Total |
|
|
Less than 1Year |
|
|
1-3 years |
|
|
4-5 years |
|
|
more than 5 years |
|
|
Operating lease obligations |
|
$ |
13,177 |
|
|
$ |
5,549 |
|
|
$ |
5,670 |
|
|
$ |
404 |
|
|
$ |
1,554 |
|
|
Repurchase of shares |
|
|
1,518 |
|
|
|
1,518 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Governmental payments in the Netherlands (VAT, social security, wage tax and interest) |
|
|
20,058 |
|
|
|
7,543 |
|
|
|
12,515 |
|
|
|
- |
|
|
|
- |
|
| |
|
$ |
37,935 |
|
|
$ |
17,791 |
|
|
$ |
18,185 |
|
|
$ |
404 |
|
|
$ |
1,554 |
|
The following table summarizes the Company’s other future
commercial obligations as of December 31, 2024:
|
Contractual Obligations |
|
Payments due by Period (U.S. Dollars in Thousands) |
|
| |
|
Total |
|
|
Less than
1 Year |
|
|
1-3 years |
|
|
4-5 years |
|
|
more than 5 years |
|
|
Guarantees and Letters of credit |
|
$ |
4,675 |
|
|
$ |
- |
|
|
$ |
4,675 |
|
|
$ |
- |
|
|
$ |
- |
|
Item 6.
Directors, Senior Management and Employees
The following table lists the directors and executive officers of ICTS:
| |
Age |
|
Position |
|
Menachem Atzmon |
80 |
|
Chairman of the Supervisory Board |
|
Ron Atzmon |
51 |
|
Member of the Supervisory Board and Active Chairman of AU10TIX |
|
Gil Atzmon |
49 |
|
Member of the Supervisory Board |
|
Gail F. Lieberman |
81 |
|
Member of the Supervisory Board, Chairwoman of the Audit Committee and member of the
Compensation Committee |
|
Frans van Westen |
69 |
|
Member of the Supervisory Board, Member of the Audit Committee and member of the Compensation
Committee |
|
Ilan Nir |
43 |
|
Member of the Supervisory Board, Chairman of the Compensation committee and member
of the Audit committee |
|
Alon Raich |
49 |
|
Managing Director and Chief Financial Officer |
Menachem J. Atzmon is a CPA (Isr). Since 1976 Mr. Atzmon serves
as director and chairman of Spencer Corporation. From 1996 until 2012, Mr. Atzmon has been the managing director of Albermale Investment
Ltd., an investment company. Since 1998 until 2012, he has served as the Chairman of the Management Board of Seehafen Rostock, Umschlagsgesellschaft
GmbH and its Holding Company. Mr. Atzmon has been a member of the Supervisory Board of ICTS since 1999 and since 2004 holds the position
of Chairman of the Supervisory Board. Since 2010, he serves as the Chairman of Arrow Ecology & Engineering Overseas (1999) Ltd, an
advance recycling company. During 2014, Mr. Atzmon was appointed, in addition to his role of Chairman of the Supervisory Board, to CEO
of the Arrow Ecology & Engineering Overseas Ltd. Since 2019 Mr. Atzmon serves as the Chairman of AU10TIX Technologies B.V, a subsidiary
of ICTS.
Ron Atzmon acted as the Managing Director of the AU10TIX Group
since September 2008 until 2018. Since 2022 Mr. Atzmon acts as the chairman of the executive committee of AU10TIX, a subsidiary of ICTS. Mr.
Atzmon was the CEO and founder of 1ST2C.com between April 2005 and January 2009. Mr. Atzmon holds an MA in Business Administration from
the College of Management Academic, Israel and an MBA from the Imperial College London, UK.
Gil Atzmon is the CEO of Arrow Ecology since February 2017. Mr.
Atzmon was a Director of Sales at S. Juwal & Co from 2002 to 2017. Mr. Atzmon holds a BA in Business Administration and Management
from IDC Herzliya, Israel and an MBA from the London Metropolitan University, UK.
Gail F. Lieberman is the founder and Managing Partner of Rudder
Capital, LLC, which provides financial and strategic advisory services for middle-market companies in the services & technology sectors.
Previously, she was the Chief Financial Officer for Thomson Corporation’s Financial & Professional Publishing division, Moody’s
Investor Service, Inc. and Scali, McCabe, Sloves, Inc. (Ogilvy Group). Ms. Lieberman is a director of Thesys Group, a private financial
technology company and a board member and Chairman of the Audit & Finance Committee of WL Gore & associates. Formerly Mrs. Lieberman
was a board member and lead director of Equilend, a financial technology company, where she chairs the nominating, governance and compensation
committee. Formerly Mrs. Lieberman served as board member for the South-Central Connecticut Regional Water Authority, board member,
Compensation Committee Chair and Audit Committee Member for Dara Biosciences (NASDAQ: DARA), board member and Audit Committee Chair for
I-Trax Inc. (Amex: DMX), board member and Audit and Governance Committee Member for TriPath Imaging Inc. (NASDAQ: TPTH) and board member
and Audit Committee Chair for Breeze-Eastern Corporation (Amex: BZC). She also served on the board of FTEN, a financial technology company.
Ms. Lieberman holds a BA in Mathematics and Physics and an MBA in Finance from Temple University.
Frans van Westen is the founder of WestFinance B.V., which provides
financial advisory and interim management services to a broad range of companies. In this capacity, Mr. Van Westen has, amongst others,
served as interim director at NPO, the Dutch public broadcaster, and as court-appointed interim managing director at Greenchoice, a Dutch
energy company that supplies only green energy. In addition, Mr. Van Westen is currently the chairman of the supervisory board of Mediahuis
Nederland B.V., one of the largest Dutch media companies, and the managing director of Stichting Administratiekantoor Amsterdam Safe.
Mr. Van Westen holds a master in general economics from the Rijksuniversiteit Groningen.
Ilan Nir is the COO of Veloretti B.V., a Dutch based D2C bicycle company that is part
of one of the leading family-owned multinationals companies in the Netherlands (Pon Holdings). Mr. Nir has been with Pon Holdings since
2012 where he led strategic projects and was deeply involved in the M&A practice. Mr. Nir has had leadership roles at different operating
companies of Pon Holdings across the Netherlands, USA and Germany. From 2011 to 2012 Mr. Nir worked at PWC in the M&A tax practice.
From 2009 to 2010, Mr. Nir worked as a tax lawyer at Loyens & Loeff N.V. in the international tax practice. Mr. Nir holds a Master
of Tax Laws (LL.M.), specializing in International & European Tax Law.
Alon Raich is a CPA (Isr). From 2001 to 2002, Mr. Raich worked
at the accounting firms Kesselman & Kesselman and PriceWaterhouseCoopers (PWC). Mr. Raich joined ICTS in September 2005 as Financial
Controller and became Chief Financial Officer (CFO) of ICTS in 2008. Since February 2020, Mr. Raich is a Managing Director and CFO of
the Company. Mr. Raich holds a BA degree in economics and accounting and a MA degree in law from Bar Ilan University, Israel.
Summary Compensation Table
The following table sets forth the yearly executive’s highest compensation expenses
as recorded by the Company during the years 2022 through 2024 (U.S. Dollars in thousands):
|
Principal Position |
|
Year |
|
|
Salary and Bonus |
|
|
Sales Commission |
|
|
All Other
Compensations |
|
|
Non-equity
Incentive
Plan
Compensation |
|
|
Non qualified
Deferred
Compensation
Earnings |
|
|
Number
of
Option
Award (1) |
|
|
Number
of
Stock
Awards |
|
|
Total |
|
| |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|
$ |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managing Director and CFO |
|
|
2024 |
|
|
|
914 |
|
|
|
- |
|
|
|
67 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
981 |
|
|
CEO of a subsidiary |
|
|
2023 |
|
|
|
1,513 |
|
|
|
- |
|
|
|
106 |
|
|
|
- |
|
|
|
- |
|
|
|
420 |
|
|
|
- |
|
|
|
1,619 |
|
|
Chairman of the executive committee of a subsidiary |
|
|
2022 |
|
|
|
450 |
|
|
|
750 |
|
|
|
129 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
-
|
|
|
|
1,329 |
|
(1) Options granted relate to options of a subsidiary.
Each member of the Supervisory Board who is not an employee of
the Company received during 2024 an annual fee of $40 thousand and a fee for each Supervisory Board or committee meeting attended of $2
thousand. The Chairman of the Audit Committee received an additional $20 thousand per year. The Chairman of the Board received an annual
fix fee of $60 thousand. A Managing Director is employed by the Company and the total expenses regarding his employment for the year ended
December 31, 2024 was $1.0 million.
The following table sets forth information concerning the aggregate
compensation paid or accrued on behalf of all of our directors, executive officers, subsidiaries CEOs and Chairmen as a group for the
year ended December 31, 2024:
| |
|
Salaries, Board fees,
commissions
and bonuses |
|
|
Pension, retirement
and other
similar benefits |
|
| |
|
(in thousands) |
|
|
Supervisory Directors as a group (9 persons) |
|
$ |
445 |
|
|
$ |
- |
|
|
Officers as a group (6 persons) |
|
$ |
3,545 |
|
|
$ |
407 |
|
Background and Compensation Philosophy
Our Compensation Committee consists of Ilan Nir, Chairman, Gail F. Lieberman, and Frans
van Westen, all of whom are independent.
