ICTSF 20-F

Icts International N V (ICTSF)

20-F 2022-05-16 For: 2021-12-31

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Table of Contents
Part I

Item 1	Identity of Directors, Senior Management and Advisers	4
Item 2	Offer Statistics and Expected Timetable	4
Item 3	Key Information	4
Item 4	Information on the Company	11
Item 5	Operating and Financial Review and Prospects	21
Item 6	Directors, Senior Management and Employees	35
Item 7	Major Shareholders and Related Party Transactions	39
Item 8	Financial Information	40
Item 9	The Offer and Listing	41
Item 10	Additional Information	42
Item 11	Qualitative Disclosures about Market Risk	57
Item 12	Description of Securities other than Equity Securities	57

Part II

Item 13	Defaults, Dividend Arrearages and Delinquencies	58
Item 14	Material Modifications to the Rights of Security Holders and the Use of Proceeds	58
Item 15	Controls and Procedures	58
Item 16A	Audit Committee Financial Expert	58
Item 16B	Code of Ethics	58
Item 16C	Principal Accountant Fees and Services	58
Item 16D	Exemptions from the Listing Standards for Audit Committees	59
Item 16E	Purchases of Equity Securities by the Issuer and Affiliated Purchasers	59
Item 16F	Change in Registrant’s Certifying Accountant	59
Item 16G	Corporate Governance	59

Part III

Item 17	Financial Statements	60
Item 18	Financial Statements	60
Item 19	Exhibits	60

Exhibits

Exhibit 12.1	Certification
Exhibit 12.2	Certification
Exhibit 13.1	Certification
Exhibit 13.2	Certification

	(U.S. dollars in Thousands)
	December 31,
	2021		2020		2019		2018		2017
Cash and cash equivalents	$	88,753	$	51,602	$	52,352	$	12,801	$	9,073
Total current assets		174,562		116,554		103,136		67,219		61,982
Total assets from discontinued operations		-		-		-		-		306
Total assets		195,880		140,388		123,447		75,087		71,853
Total current liabilities		60,887		59,334		75,509		75,058		59,197
Total liabilities from discontinued operations		-		-		-		-		41
Total liabilities		111,234		95,551		84,832		109,943		98,595
Redeemable non-controlling interests		90,478		75,322		74,300		-		-
Shareholders' deficit	$	5,832	$	30,485	$	35,685	$	34,856	$	26,742

	U.S. Dollars in Thousands Year ended December 31,
	2021			2020			2019			2018			2017

Revenue	$	324,934		$	248,419		$	333,307		$	345,221		$	297,682
Cost of revenue		209,771			196,569			290,461			311,994			254,728
GROSS PROFIT		115,163			51,850			42,846			33,227			42,954
Operating expenses:
Research and development		12,114			6,541			5,060			3,657			2,683
Selling, general and administrative		50,882			37,239			33,063			34,924			26,201
Goodwill impairment		139			-			-			1,563			-
Total operating expenses		63,135			43,780			38,123			40,144			28,884
OPERATING INCOME (LOSS)		52,028			8,070			4,723			(6,917	)		14,070
Equity Income (loss) from investment in affiliate		(983	)		(790	)		91			124			-
Other expenses, net		537			1,288			10,518			3,586			6,172
INCOME (LOSS) BEFORE INCOME TAX EXPENSES		50,508			5,992			(5,704	)		(10,379	)		7,898
Income tax expenses		9,220			590			1,549			685			2,033
INCOME (LOSS) FROM CONTINUING OPERATIONS		41,288			5,402			(7,253	)		(11,064	)		5,865
Loss from discontinued operations		-			-			-			289			95
NET INCOME (LOSS)	$	41,288		$	5,402		$	(7,253	)	$	(11,353	)	$	5,770
Net income (loss) attributable to non-controlling interests		6,481			999			789			(123	)		(50	)
NET INCOME (LOSS) ATTRIBUTABLE TO ICTS INTERNATIONAL N.V.	$	34,807		$	4,403		$	(8,042	)	$	(11,230	)	$	5,820

BASIC NET INCOME (LOSS) ATTRIBUTABLE TO ICTS INTERNATIONAL N.V.PER SHARE
Income (loss) from continuing operations	$	0.66		$	0.12		$	(0.26	)	$	(0.47	)	$	(0.28	)
Loss from discontinued operations		-			-			-			(0.01	)		-
Net income (loss)	$	0.66		$	0.12		$	(0.26	)	$	(0.48	)	$	(0.28	)

Basic weighted average number of shares		37,433,333			35,827,854			30,524,461			23,415,068			21,000,000