The Compensation Committee is to assist and undertake preparatory
work for the Supervisory Board in its decision-making in relation the compensation to be paid to members of the Management Board and (other)
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, 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 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 provides an independent evaluation
of appropriate compensation of key employees, with input from management.
ICTS’ 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 usually 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.
The Compensation Committee has an Operating Charter, most recently
reviewed and updated in February 2024.
Elements of Compensation
We provide our executive officers with a base salary and certain bonuses and commissions
as well as equity awards in some cases to compensate them for services rendered during the year. The Compensation Committee determines
and recommends the composition and amount of director’s and key employee’s compensation. When the annual award consists
of equity purchases, it is only permitted at a price equal to or above market.
Board Practices
ICTS has a two-tier board system, inclusive of a Supervisory Board
and a Management Board. The Supervisory Board has the primary responsibility of supervising the policies of the Management Board and the
general course of corporate affairs of ICTS and the business connected with it as well as to provide the Management Board with advice.
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 general meeting for a term of one year.
Non-executive officers are appointed by and serve at the satisfaction
of the Management Board.
The members of the Supervisory Board as of December 31, 2024 and
the initial year they joined the Supervisory Board are as follows: Menachem Atzmon (1999), Ron Atzmon (2018), Gil Atzmon (2018), Gail
F. Lieberman (2010), Ilan Nir (2023) and Frans van Westen (2024).
The Audit Committee consists of Gail F. Lieberman, Chairwoman, Ilan Nir and Frans van
Westen, all of whom are independent. Ms. Lieberman and Mr. van Westen have financial expertise. The Audit Committee provides assistance
and undertakes preparatory work for the Supervisory Board in its decision-making regarding the supervision of ICTS’ accounting and
financial reporting processes and audits of the financial statements. In doing so the Audit Committee evaluates ICTS's accounting policies
and practices and financial reporting and internal control structures, selection of independent auditors to audit ICTS’ financial
statements and confers with the auditors and the officers. The Audit Committee has an Operating Charter, most recently reviewed and updated
in February 2024.
ICTS does not have a Nominating Committee.
The members of the Audit Committee and Compensation Committee are
all independent and were never officers or employees of the Company.
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
determines the exact number of members of both the Management Board and the Supervisory Board.
Employees
As of December 31, 2024, the Company has 9,583 employees, of which
7,166 employees are located in Europe, Far East and Israel and 2,417 are located in the United States of America.
Share Ownership
See tables under Item 7: “Major Shareholders” and “Related
Party Transactions” below.
Options to Purchase Securities
AU10TIX Technologies B.V, has a Stock Option Plan which reserved 1,000,000 shares
of its common stock for its future issuance. The Plan grants rights to subscribe for up to 1,000,000 class A ordinary shares
(“Ordinary Share”) in the capital of AU10TIX Technologies B.V. to employees, directors, consultants and service providers
of AU10TIX Technologies B.V. and / or any related entity (as defined in the plan) at an exercise price as determined by the subsidiary’s
board of directors with expiration terms of not more than ten years after the date such option is granted. Options granted under the plan
generally vest over a period of four years.
As of December 31, 2024, there are 667,350 options granted and
outstanding of which 191,900 options are fully vested and exercisable. During 2024 241,000 options were exercised into shares of AU10TIX.
The weighted average exercise price is $0.94 and the weighted average remaining contractual term as of December 31, 2024 is 7 years.
Item 10.
Additional Information
Introduction
ICTS International N.V. is a public company with limited liability
(naamloze vennootschap) incorporated under Dutch law on October 9, 1992. ICTS’ statutory seat is in Amstelveen, the Netherlands,
and its registered office address is at Walaardt Sacréstraat 425, 5th floor, 1117 BM Schiphol, the Netherlands. ICTS is registered
with the trade register of the Dutch Chamber of Commerce under number 33279300 (ICTS).
As a Dutch public company with limited liability, ICTS is
subject to certain requirements not generally applicable to corporations organized under the laws of jurisdictions within the United States
of America. Set forth below is a summary of the material provisions of the articles of association of ICTS as lastly amended on December
23, 2024 (the Articles of Association) and Dutch law, where appropriate. This summary does not purport to be complete and is qualified
in its entirety by reference to the Articles of Association. All references in this summary to the Netherlands and Dutch law are to the
European part of the Netherlands and its law, respectively, only.
Corporate Objectives
The objectives of ICTS are described in Article 2 of the Articles
of Association and include, without limitation, to advice and render services regarding the security of persons and goods and to provide
security (or having such security provided) on behalf of companies, government institutions and private individuals; in particular but
not exclusively: the installation, management and supervision of security systems for the purpose of crime and terrorism prevention and
control on and around premises, buildings, installations, vessels and aircraft, and to manage and finance businesses, extend loans and
invest capital.
Share Capital
The shares of ICTS are subject to, and have been created under,
the laws of the Netherlands. ICTS’ share capital is divided into common shares (Shares).
The Shares are in registered form (op naam) and are only available
in the form of an entry in ICTS’ shareholders’ register, without share certificates (aandeelbewijzen) or with share certificates,
if so requested by the relevant shareholder.
In accordance with Dutch law, ICTS’ authorized share capital
sets out the maximum amount and number of Shares that it may issue without amending its Articles of Association. The Articles of Association
provide for an authorized share capital in an amount of EUR 1,500,000 divided into 150,000,000 Shares, each Share with a nominal value
of EUR 0.01. As of December 31, 2024, 37,433,333 Shares were issued and outstanding.
Issue of Shares and Pre-Emptive
Rights
The General Meeting of ICTS (General Meeting) is authorized to
issue Shares or to grant rights to subscribe for Shares and to restrict and/or exclude statutory pre-emptive rights in relation to the
issuance of Shares or the granting of rights to subscribe for Shares. The General Meeting may delegate the authority to issue Shares (or
grant rights to subscribe for Shares) to the supervisory board of ICTS (Supervisory Board) for a specified period not exceeding five years
(which period can be extended from time to time for further periods not exceeding five years) so long as the maximum number of Shares
which may be issued is specified. Shares may not be issued at less than their nominal value and must be fully paid-up upon issue. A resolution
by the General Meeting to issue Shares (or grant rights to subscribe for Shares) or to delegate to the Supervisory Board the authority
as the competent corporate body to issue Shares requires an absolute majority of the votes cast, in a general meeting in which at least
half of the issued share capital of ICTS is represented.
Such resolution was most recently adopted in December 2023 for a period of five years
until December 2028, in which the Supervisory Board was designated by the General Meeting. Designation by resolution of the General Meeting
cannot be withdrawn unless determined otherwise at the time of designation. No resolution is required for the issue of Shares pursuant
to the exercise of a previously granted right to subscribe for Shares.
Under Dutch law and the Articles of Association, each holder of
Shares (Shareholder) has a pre-emptive right in proportion to the aggregate nominal value of their shareholding upon the issue of Shares
(or the granting of rights to subscribe for Shares). Exceptions to this pre-emptive right that follow from Dutch law include the issue
of Shares (or the granting of rights to subscribe for Shares): (i) to employees of ICTS or another member of its Group; (ii) against payment-in-kind
(contribution other than in cash) and (iii) to persons exercising a previously-granted right to subscribe for Shares. The pre-emptive
rights in respect of newly issued Shares or the granting of rights to subscribe for Shares may be restricted or excluded by a resolution
of the General Meeting. The General Meeting may delegate the Supervisory Board as another corporate body competent to resolve upon the
restriction or exclusion of the pre-emptive rights if the Supervisory Board has also been delegated as the competent body to resolve upon
the issue of Shares for a specified period not exceeding five years (which period can be extended from time to time for further periods
not exceeding five years). A resolution of the General Meeting to exclude or restrict pre-emptive rights or to authorize the Supervisory
Board to exclude or restrict pre-emptive rights requires an absolute majority of the votes cast, in a general meeting in which at least
half of the issued share capital of ICTS is present or represented. Such resolution of the General Meeting to exclude or restrict pre-emptive
rights or to authorize the Supervisory Board to exclude or restrict pre-emptive rights requires a majority of at least two thirds of the
votes cast, if less than half of the issued share capital of ICTS is present or represented.
Such resolution was adopted in December 2023 for a period of five years until December
2028, in which the Supervisory Board was designated by the General Meeting. The resolution by which the pre-emptive rights are excluded
or limited needs to be filed with the Netherlands Chamber of Commerce within eight days of such resolution. A resolution designating another
corporate body to resolve upon the restriction or exclusion of the pre-emptive rights cannot be withdrawn unless provided otherwise in
such resolution.
Acquisition of Own Shares
ICTS cannot subscribe for Shares in its own capital at the time
Shares are issued. Subject to the certain provisions of the Articles of Association, ICTS may acquire fully paid-up Shares provided no
consideration is given or provided, (i) ICTS’ net equity less the payment required to pay the acquisition, does not fall below the
sum of called-up and paid-in share capital and any reserves to be maintained by Dutch law and/or the Articles of Association, (ii) the
management board of ICTS (Management Board) has been authorized thereto by the General Meeting and (iii) the nominal value of the Shares
to be acquired and already held in aggregate by ICTS and its subsidiaries does not exceed two-tenths of the issued Shares. Any acquisition
by ICTS of Shares that is not in compliance with the foregoing shall be null and void. Also, any acquisition of Shares that are not fully
paid-up shall be null and void.
The General Meeting’s authorization to the Management Board
to acquire own Shares is valid for a maximum of 18 months. As part of the authorization, the General Meeting must specify the number of
Shares that may be repurchased, the manner in which the Shares may be acquired and the price range within which the Shares may be acquired.
The authorization is not required for the acquisition of Shares for employees of ICTS, under a scheme applicable to such employees.
Shares (or depositary receipt issued for such Shares) held by ICTS
in its own share capital do not carry a right to any distribution. Furthermore, no voting rights may be exercised for any of the Shares
(or depositary receipt issued for such Shares) held by ICTS or its subsidiaries, unless such Shares are subject to the right of usufruct
or to a pledge in favor of a person other than ICTS or its subsidiaries and the voting rights were vested in the pledgee or usufructuary
before ICTS or its subsidiaries acquired such Shares. ICTS or its subsidiaries may not exercise voting rights in respect of Shares for
which ICTS or its subsidiaries have a right of usufruct or a pledge.
Reduction of Share Capital
The General Meeting (at the proposal of the Supervisory Board)
may resolve to reduce the issued share capital by (i) cancellation of Shares or (ii) amending the Articles of Association to reduce the
nominal value of the Shares. In either case, this reduction would be subject to provisions of Dutch law and the Articles of Association.
Only Shares held by ICTS or Shares for which it holds the depositary receipts may be cancelled. Under Dutch law, a resolution of the General
Meeting to reduce the number of Shares must designate the shares to which the resolution applies and must lay down rules for the implementation
of the resolution. A resolution by the General Meeting to reduce the issued share capital of ICTS must be approved by at least a two third
majority of the votes cast, in a meeting in which holders of at least half of ICTS’ issued and outstanding share capital is present
or represented. The resolution to reduce the issued share capital needs to be filed with the Netherlands Chamber of Commerce and an announcement
in a Dutch daily newspaper needs to be published stating that such filings took place (upon which a two-months creditor opposition period
starts).
In December 2024, the Company, by an amendment to its Articles
of Association, reduced the nominal value of its Shares from EUR 0.45 to EUR 0.01. This reduction was recorded by a corresponding reduction
in the issued share capital and an increase to the additional paid-in capital.
During the Company’s 2023 annual general meeting, the General
Meeting authorized the Management Board to, among other things, repurchase the 3,000,000 Shares issued to its directors and certain employees
in 2019 (the 2019 Shares) at a price of EUR 0.45 per share (equal to USD 0.506 per share according to the exchange rate at the time).
As of December 31, 2024 and 2023, the Company recorded a liability of $1,518 for the repurchase of the 2019 Shares in its balance sheet,
with a corresponding reduction to shareholders deficiency.
Under Dutch law, the Company is only allowed to repurchase shares issued by the Company,
to the extent that – on the basis of the Company’s adopted annual accounts – the Company’s equity (less the price
paid for the shares) exceeds the Company’s non-distributable equity, where the non-distributable equity consists of the issued share
capital and the legal reserves required by law and the Articles of Association. This formula is referred to as the ‘equity test’.
The reduction in the nominal value of the Shares from EUR 0.45 to EUR 0.01 provides more room to repurchase the 2019 Shares according
this equity test. The Company will proceed with the repurchase as soon as allowed according the equity test. The repurchase of the 2019
Shares is in line with the recommendations of the investigator in the inquiry proceedings.
Dividends
Pursuant to Dutch law and the Articles of Association, the distribution
of profits will take place following the adoption of ICTS’ annual accounts by the General Meeting, from which ICTS will determine
whether such distribution is permitted. ICTS may make distributions to the Shareholders, whether from profits or from its freely distributable
reserves, only insofar as ICTS’ net equity exceeds the sum of the paid-up and called-up share capital plus the reserves required
to be maintained by Dutch law or pursuant to the Articles of Association.
Subject to Dutch law and the Articles of Association, the Supervisory
Board may determine which part of ICTS’ profits as per its annual accounts for the relevant financial year will be added to the
reserves. The remaining part of the profits will be at the disposal of the General Meeting.
Subject to Dutch law and the Articles of Association, the Management
Board, with the prior approval of the Supervisory Board, may resolve to distribute an interim dividend if it determines such interim dividend
to be justified by ICTS’ profits. For this purpose, the Management Board must prepare an interim statement of assets and liabilities.
Such interim statement shall show the financial position of ICTS not earlier than on the first day of the third month before the month
in which the resolution to make the interim distribution is announced and all Management Board members need to sign the interim statement
of assets and liabilities and if one of them does not so sign, the reason for this omission must be stated. An interim dividend can only
be paid if (a) an interim statement of assets and liabilities is drawn up showing that the funds available for distribution are sufficient,
and (b) ICTS’ net equity exceeds the sum of the paid-up and called-up share capital plus the reserves required to be maintained
by Dutch law or pursuant to the Articles of Association. The interim statement of assets and liabilities needs to be filed with the Netherlands
Chamber of Commerce within 8 days after the date on which the resolution to make the distribution is adopted.
An entitlement to any dividend distribution shall be barred five years after the date
on which those dividends were released for payment.
General
Meeting of Shareholders
Annual General Meeting
The General Meeting will be held at least once a year and no later
than six months from the end of the preceding financial year of ICTS. The purpose of the annual General Meeting is to discuss, among other
things, the annual report, the adoption of the annual accounts, allocation of profits (including the proposal to distribute dividends),
discharge of the Management Board members from liability for their management and the Supervisory Board members from liability for their
supervision thereon, filling of any vacancies and other proposals brought up for discussion by the Management Board and the Supervisory
Board.
Convocation Notice and
Agenda
A General Meeting can be convened by the Management Board or the
Supervisory Board by a convening notice. Notices convening a general meeting will be mailed to holders of registered shares at least 15
days before the General Meeting and otherwise in other countries as required pursuant to the relevant laws where ICTS’ Shares have
been admitted to trading on a trading facility.
All convocations for the General Meetings and all notifications
to Shareholders shall take place by means of letters sent to the addresses listed in the register of Shareholders. Instead of through
notice letters, any Shareholder that gives his consent, may be sent notice of the meeting by means of a legible and reproducible message
electronically sent to the address stated by him for this purpose to ICTS.
Extraordinary General
Meeting
Other General meetings may be held as often as deemed necessary
by the Management Board and Supervisory Board and must be held if one or more Shareholders or other persons entitled to attend the general
meeting jointly representing at least 10% of ICTS’ issued share capital make a written request to the Management Board or the Supervisory
Board that a meeting must be held and specifying in detail the business to be dealt with at such meeting.
Agenda
Under Dutch law, one or more Shareholders representing
solely or jointly at least 3% of the ICTS’ issued and outstanding share capital are entitled to request the Management
Board to include items on the agenda of the General Meeting, provided that such request is received by ICTS not later than on the
60th day in advance of the meeting.
Chair
The General Meeting is chaired by the chairman of the Supervisory
Board or, in his absence, by the person designated for that purpose by the Supervisory Board from its midst or otherwise. If none of the
Supervisory Directors is present, the meeting itself shall provide for its Chairmanship.
Place General Meeting
General Meetings are held in Amstelveen, the Netherlands
(the place of the statutory seat of ICTS) or in Amsterdam, Rotterdam, or The Hague, the Netherlands. At a General Meeting held elsewhere
than in the previous sentence, valid resolutions may only be adopted if the entire issued share capital of ICTS is represented.
Admission
Each Shareholder and each person to whom the law grants this right
shall be entitled, either in person or by written proxy, to attend the General Meeting, to address the meeting and, if the voting rights
accrue to him, to exercise his voting rights.
The Management Board may resolve that the powers referred to in
the paragraph above may be exercised by means of electronic communication. If a Shareholder and any person with meeting right participates
by means of electronic communication, it is required that the electronic communication allows for identification of the Shareholder and
any person with meeting right, for such person to directly take notice of the proceedings in the meeting and for the casting of votes
(if applicable). Furthermore, it shall be required that the electronic communication allows for the Shareholder and any person with meeting
right to participate in discussions in the meeting.
In deviation from the first paragraph under this section ‘admission’,
the Management Board may determine that such persons shall be deemed to have the right to vote and the right to attend the General Meeting
as at a time to be determined by the Management Board are registered as Shareholders in one or more registers designated by the Management
Board, regardless of who is entitled to the relevant Shares at the time of the General Meeting. The notice convening the meeting must
state the registration date and also indicate the manner in which registration may take place and the manner in which Shareholders may
exercise their rights. The Management Board determines the manner in which Shareholders may have themselves registered and the manner
in which they may exercise their rights. The registration date shall be determined with due observance of applicable statutory provisions.