DILUTED NET INCOME (LOSS) ATTRIBUTABLE TO ICTS INTERNATIONAL N.V. PER SHARE

Income (loss) from continuing operations	$	0.61		$	0.11		$	(0.26	)	$	(0.47	)	$	(0.28	)
Loss from discontinued operations		-			-			-			(0.01	)		-
Net income (loss)	$	0.61		$	0.11		$	(0.26	)	$	(0.48	)	$	(0.28	)

Diluted weighted average number of shares		40,237,340			38,424,718			30,524,461			23,415,068			21,000,000

Year ended December 31,
2022	$	3.8
2023		3.4
2024		2.8
2025		1.2
2026		0.9
Thereafter		0.9
	$	13.0

	U.S. dollars in Thousands
	Year ended December 31,
	2021			2020			2019

Revenue	$	324,934		$	248,419		$	333,307
Cost of revenue		209,771			196,569			290,461
Gross profit		115,163			51,850			42,846
Operating expenses:
Research and development		12,114			6,541			5,060
Selling, general and administrative		50,882			37,239			33,063
Goodwill impairment		139			-			-
Total operating expenses		63,135			43,780			38,123
OPERATING INCOME		52,028			8,070			4,723
Equity income (loss) from investment in affiliate		(983	)		(790	)		91
Other expenses, net		(537	)		(1,288	)		(10,518	)
INCOME (LOSS) BEFORE INCOME TAX EXPENSES		50,508			5,992			(5,704	)
Income tax expenses		9,220			590			1,549
NET INCOME (LOSS)		41,288			5,402			(7,253	)
Less: Net income attributable to non-controlling interests		6,481			999			789
NET INCOME (LOSS) ATTRIBUTABLE TO ICTS INTERNATIONAL N.V	$	34,807		$	4,403		$	(8,042	)

	U.S. Dollars in thousands
	Corporate			Airport Security and Other Aviation Services			Authentication Technology		Total
Year ended December 31, 2021:
Revenue	$	-		$	253,687		$	71,247	$	324,934
Depreciation and amortization		75			1,106			880		2,061
Net Income (loss)		(1,666	)		21,558			21,396		41,288
Goodwill		-			690			-		690
Total assets		10,349			112,425			73,106		195,880

Year ended December 31, 2020:
Revenue	$	-		$	222,654		$	25,765	$	248,419
Depreciation and amortization		72			1,302			716		2,090
Net Income (loss)		(3,853	)		6,056			3,199		5,402
Goodwill		-			746			-		746
Total assets		12,488			86,550			41,350		140,388

Year ended December 31, 2019:
Revenue	$	-		$	309,548		$	23,759	$	333,307
Depreciation and amortization		46			1,328			314		1,688
Net Income (loss)		(11,740	)		(2,406	)		6,893		(7,253	)
Goodwill		-			681			-		681
Total assets		23,381			64,647			35,419		123,447

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
Consulting agreements	$	1,020	$	170	$	510	$	340	$	-
Convertible notes payable - related party		1,261		-		1,261		-		-
Operating lease obligations		12,962		3,752		7,406		1,490		314
Governmental payments in the Netherlands (VAT, social security and wage tax)		38,011		774		22,804		14,433		-
	$	53,254	$	4,696	$	31,981	$	16,263	$	314

	Age	Position
Menachem Atzmon	77	Chairman of the Supervisory Board
Ron Atzmon	48	Member of the Supervisory Board and Managing Director of AU10TIX
Gil Atzmon	46	Member of the Supervisory Board
Philip M. Getter	85	Member of the Supervisory Board, Chairman of the Audit Committee
David W. Sass	86	Member of the Supervisory Board
Gail F. Lieberman	78	Member of the Supervisory Board, Member of the Audit Committee and Chairman of the Compensation Committee
Gordon Hausmann	76	Member of the Supervisory Board, Member of the Audit Committee and member of the Compensation Committee Committee and Member of the Audit Committee
Alon Raich	46	Joint Managing Director and Chief Financial Officer
Rom Shaked	39	Joint Managing Director

Principal Position	Year	Salary		Sales Commission		All Other Compensations		Non-equity Incentive Plan Compensation		Nonqualified Deferred Compensation Earnings		Number of Option Award		Number of Stock Awards		Total
		$		$		$		$		$						$
Managing	2021		204		1,397		109		-		-		-		-		1,700
Director of a	2020		192		459		90		-		-		-		-		741
Subsidiary	2019		185		529		87		-		-		-		-		801

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

Supervisory Directors as a group (7 persons)	$	304	$	-
Officers as a group (6 persons)	$	2,671	$	332

	Percent of
	Amount Beneficially			Common shares
Name Shareholders Holding Five Percent or More	Owned (a)			Outstanding (a)