Admission to the General Meeting shall be granted to the Supervisory
Board members, the Management Board members and all other persons entitled to admission by law. The General Meeting may grant access to
the meeting to persons other than those referred to above. Management board members and Supervisory Board members shall as such have an
advisory vote in the General Meeting.
Voting Rights
Each Share entitles the holder to cast one vote. Resolutions of
the General Meeting are adopted by an absolute majority of the votes cast in a meeting where at least half of the issued share capital
of ICTS is represented, unless Dutch law or the Articles of Association prescribe a larger majority. Resolutions of the General Meeting
to amend the Articles of Association, to reduce the issued share capital, to dissolve ICTS or to merge shall be passed by a majority of
at least two-thirds of the votes cast representing at least half of the issued share capital.
Blank votes and invalid votes shall be considered votes not cast.
They shall count towards the determination of a quorum. Under Dutch law, no votes may be cast at a General Meeting in respect of Shares
which are held by ICTS itself.
Management Structure
ICTS has a two-tier board structure comprising of the Management
Board (bestuur) and the Supervisory Board (raad van commissarissen).
The Management Board is collectively responsible for ICTS’
general affairs and is in charge of the day-to-day management, formulating strategies and policies, and setting and achieving ICTS’
objectives. The Supervisory Board supervises the Management Board and the general affairs of ICTS and the business connected with it and
provides the Management Board with advice.
Management
Board
Powers, Responsibilities
and Function
The Management Board is the executive body of ICTS, collectively
responsible for, among other things, defining and attaining ICTS’ objectives, determining ICTS’ strategy and risk management
policy, the day-to-day management, the ICTS’ general affairs and ICTS’ representation, subject to the supervision of the Supervisory
Board. The Management Board may perform all acts necessary or useful for achieving ICTS’ objectives, with the exception of those
acts that are prohibited by law or by the Articles of Association. The Management Board may allocate its responsibilities and powers to
its individual members. All Management Board members remain collectively responsible for proper management regardless of the allocation
of tasks. In performing their duties, the Management Board members must carefully consider and shall act in accordance with the interests
of ICTS and the business connected with it, taking into consideration the interests of all corporate stakeholders, such as Shareholders,
creditors, employees, customers, patient populations and suppliers.
Subject to certain exceptions following from Dutch law, the Management
Board as a whole is authorized to represent ICTS. In addition, should the Management Board be comprised of two or more members, two Management
Board members acting jointly are also authorized to represent ICTS.
Composition, Appointment,
Term of Appointment and Dismissal
The Articles of Association provide that the Management Board shall
consist of one or more members and that the General Meeting determines the exact number of Management Board members.
The General Meeting appoints the Management Board members. Management
Board members are appointed by the General meeting for a term of office which shall lapse immediately after the close of the annual meeting
held in the year after their appointment. Management Board members may be reappointed in that annual meeting with due observance of the
term of office.
The General Meeting and the Supervisory Board may suspend Management
Board members at any time, and the General Meeting may dismiss Management Board members at any time. A General Meeting must be held within
three months after a suspension of a Management Board member has taken effect, in which meeting a resolution must be adopted to either
terminate or extend the suspension. Provided if such suspension is not terminated, the suspension does not last longer than three months
in aggregate. The suspended Management Board member must be given the opportunity to account for his or her actions at that meeting. If
neither such resolution is adopted nor the General Meeting has resolved to dismiss the Management Board member, the suspension will cease
after the period of suspension has expired.
In the event of a vacant seat or upon inability to act of one or
more Management Board members, the remaining Management Board members or the only remaining Management Board member shall temporarily
be in charge with the exercise of the duties and powers of the Management Board member(s) in question. In the event all seats are vacant
or upon inability to act of all Management Board members, or the sole Management Board member, as the case may be, the Supervisory Board
shall have the authority to temporarily entrust the exercise of the duties and powers of the Management Board members to one or more persons
(either or not from amongst its mid).
Decision-Making
The Management Board decides by majority vote. If there is a tie
in voting, the proposal shall be deemed to have been rejected. The Management Board may also pass resolutions outside of a meeting, provided
they are in writing, all Management Board members have cast their votes and none of them has objected to this manner of decision making.
Conflicts of Interests
A Management Board member shall not participate in deliberations
and the decision-making process in the event of a direct or indirect personal conflict of interest between that Management Board member
and ICTS and the enterprise connected with it. If there is such personal conflict of interest in respect of all, the decision shall be
taken by the Supervisory Board.
Supervisory
Board
Powers, Responsibilities
and Function
The role of the Supervisory Board is to supervise the conduct and
policies of the Management Board and the general affairs of ICTS and the business connected with it as well as to provide the Management
Board with advice. The Supervisory Board members are not authorized to represent ICTS. In performing their duties, the Supervisory Board
members are required to be guided by the interests of ICTS and the business connected with it, and shall consider the interests of the
ICTS’ stakeholders, which include but are not limited to its Shareholders, creditors, employees, customers and suppliers. The Supervisory
Board may, at ICTS’ expense, seek the advice which it deems desirable for the correct performance of its duties. The Supervisory
Board has adopted board regulations governing its tasks and responsibilities, addressing (amongst other items) duties and responsibilities,
its committees, meetings and its relationship with the Management Board and the General Meeting.
Composition, Appointment,
Term of Appointment and Dismissal
The Articles of Association provide that the Supervisory Board
shall consist of one or more members and that the General Meeting determines the exact number of Supervisory Board members. Only individuals
can be appointed as Supervisory Board members.
The members of the Supervisory Board are appointed by the General
Meeting for a term of office which shall lapse immediately after the close of the annual meeting held in the year after their appointment.
Supervisory Board members may be reappointed in that annual meeting with due observance of the term of office.
The General Meeting may suspend and dismiss Supervisory Board members
at any time. A General Meeting must be held within three months after a suspension of a Supervisory Board member has taken effect, in
which meeting a resolution must be adopted to either terminate or extend the suspension, provided that in the case that such suspension
is not terminated, the suspension does not last longer than three months in aggregate. The suspended Supervisory Board member must be
given the opportunity to account for his or her actions at that meeting. If neither such resolution is adopted nor the General Meeting
has resolved to dismiss the Supervisory Board member, the suspension will cease after the period of suspension has expired.
In the event of a vacant seat or upon inability to act of one or
more Supervisory Board members, the remaining Supervisory Board members or the only remaining Supervisory Board member shall temporarily
be in charge with the exercise of the duties and powers of the Supervisory Board member(s)in question. In the event all seats are vacant
or upon inability to act of all Supervisory Board members, or the sole Supervisory Board member, as the case may be, the General Meeting
shall have the authority to temporarily entrust the exercise of the duties and powers of the Supervisory Board members to one or more
persons.
Decision-Making
In a meeting of the Supervisory Board, each Supervisory Board member
is entitled to cast one vote. A Supervisory Board member may grant a written proxy to another Supervisory Board member (if in office)
to represent him at a meeting. All resolutions by the Supervisory Board are adopted by the favorable vote of a majority of the Supervisory
Board members present or represented at the meeting (and in respect of whom no conflict of interest exists). If there is a tie in voting,
the proposal is rejected.
The Supervisory Board may also adopt resolutions outside a meeting,
provided this is done in writing, all Supervisory Board members have cast their votes and none of them has objected to this manner of
decision making.
Conflicts of Interests
A Supervisory Board member shall not participate in the deliberations
and decision-making process in the event of a conflict of interest between that Supervisory Board member and ICTS and the enterprise connected
with it. If there is such a personal conflict of interest in respect of all Supervisory Board members, the preceding sentence does not
apply and the Supervisory Board shall maintain its authority.
Financial Year and Annual
Accounts
The financial year of ICTS coincides with the calendar year. Annually
within five months after the end of the financial year, the Management Board prepares the annual accounts, which can be extend by no more
than five months by the General Meeting on the basis of special circumstances. The annual accounts must be accompanied by the Report of
Independent Registered Public Accounting Firm, an annual report, a report by the Management Board and a report by the Supervisory Board
and certain other information required under Dutch law. All Management Board members and Supervisory Board members sign the annual accounts
and if one of them does not so sign, the reason for this omission must be stated. The Management Board must make the annual accounts,
the annual report and other information required under Dutch law available for inspection by the Shareholders and other persons entitled
to attend and address the General Meeting at the offices of ICTS from the day of the notice convening the annual General Meeting. The
annual accounts must be adopted by the General Meeting at the annual General Meeting.
With due observance of Article 19 paragraph 4 of the Articles of
Association, adoption of the annual accounts by the General Meeting without any caveats constitutes discharge for the Management Board
members and the Supervisory Board members from liability for the performance of their respective duties for the past financial year.
In order to discharge the Management Board members and Supervisory
Board members from liability a separate resolution thereto needs to be adopted by the General Meeting (which resolution can be adopted
by separate resolution in the same meeting in which the annual accounts will be adopted).