MacPherson Trust and its Ultimate Beneficial Owners (b)		62.6	%		23,418,861
Menachem J. Atzmon		13.0	%		4,850,000
Igal Tabori		5.3	%		2,002,483
All officers and directors as a group (9 persons), the MacPherson Trust and its Ultimate Beneficial Owners		84.1	%		31,480,721

Year	High		Low
2017	$	1.30	$	0.45
2018	$	1.09	$	0.40
2019	$	3.00	$	0.15
2020	$	4.09	$	1.34
2021	$	10.00	$	4.00

2021	High		Low
First quarter	$	6.00	$	4.00
Second quarter	$	10.00	$	5.00
Third quarter	$	10.00	$	6.00
Fourth quarter	$	9.10	$	6.25

	2021		2020
Audit fees	$	268	$	257
Audit related fees		-		-
Tax fees		-		-
Total fees	$	268	$	257

1.	Articles of Association of the Company filed as Exhibit to Form 20-F for the year ended December 31, 1999. *
2.	Articles of Amendment of the Articles of Association filed as Exhibit to Form 6K dated April 22, 2009.*
3.	Articles of Amendment of the Articles of Association filed as exhibit to Form 20-F for the year ended December 31, 2012. *
4.	Articles of Amendment of the Articles of Association filed as exhibit to Form 20-F for the year ended December 31, 2020.*
5.	Specimen of the Company’s Common Stock filed as Exhibit to Form 20-F for the year ended December 31, 1999.*
6.	Revised Code of Ethics for Principal Executive Officers and Senior Financial Officers. Filed as Exhibit to Form 20-F December 13, 2020.*
7.	MHM letter to the Securities and Exchange Commission filed as exhibit (d) to the Form 6-K dated April 29, 2022.
12.1	Certification by the registrant’s Managing Director and Principal Executive Officer pursuant to Rule13a-14(a)
12.2	Certification by the registrant’s Chief Financial Officer pursuant to Rule 13a-14(a)
13.1	Certification by the Registrant’s Managing Director and Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes- Oxley Act of 2002.
13.2	Certification by the Registrant’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

	(U.S. dollars in Thousands)
	Year ended December 31,
	2021		2020		2019
Germany	$	126,367	$	119,500	$	137,207
Netherlands		52,165		58,446		97,700
United States of America		94,743		45,305		73,719
Spain		30,946		7,465		3,138
Other		20,713		17,703		21,543
Total Revenue	$	324,934	$	248,419	$	333,307

By:	/s/ Rom Shaked
Name:	Rom Shaked
Title:	Managing Director
Date:	May 16, 2022

By:	/s/ Alon Raich
Name:	Alon Raich
Title:	Managing Director and Chief Financial Officer
Date:	May 16, 2022

	Page

Consolidated Financial Statements:

Report of Independent Registered Public Accounting Firm (PCAOB ID No. 199)	F-2

Consolidated Balance Sheets as of December 31, 2021 and 2020	F-3

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended December 31, 2021, 2020 and 2019	F-4

Consolidated Statements of Shareholders’ Deficit for the Years Ended December 31, 2021, 2020 and 2019	F-5

Consolidated Statements of Cash Flows for the Years Ended December 31, 2021, 2020 and 2019	F-6

Notes to Consolidated Financial Statements	F-8

Financial Statement Schedule:

Valuation and Qualifying Accounts	F-38

	For the Years Ended December 31,
	2021			2020			2019

Revenue	$	324,934		$	248,419		$	333,307
Cost of revenue		209,771			196,569			290,461
GROSS PROFIT		115,163			51,850			42,846
Operating expenses:
Research and development		12,114			6,541			5,060
Selling, general and administrative		50,882			37,239			33,063
Goodwill impairment		139			-			-
Total operating expenses		63,135			43,780			38,123
OPERATING INCOME		52,028			8,070			4,723
Equity income (loss) from investment in affiliates		(983	)		(790	)		91
Other expenses, net		(537	)		(1,288	)		(10,518	)
INCOME (LOSS) BEFORE INCOME TAX EXPENSES		50,508			5,992			(5,704	)
Income tax expenses		9,220			590			1,549
NET INCOME (LOSS)		41,288			5,402			(7,253	)
Net income attributable to non-controlling interests		6,481			999			789
NET INCOME (LOSS) ATTRIBUTABLE TO ICTS INTERNATIONAL N.V.	$	34,807		$	4,403		$	(8,042	)

BASIC AND DILUTED NET INCOME (LOSS) ATTRIBUTABLE TO ICTS INTERNATIONAL N.V. PER SHARE
Net income (loss) attributable to ICTS International N.V.	$	34,807		$	4,403		$	(8,042	)
Less deemed dividend attributable to redeemable non-controlling interests		10,102			-			-
Net income (loss) available to ICTS International N.V. shareholders		24,705			4,403			(8,042	)