Under Dutch law, this discharge is not absolute and will not be
effective with respect to matters which are not disclosed to the Shareholders.
Amendment of Articles
of Association
Only the General Meeting may resolve to amend the Articles of Association.
A proposal to amend the Articles of Association must be included in the notice convening the General Meeting. A copy of the proposal containing
the verbatim text of the proposed amendment must be available at ICTS for inspection by every Shareholder of ICTS and every holder of
meeting right until the end of the General Meeting.
A resolution by the General Meeting to amend the Articles of Association
must be approved by at least a two third majority of the votes cast, in a meeting in which holders of more than half of ICTS’ issued
and outstanding share capital is present or represented.
Dissolution and Liquidation
A proposal to dissolve ICTS must be included in the notice convening
the General Meeting. A resolution by the General Meeting to dissolve ICTS must be approved by at least a two third majority of the votes
cast, representing at least half of ICTS’ issued and outstanding share capital.
If the General Meeting has resolved to dissolve ICTS, the Management
Board members will be charged with the liquidation of the business of ICTS in accordance with Dutch law and the Articles of Association
under supervision of the Supervisory Board. During liquidation, the provisions of the Articles of Association will remain in force as
far as possible.
Any surplus remaining after settlement of all debts and liquidation
costs will be distributed to the Shareholders in proportion to the amounts contributed on each Share held by them.
Material contracts
For material contracts See “Item 8 - Financial Information”.
Exchange controls
There are no governmental laws, decrees or regulations in The Netherlands,
ICTS’ jurisdiction of organization that restrict ICTS’ export or import of capital in any material respect, including, but
not limited to, foreign exchange controls.
There are no limitations imposed by Dutch corporate law or ICTS’
charter documents on the right of non-resident or foreign owners to hold or vote Shares.
Taxation
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.
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, U.S. holders 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 of America, (ii)
a corporation or other entity created or organized in or under the laws of the United States or any political subdivision thereof, (iii)
a trust if a court within the United States of America is able to exercise primary supervision over the administration of the trust and
one or more United States persons have the authority to control all substantial decisions of the trust, or (iv) an estate, 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 Department 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,
if any, (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 in the case of a U.S. Holder that is a corporation, note that such dividend income generally will not be eligible
for a dividends received deduction unless the Company constitutes a so-called “specified 10%-owned foreign corporation” with
respect to such a U.S. Holder.
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 20 percent in the hands of a non-corporate U.S. Holder) plus potentially
a net investment income tax (for non-corporate U.S. Holders) at a maximum rate of 3.8%.
Distributions in excess of the earnings and profits of the Company
will be treated, for U.S. federal income tax purposes, first as non-taxable to the extent of the U.S. Holder's basis in the shares (resulting
in a corresponding reduction in such U.S. Holder’s basis, 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 Euros generally will be determined based on the U.S. dollar value of the Euro on the date of receipt regardless
of whether the U.S. Holder converts the payment into U.S. dollars.
The declaration of dividends will be at the discretion of the Company’s
Supervisory 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 Holders 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 tax treaty between the United States of America and the Netherlands will be allowed
a credit for only the amount of withholding tax provided for under the U.S. Tax Treaty (generally 15%).
However, the full amount of the dividend, including any withheld
amounts, generally will be subject to current United States federal income taxation whether or not such Holder is entitled to a tax benefit
for the credit of the 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 that 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. Based on historic economics, the portion of Dutch withholding tax that may
not be creditable in this instance should equal 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 would potentially apply
only 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. A U.S. Holder who finds it more
advantageous because of foreign tax credit 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 reduced (but not below zero) by any distribution in excess of the earnings and profits of the Company. For shares held for one
year or less, any such gain or loss will generally be treated as short-term gain or loss. Short-term capital gains are taxed at the same
rate as ordinary income.
If the shares have been held for more than a year, any such gain
or loss will generally be treated as long-term capital gain or loss. U.S. Holders are advised to consult a competent tax adviser regarding
applicable capital gains tax provisions and sourcing of capital gains and losses for foreign tax credit purposes.
Gift and Estate Tax
An individual U.S. Holder may be subject to U.S. gift taxes on
a gift of the shares and a U.S. Holder that is a U.S. estate will need to include the value of the shares in calculating its U.S. estate
tax 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 IRS and to a 24% U.S. backup withholding tax. Backup withholding generally will not apply, however, to a Holder who furnishes
a correct U.S. taxpayer identification number or certificate of foreign status and makes any other required certification or a beneficial
owner 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 any required 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 is 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 assets that produce or are held for the production of passive income. Under a “look-through”
rule, the Company and its corporate subsidiaries will take 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 any “excess distribution” that
the U.S. Holder receives on shares, which will include 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.
With respect to distributions the U.S. Holder receives in a taxable
year, the portion of such distributions 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 relating to excess distributions
received from a PFIC:
|
• |
The excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the shares, |
|
• |
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 |
|
• |
The amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year and an interest charge
generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
The tax liability for the amounts of any “excess distribution”
allocated to years prior to the year of the distribution of disposition cannot be offset by any net operating losses, and gains (but not
losses) realized on the sale of the shares cannot be treated as capital, even if the U.S. Holder holds the shares as capital assets.
If the Company were to become a PFIC, a U.S. Holder may avoid taxation
under the excess distribution rules discussed above by making a “qualified electing fund” election to include the U.S. Holder’s
share of the Company’s income on a current basis. However, a U.S. Holder may make a qualified electing fund election only if the
Company, as a PFIC, furnishes the shareholder annually with certain tax information. Management has not decided whether, or under what
circumstances, the Company would prepare or provide such information. Alternatively, if the Company were to become a PFIC, a U.S. Holder
might, depending on the volume of trading of our stock, make a mark-to-market election to elect out of the excess distribution rules discussed
above.
If a U.S. Holder makes 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 on such date. 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 dispositions
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.
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 satisfy the requirements so as to allow
the making of a mark-to-market election.
Taxes in
the Netherlands
Corporate
income tax
Corporate Income Tax
– General
We are incorporated under the laws of the Netherlands
and are therefore subject to Netherlands corporate income tax. As of 2024, the rates are 19% on profits up to €0.2
million and 25.8%, on the excess.
ICTS and a number of our Netherlands resident subsidiaries
form a fiscal unity for Netherlands corporate income tax purposes. As a result, corporate income tax is levied
from these entities on a consolidated basis at the level of ICTS.
For Netherlands corporate income tax purposes, affiliated
entities should calculate their profits on an “at arm’s length” basis. In case transactions between such affiliated
entities 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 “at arm’s
length” conditions had been agreed.
Pillar Two
The Netherlands have implemented Pillar Two, which establishes
a global minimum tax of 15%, as of 1 January 2024 with the introduction of the Minimum Tax Act 2024. The Dutch legislation is almost entirely
in line with the EU Pillar Two Directive. Entities established in the Netherlands that are part of a (multinational or large domestic)
group will fall within the scope of the new legislation, if that group, in at least two of the four financial years immediately preceding
the financial year, has recorded a turnover of at least €750M per financial year according to the consolidated financial statements
of the ultimate parent entity of the group. Based on the consolidated financial statements of ICTS for 2021, 2022 and 2023, ICTS does
not meet the turnover criterion and therefore should not fall within the scope of the Minimum Tax Act 2024.
Participation Exemption
If the participation exemption is not applicable, income
derived by ICTS from a subsidiary will be taxed at the statutory corporate income tax rates.
Pursuant to the Netherlands participation exemption (“deelnemingsvrijstelling”),
income and capital gains derived from the investment by a parent company in a subsidiary are exempt from corporate
income tax provided that the parent company holds a qualifying participation in the subsidiary, and the subsidiary is not considered
to be a portfolio investment. A qualifying participation exists if the parent company:
(i) owns at least 5 per cent of the nominal paid-up share capital
(or in certain cases at least 5% of the voting power) in the subsidiary, which has a capital divided into shares, or
(ii) holds at least 5% of the units of a fund for joint account,
or
(iii) is a member of a Cooperative, or
(iv) as a limited partner has a share in an open limited partnership
and as such is entitled to at least 5% of the results of the open limited partnership.
As from 2025, category (iv) has been abolished due to changes in
the Dutch corporate income tax act, as a result of which open limited partnerships can no longer exist. New categories of qualifying participations
have been introduced in case of profit participating interests of 5% or more in (a) certain entities that are incorporated according to
foreign law and have a legal form that is not comparable with any Dutch legal form and (b) certain reverse hybrid entities.
A qualifying participation may also exist, subject to conditions,
in case:
(a) the parent company
owns less than 5 per cent of the nominal paid-up share capital, units or share in the subsidiary, whilst
(i) a. the
subsidiary is related (as per the applicable definition in the Dutch Corporate Income Tax Act) to the parent, or
b. an entity related (as per the applicable
definition in the Dutch Corporate Income Tax Act) to the parent has a qualifying participation in the subsidiary, or
(ii) has owned for an uninterrupted period of at
least one year at least 5 per cent of the nominal paid-up share capital, units or share in the subsidiary and three
years have not yet passed after the participating interest of the parent in the subsidiary dropped below 5 per cent.
If the parent company holds its participation in the
subsidiary as a portfolio investment, the participation exemption is not applicable, unless it qualifies as a
“qualifying portfolio investment”. A portfolio investment is a shareholding in a subsidiary that is held
by the parent with the intent of realizing a return on investment that does not exceed the return that can be
expected in the case of normal asset management activities. This is a subjective facts and circumstances test. The specific
purpose for making the investment in the subsidiary must be analyzed on a case-by-case basis taking into account all of
the relevant facts and circumstances.
A parent company would generally not be considered to
hold the participation in the subsidiary company as a portfolio investment, if the business carried on by the
subsidiary company is in line with the business carried on by the parent company. This should normally also apply
to a holding company, which, based on its activities on a managerial, policy-making or financial level, performs
a material function for the benefit of the group of companies that it forms part of, or to an intermediate holding
company in case this company plays a linking role between the business activities of its parent company and the business
activities of its subsidiary companies.
The subsidiary would be deemed to be held as a portfolio investment
by the parent company if (i) the assets of the subsidiary usually consist, on a consolidated basis, for
more than 50 per cent of shareholdings (and similar rights) of less than 5 per cent in other entities or (ii) the subsidiary
company’s activities consist for more than 50% of group financing activities. Group financing includes loans, credit instruments
and also leasing of equipment, intangibles and other assets.
If the parent company would (be deemed to) hold the participation in
the subsidiary as a portfolio investment, such portfolio investment may still qualify for the application of
the participation exemption if (i) the subsidiary is subject to an income/profits tax resulting in an effective tax burden
that is realistic under Netherlands principles, or (ii) the assets of the subsidiary, directly or indirectly, usually consist
for less than 50 per cent of low-taxed free investments.
If the parent company would (be deemed to) hold the participation in
the subsidiary as a portfolio investment, in case (i) the parent company - on its own or together with related group
companies - has an interest of at least 25% in the participation, (ii) the participation is not subject to an income/profits
tax resulting in an effective tax burden that is realistic under Netherlands principles, and (iii) the assets of the participation
consist for 90% or more directly or indirectly of low-taxed free investments, the parent company must (re)value the participation
for tax purposes at fair market value annually.
Apart from special provisions in relation to certain
liquidation losses, capital losses incurred in relation to qualifying participations are not deductible for Netherlands corporate
income tax purposes.
Costs related to the acquisition or the disposal of qualifying
participations are generally not deductible. Other expenses relating to participations (e.g., the cost of financing)
are in principle deductible, subject to possible interest deduction limitations.
The participation exemption does not apply to accrued
payments (of dividend, interest, or other) that are tax-deductible in the country of the debtor, whereas the
corresponding income would normally be exempt under the scope of the participation exemption. This will be the case
e.g. if the country of the debtor qualifies the distribution as an interest expense, whereas the Netherlands
qualifies the income as a dividend.
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 are exempt from corporate income tax in the Netherlands.
Controlled Foreign Company
Regulations
The Netherlands has implemented the Controlled Foreign Company
(“CFC”) regulations provided for in the EU Anti-Tax Avoidance Directive (“ATAD”) into
domestic law. Based on these regulations, subject to conditions, certain types of passive income generated by qualifying
CFC’s that are resident in low-tax jurisdictions (i.e., countries with a statutory profit tax rate lower
than 9% that are included on the Dutch list of low-tax countries or jurisdictions that are included on the EU list of non-cooperative jurisdictions),
are taxable at the level of the parent company against the regular Dutch corporate income tax rates mentioned above.
Interest Deduction Limitations
The Netherlands has implemented the generic interest
stripping rule provided for in the EU Anti-Tax Avoidance Directive (“ATAD”) into domestic law. The earnings
stripping rule limits the possibility to deduct “excess” interest costs (i.e., the balance of interest
costs and interest income) to 20% of a taxpayer’s “corrected profit” (EBITDA). The before-mentioned percentage
has been increased to 24.5% as from tax year 2025. The earnings stripping rule generally provides for a €1.0 million threshold,
which means that the deduction of excess interest costs up to €1.0 million will not be restricted.
Besides the earnings stripping rule, Netherlands tax
law includes other anti-abuse provisions in relation to the deductibility of interest. In addition, interest
deductions may be disallowed based on the abuse of law doctrine (“fraud legis”).
Loss Compensation
According to Netherlands tax law, losses incurred may
be carried back for one year. As of 1 January 2019, the possibility to carry forward losses was limited from
nine years to six years. As from 1 January 2022, losses can be carried forward indefinitely. The yearly utilization
of carry forward losses will be limited to €1.0 million, plus 50% of taxable income above €1.0 million.
The new rules are also applicable to already existing carry forward losses as per 1 January 2022 (i.e., carry
forward losses from 2013 and subsequent years).
Depreciation Limitations
For Netherlands corporate income tax purposes, restrictions
apply to the depreciation of goodwill, real estate and other business assets. The maximum yearly depreciation
charge for acquired goodwill is 10% of its cost price. Depreciation of real estate property is not allowed in case
the book value of the property falls below 100% of the value used for purposes of the Valuation of Immovable Property Act
(“WOZ value”). The maximum yearly depreciation charge for other business assets is 20% of the cost price
of such assets. In certain situations, it should still, however, be possible to value assets at lower going-concern
value.
Netherlands Tax Considerations of Holding
Shares
The following summary outlines certain Netherlands tax consequences
in connection with the acquisition, ownership and disposal of Shares. All references in this summary to the
Netherlands and Dutch law are to the European part of the Netherlands and its law, respectively, only. The summary
does not purport to present any comprehensive or complete picture of all Netherlands tax aspects that could be
of relevance to the acquisition, ownership and disposal of Shares by a (prospective) holder of Shares who may be subject
to special tax treatment under applicable law. The summary is based on the tax laws and practice of the
Netherlands as in effect on the date of this Prospectus, which are subject to changes that could prospectively or retrospectively affect
the Netherlands tax consequences.
For purposes of Netherlands income and corporate income
tax, Shares legally owned by a third party such as a trustee, foundation or similar entity or arrangement (a Third
Party), may under certain circumstances have to be allocated to the (deemed) settlor, grantor or similar originator (the Settlor) or,
upon the death of the Settlor, his/her beneficiaries (the Beneficiaries) in proportion to their entitlement to
the estate of the Settlor of such trust or similar arrangement (the Separated Private Assets).
The summary does not address the tax consequences of
a holder of Shares who is an individual and who has a substantial interest in ICTS. Generally, a holder of Shares
will have a substantial interest in ICTS if such holder of Shares, whether alone or together with his spouse or partner
and/or certain other close relatives, holds directly or indirectly, or as Settlor or Beneficiary of Separated Private
Assets (i) the ownership of, or certain other rights, such as usufruct, over, or rights to acquire (whether or not
already issued), shares representing 5% or more of the total issued and outstanding capital (or the issued
and outstanding capital of any class of shares) of ICTS or (ii) the ownership of, or certain other rights, such as
usufruct over, profit participating certificates (“winstbewijzen”) that relate to 5% or more of the
annual profit of ICTS or to 5% or more of the liquidation proceeds of ICTS.
In addition, a holder of Shares has a substantial interest
in ICTS if he, whether alone or together with his spouse or partner and/or certain other close relatives, has
the ownership of, or other rights over, shares in, or profit certificates issued by, ICTS that represent less than 5%
of the relevant aggregate that either (a) qualified as part of a substantial interest as set forth above and
where shares, profit certificates and/or rights there over have been, or are deemed to have been, partially disposed
of, or (b) have been acquired as part of a transaction that qualified for non-recognition of gain treatment.
This summary does not address the tax consequences of
a holder of Shares who:
(a) receives income or realizes capital gains in connection with
his or her employment activities; or
(b) in his/her capacity as (former) Management Board
member and/or (former) Supervisory Board member; or
(c) is a resident of any non-European part of the Netherlands; or
(d) for whom the Shares form part of a “lucrative
interest” (see further below).
Prospective holders of Shares should consult their own professional
adviser with respect to the tax consequences of any acquisition, ownership or disposal of Shares in their individual
circumstances.
Dividend Withholding Tax
General
ICTS is generally required to withhold dividend withholding
tax imposed by the Netherlands at a rate of 15% on dividends distributed by ICTS in respect of Shares. The expression
“dividends distributed by ICTS” as used herein includes, but is not limited to:
(a) distributions in cash or in kind, deemed and constructive distributions
and repayments of paid-in capital (“gestort kapitaal”) not recognized for Netherlands dividend withholding
tax purposes;
(b) liquidation proceeds, proceeds of redemption of Shares
or, as a rule, consideration for the repurchase of Shares by ICTS in excess of the average paid-in capital recognized
for Netherlands dividend withholding tax purposes;
(c) the par value of Shares issued to a holder
of Shares or an increase of the par value of Shares, to the extent that it does not appear that a contribution,
recognized for Netherlands dividend withholding tax purposes, has been made or will be made; and
(d) partial repayment of paid-in capital, recognized
for Netherlands dividend withholding tax purposes, if and to the extent that there are net profits (“zuivere
winst”), unless (i) the General Meeting has resolved in advance to make such repayment and (ii) the par
value of the Shares concerned has been reduced by an equal amount by way of an amendment of the Articles of Association
of ICTS.
Holders of Shares
Resident in the Netherlands
A holder of Shares who is resident or deemed to be resident
in the Netherlands is generally entitled, subject to the anti-dividend stripping rules described below, to a
full credit against its (corporate) income tax liability, or a full refund, of the Netherlands dividend withholding
tax. As from 1 January 2022, corporate taxpayers can only claim a credit for Netherlands dividend withholding
tax for at maximum the amount of their corporate income tax liability in any given year. Non-credited dividend
withholding tax can be carried forward indefinitely and be credited against the taxpayer’s tax liability
in future years.
Holders of Shares
Resident Outside the Netherlands
A holder of Shares who is resident in a country with
which the Netherlands has a double taxation convention in effect, may, depending on the terms of such double
taxation convention and subject to the anti-dividend stripping rules described below, be eligible for a full or partial
exemption from, or full or partial refund of, Netherlands dividend withholding tax on dividends received.
A holder of Shares that is a legal entity (a) resident
in (i) a Member State of the European Union, (ii) Iceland, Norway or Liechtenstein, or (iii) a country with which
the Netherlands has concluded a tax treaty that includes an article on dividends and (b) that is in its state of residence under
the terms of a double taxation agreement concluded with a third state, not considered to be resident for tax purposes
in a country with which the Netherlands has not concluded a tax treaty that includes an article on dividends
(not being a Member State of the European Union, Iceland, Norway or Liechtenstein), is generally entitled, subject
to the anti-abuse rules and the anti-dividend stripping rules described below, to a full exemption from Netherlands dividend
withholding tax on dividends received if, had the holder of Shares been a Dutch tax resident, the dividends would have been tax exempt
based on the application of the participation exemption, as described above.
The full exemption from Netherlands dividend withholding
tax on dividends received by a holder of Shares that is a legal entity (a) resident in (i) a Member State of
the European Union, (ii) Iceland, Norway or Liechtenstein, or (iii) a country with which the Netherlands has concluded
a tax treaty that includes an article on dividends, is not granted if the interest held by such holder (i)
is held with the avoidance of Netherlands dividend withholding tax of another person as (one of) the main purpose(s)
and (ii) forms part of an artificial structure or series of structures (such as structures which are not put
into place for valid business reasons reflecting economic reality).
Specific (anti-abuse) rules may apply in the case of transparent
entities and/or hybrid entities owning Shares of ICTS.
A holder of Shares that is an entity resident in (i)
a Member State of the European Union, or (ii) Iceland, Norway or Liechtenstein, or (iii) in a jurisdiction which
has an arrangement for the exchange of tax information with the Netherlands (and such holder as described under (iii)
holds the Shares as a portfolio investment, i.e., such holding is not acquired with a view to the establishment
or maintenance of lasting and direct economic links between the holder of Shares and ICTS and does not allow the holder
of Shares to participate effectively in the management or control of ICTS), which is exempt from tax in
its country of residence and does not have a similar function to a qualifying investment institution (“fiscale beleggingsinstelling”)
or a qualifying exempt investment institution (“vrijgestelde beleggingsinstelling”), and that would have
been exempt from Netherlands corporate income tax if it had been a resident of the Netherlands, is generally entitled,
subject to the anti-dividend stripping rules described below, to a full refund of Netherlands dividend withholding
tax on dividends received. This full refund will in general benefit certain foreign pension funds, government
agencies and certain government controlled commercial entities.
A holder of Shares who is an individual is generally subject to
15% dividend withholding tax, regardless of whether or not they are resident in a country with which the Netherlands has concluded
a tax treaty, as the tax treaties concluded by the Netherlands do generally not provide for a reduced withholding tax rate for dividends
paid to individual shareholders.
According to the anti-dividend stripping rules, no exemption, reduction,
credit or refund of Netherlands dividend withholding tax will be granted if the recipient of the dividend paid
by the Company is not considered the beneficial owner (“uiteindelijk gerechtigde”) of the dividend as defined in these
rules. A recipient of a dividend is not considered the beneficial owner of the dividend if, as a consequence of a
combination of transactions, (i) a person (other than the holder of the dividend coupon), directly or indirectly, partly
or wholly benefits from the dividend, (ii) such person directly or indirectly retains or acquires a comparable
interest in Shares, and (iii) such person is entitled to a less favorable exemption, refund or credit of dividend withholding tax
than the recipient of the dividend distribution. The term “combination of transactions” includes among others transactions that
have been entered into in the anonymity of a regulated stock market, the sole acquisition of one or more dividend coupons
and the establishment of short-term rights or enjoyment on Shares (e.g., usufruct).
As per 1 January 2024, the new Conditional Withholding
Tax (CWHT) on dividends entered into force. Based on the CWHT, a withholding tax will be levied on (i) dividend payments to corporate
shareholders resident in low-tax jurisdictions (i.e., countries with a statutory profit tax rate lower than 9% that
are on the Dutch list of low-tax countries), (ii) dividend payments to jurisdictions that are included on the EU list of
non-cooperative jurisdictions and (iii) dividend payments to hybrid entities and artificial structures intended
to avoid Dutch withholding tax on dividends (i.e., abuse situations). The rate of the CWHT on dividends is linked
to the highest rate of the Dutch corporate income tax (currently being 25.8%). The CWHT on dividend payments
exists next to the regular Dividend Withholding Tax (rate: 15%). As a result, these taxes may apply simultaneously on
the same dividend payment under certain circumstances. For these situations, the new CWHT rule provides for an
anti-accumulation scheme that could be applied so that effectively a maximum rate of 25.8% is applied.
Holders of Shares
Resident in the U.S.
Dividends paid to certain non-transparent corporate U.S. resident holders
of Shares owning at least 10% of ICTS’ total voting power that are eligible for benefits under the Convention between
the Netherlands and the United States of America for the avoidance of Double Taxation and the Prevention of Fiscal
Evasion with respect to Taxes and Income, dated 18 December 1992 as amended by the protocol of 8 March 2004 (the
U.S. Tax Treaty), are generally subject to a reduced dividend withholding tax rate of 5%. Certain U.S. pension funds
and tax-exempt organizations may qualify for a complete exemption from Netherlands dividend withholding tax.
Under the U.S. Tax Treaty such benefits are generally
available to U.S. residents if such resident is the beneficial owner of the dividends, provided that such shareholder
does not have an enterprise or an interest in an enterprise that is, in whole or in part, carried on through a permanent establishment
or permanent representative in the Netherlands and to which enterprise or part of an enterprise Shares are attributable.
A person may, however, not claim the benefits of the U.S. Tax Treaty if such person’s entitlement to such benefits
is limited by the provisions of Article 26 (the limitation on benefits provision) of the U.S. Tax Treaty. The reduced
dividend withholding tax rate can generally be applied at source upon the distribution of the dividends, provided
that the proper forms have been filed and / or authorizations have been applied for in advance of the distribution. In
the case of certain tax-exempt organizations, as a general rule the so-called refund method applies. Only when certain administrative conditions have
been fulfilled may such tax-exempt organization use the exemption method.
Irrespective of meeting the conditions of the relevant
provisions of the U.S. Tax Treaty, dividends distributed by the Company to a U.S. resident holder (i) who is
a legal entity resident in the U.S. and (ii) that is in the U.S. under the terms of a double taxation agreement with
a third state not considered to be resident for tax purposes in a country with which the Netherlands has not
concluded a tax treaty that includes an article on dividends (not being a Member State of the European Union,
Iceland, Norway or Liechtenstein), are generally, subject to the anti-abuse rules and the anti-dividend stripping rules described
above, fully exempt from Netherlands dividend withholding tax if, had the holder of Shares been a Dutch tax resident, the
dividends would have been tax exempt based on the application of the participation exemption, as described above.
Specific (anti-abuse) rules may apply in the case of transparent
entities and/or hybrid entities owning Shares of ICTS.
Dividends paid to U.S. resident individual holders of Shares
in ICTS are generally subject to 15% dividend withholding tax. The U.S. Tax Treaty does not provide for a reduced withholding
tax rate for dividends paid to U.S. resident individual shareholders.
Taxes on Income and Capital Gains
Holders of Shares
Resident in the Netherlands: Individuals
A holder of Shares who is an individual resident or deemed
to be resident in the Netherlands will be subject to regular Netherlands income tax on the income derived from Shares
and any gains realized in relation to Shares by the holder thereof, if:
(a) such holder of Shares has an enterprise
or an interest in an enterprise, to which enterprise Shares are attributable; and / or
(b) such income or capital gain forms “a
benefit from miscellaneous activities” (“belastbaar resultaat uit overige werkzaamheden”) which, for
instance, would be the case if the activities with respect to Shares exceed “normal active asset management” (“normaal,
actief vermogensbeheer”) or if income and gains are derived from the holding, whether directly or indirectly,
of (a combination of) shares, debt claims or other rights (together, a “lucratief belang”) that the holder
thereof has acquired under such circumstances that such income and gains are intended to be remuneration for work
or services performed by such holder (or a related person), whether within or outside an employment relation,
where such lucrative interest provides the holder thereof, economically speaking, with certain benefits that have
a relation to the relevant work or services.
If either of the abovementioned conditions (a) or (b)
applies, income derived from Shares and the gains realized upon the acquisition, redemption and/or disposal of
Shares will in general be subject to Netherlands income tax at the progressive rates up to 49.5%.
If the abovementioned conditions (a) and (b) do not apply,
a holder of Shares who is an individual, resident or deemed to be resident in the Netherlands will not be subject to
taxes on actual income and capital gains in the Netherlands. Instead, such individual is generally taxed at a flat
rate of 36% (rate as from 2024) on notional income from “savings and investments” (“sparen en beleggen”), which notional
income is determined on the basis of the amount included in the individual’s “yield basis” (“rendementsgrondslag”)
at the beginning of the calendar year minus a tax-free threshold. The tax-free threshold for 2024 is €57,000
(2025: €57,684). The notional income from portfolio investments (such as investments in Shares) is determined
based on the multiple-years weighted average realized with investments in bonds, shares and real estate. For 2024 and 2025,
the percentage is set at 6.04% and 5.88% respectively. A debate has arisen regarding the above taxation system based on notional
returns. The Supreme Court of the Netherlands has ruled in 2024 that only the actual return can be taxed if it is lower than the notional
return. The Dutch Ministry of Finance is currently reviewing this ruling and will need to determine how actual returns should be calculated
and implemented. Given the mentioned developments, resident individual holders of Shares are recommended to consult their
own tax adviser to determine the potential effect of the above changes in their specific situation.
Holders of Shares
Resident in the Netherlands: Corporate Entities
A holder of Shares that is resident or deemed to be resident
in the Netherlands for corporate income tax purposes, and that is a corporate taxpayer will in general be subject
to regular corporate income tax, against the regular Dutch income tax rates mentioned above over income derived from Shares
and the gains realized upon the acquisition, redemption and/or disposal of Shares, unless, and to the extent that,
the participation exemption applies.
Holders of Shares
Resident Outside the Netherlands: Individuals
A holder of Shares who is an individual, not resident
or deemed to be resident in the Netherlands will not be subject to any Netherlands taxes on income derived from Shares and
the gains realized upon the acquisition, redemption and/or disposal of Shares (other than the dividend withholding
tax described above), unless:
(a) such holder has an enterprise or
an interest in an enterprise that is, in whole or in part, carried on through a permanent establishment (“vaste inrichting”)
or a permanent representative (“vaste vertegenwoordiger”) in the Netherlands and to which enterprise
or part of an enterprise, as the case may be, Shares are attributable; or
(b) such income or capital gain forms a “benefit
from miscellaneous activities in the Netherlands” (“belastbaar resultaat uit overige werkzaamheden in Nederland”)
which would for instance be the case if the activities in the Netherlands with respect to Shares exceed ”normal active
asset management” (“normaal, actief vermogensbeheer”) or if such income and gains are derived from
the holding, whether directly or indirectly, of (a combination of) shares, debt claims or other rights (together,
a ”lucrative interest” (“lucratief belang”)) that the holder thereof has acquired under such
circumstances that such income and gains are intended to be remuneration for work or services performed by such holder
(or a related person), in whole or in part, in the Netherlands, whether within or outside an employment relation, where
such lucrative interest provides the holder thereof, economically speaking, with certain benefits that have a relation to the relevant
work or services.
If either of the above-mentioned conditions (a) or (b)
applies, income or capital gains in respect of dividends distributed by ICTS or in respect of any gains realized
upon the acquisition, redemption and/or disposal of Shares will in general be subject to Netherlands income tax
at the progressive rates up to 49.5%, unless the Netherlands right to tax is limited by a tax treaty.
Holders of Shares
Resident Outside the Netherlands: Legal and Other Entities
A holder of Shares that is considered as a corporate (non-transparent)
non-Dutch resident taxpayer for corporate income tax purposes (generally, legal entities with a legal form comparable to
certain Dutch legal forms, as well as certain entities with a legal form which is not comparable to any Dutch legal form, which are not
resident of the Netherlands), will not be subject to any Netherlands taxes on income derived from Shares and the gains
realized upon the acquisition, redemption and/or disposal of Shares (other than the dividend withholding tax described
above), unless:
(a) such holder has an enterprise
or an interest in an enterprise that is, in whole or in part, carried on through a permanent establishment (“vaste inrichting”) or
a permanent representative (“vaste vertegenwoordiger”) in the Netherlands and to which enterprise
or part of an enterprise, as the case may be, Shares are attributable; or
(b) such holder has a substantial
interest in ICTS, that (i) is held with the avoidance of Netherlands income tax as (one of) the main purpose(s) and
(ii) forms part of an artificial structure or series of structures (such as structures which are not put into
place for valid business reasons reflecting economic reality).
If one of the above-mentioned conditions applies,
income derived from Shares and the gains realized upon the acquisition, redemption and/or disposal of
Shares will, in general, be subject to corporate income tax against the regular Dutch corporate income tax
rates mentioned above, unless, and to the extent that, with respect to a holder as described under (a), the participation exemption
(“deelnemingsvrijstelling”) applies, or the Netherlands right to tax is limited by a tax treaty.
Other withholding taxes
The Netherlands does not levy withholding taxes on interest and
royalties, except in certain abusive situations involving low-tax jurisdictions, similar to the Conditional Withholding Tax on dividends
described above.
Gift, Estate and Inheritance Taxes
Holders of Shares
Resident in the Netherlands
Gift tax may be due in the Netherlands with respect to
an acquisition of Shares by way of a gift by a holder of Shares who is resident or deemed to be resident of the
Netherlands.
Inheritance tax may be due in the Netherlands with respect
to an acquisition or deemed acquisition of Shares by way of an inheritance or bequest on the death of a holder
of Shares who is resident or deemed to be resident of the Netherlands, or by way of a gift within 180 days before
his death by an individual who is resident or deemed to be resident in the Netherlands at the time of his death.
For purposes of Netherlands gift and inheritance tax,
an individual with the Netherlands nationality will be deemed to be resident in the Netherlands if he has been
resident in the Netherlands at any time during the ten years preceding the date of the gift or his death. For purposes
of Netherlands gift tax, an individual not holding the Netherlands nationality will be deemed to be resident of the Netherlands
if he has been resident in the Netherlands at any time during the twelve months preceding the date of the gift.
Holders of Shares
Resident Outside the Netherlands
No gift, estate or inheritance taxes will arise in the
Netherlands with respect to an acquisition of Shares by way of a gift by, or on the death of, a holder of Shares
who is neither resident nor deemed to be resident of the Netherlands, unless, in the case of a gift of Shares by an individual
who at the date of the gift was neither resident nor deemed to be resident in the Netherlands, such individual
dies within 180 days after the date of the gift, while being resident or deemed to be resident in the Netherlands.
Certain Special Situations
For purposes of Netherlands gift, estate and inheritance
tax, (i) a gift by a Third Party (Separate Private Assets) will be construed as a gift by the Settlor, and (ii) upon the
death of the Settlor, as a rule his/her Beneficiaries will be deemed to have inherited directly from the Settlor.
Subsequently, such Beneficiaries will be deemed the settlor, grantor or similar originator of the Separated Private
Assets for purposes of Netherlands gift, estate and inheritance tax in case of subsequent gifts or inheritances.
For the purposes of Netherlands gift and inheritance tax, a gift that
is made under a condition precedent is deemed to have been made at the moment such condition precedent is satisfied.
If the condition precedent is fulfilled after the death of the donor, the gift is deemed to be made upon the death of
the donor.
Value Added Tax
No Netherlands value added tax will arise in respect
of or in connection with the subscription, issue, placement, allotment or delivery of the Shares.
Other Taxes and Duties
No Netherlands registration tax, capital tax, customs
duty, transfer tax, stamp duty or any other similar documentary tax or duty, other than court fees, will be payable
in the Netherlands in respect of or in connection with the subscription, issue, placement, allotment or delivery of the Shares.
Residency
A holder of Shares will not be treated as a resident,
or a deemed resident, of the Netherlands by reason only of the acquisition, or the holding, of Shares or the
performance by ICTS under the Shares.
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 Schiphol-Oost,
The Netherlands. Documents filed with the SEC may also be read and copied at the SEC’s public reference room at 100 F Street N.E.
Room 1580 Washington, DC 20549 USA. For further information please call the SEC at 1-800-SEC-0330. All the SEC filings made electronically
by ICTS are available to the public on the SEC web site at http://www.sec.gov (commission file number 0-28542). Those reports are also
available free of charge at www.ictsintl.com.
Subsidiary Information
Not applicable