Basic weighted average number of shares		37,433,333			35,827,854			30,524,461

Net income (loss) per share attributable to ICTS International N.V. - basic	$	0.66		$	0.12		$	(0.26	)

Diluted weighted average number of shares		40,237,340			38,424,718			30,524,461

Net income (loss) per share attributable to ICTS International N.V. - diluted	$	0.61		$	0.11			(0.26	)

COMPREHENSIVE INCOME (LOSS)

Net income (loss)	$	41,288		$	5,402		$	(7,253	)
Other Comprehensive Income (loss) - Translation adjustments		(1,861	)		20			79
Unrealized gains on derivative instruments		32			-			-
Comprehensive income (loss)		39,459			5,422			(7,174	)
Comprehensive income attributable to non-controlling interests		6,259			1,106			795
COMREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO ICTS INTERNATIONAL N.V.	$	33,200		$	4,316		$	(7,969	)

	Common Stock				Additional Paid-In			Accumulated			Accumulated Other Comprehensive			Non-Controlling			Total Shareholders'
	Shares		Amount		Capital			Deficit			Loss			Interests			Deficit
BALANCE AT DECEMBER 31, 2018		25,100,000	$	12,896	$	23,457		$	(64,964	)	$	(6,245	)	$	-		$	(34,856	)
Net income (loss)		-		-		-			(8,042	)		-			15			(8,027	)
Issuance of common stock		10,333,333		5,224		1,474			-			-			-			6,698
Sale of AU10TIX Technologies B.V. preferred shares, series A-1, net		-		-		2,041			-			-			(1,614	)		427
Translation adjustment		-		-		-			-			73			-			73

BALANCE AT DECEMBER 31, 2019		35,433,333		18,120		26,972			(73,006	)		(6,172	)		(1,599	)		(35,685	)
Issuance of common stock		2,000,000		1,066		(266	)		-			-			-			800
Net income		-		-		-			4,403			-			74			4,477
Translation adjustment		-		-		-			-			(87	)		10			(77	)

BALANCE AT DECEMBER 31, 2020		37,433,333		19,186		26,706			(68,603	)		(6,259	)		(1,515	)		(30,485	)
Conversion of preferred shares A and A-1 in AU10TIX Technologies B.V. to new series A				-		(10,102	)		-			-			1,045			(9,057	)
Net income		-		-		-			34,807			-			281			35,088
Stock-based compensation – AU10TIX Technologies B.V.		-		-		240			-			-			-			240
Translation adjustment		-		-		-			-			(1,639	)		(11	)		(1,650	)
Unrealized gains on derivatives instruments		-		-		-			-			32			-			32

BALANCE AT DECEMBER 31, 2021		37,433,333	$	19,186	$	16,844		$	(33,796	)	$	(7,866	)	$	(200	)	$	(5,832	)

		Years
Equipment and facilities		3-7
Internal- use software		4-7
Vehicles		3-7

	SEK		U.S. Dollars
Current assets		140		17
Goodwill		1,178		146
Total identifiable assets acquired		1,318		163

Current liabilities		68		13
Total liabilities assumed		68		13

		1,250		150

Other information:
Cash paid for amounts included in the measurement of Lease liabilities:
Operating cash flows from operating leases	$	4,465		$	3,962

Right-of-use assets obtained in exchange for new operating lease liabilities	$	3,164		$	4,941

Weighted-average remaining lease term - operating leases	4.0 years			4.5 years

Weighted-average discount rate - operating leases		5.12	%		4.8	%

Year ending December 31,
2022		3,753
2023		3,365
2024		2,802
2025		1,239
2026		862
Thereafter		941
Total future minimum lease payments		12,962
Less: imputed interest		1,347
Total	$	11,615

	2021			2020
Balance as of the beginning of the year:

Goodwill	$	2,361		$	2,182
Accumulated impairment losses		(1,615	)		(1,501	)
		746			681

Goodwill acquired during the year		146			-
Impairment losses		(139	)		-
Exchange rate effect		(63	)		65
		690			746

Balance as of the end of the year:

Goodwill		2,346			2,361
Accumulated impairment losses		(1,656	)		(1,615	)
	$	690		$	746

	Number of options		Weighted average exercise price		Weighted average remaining contractual term
Options outstanding as of December 31, 2020		200,500	$	0.01
Options granted		-		-
Options exercised		-		-
Forfeited		625		-
Options outstanding , end of the year		199,875	$	0.01	5.5 years

Options exercisable, as of December 31, 2021		199,875	$	0.01	5.5 years

	Corporate			Airport Security and Other Aviation Services			Authentication Technology		Total
Year ended December 31, 2021:
Revenue	$	-		$	253,687		$	71,247	$	324,934
Depreciation and amortization		75			1,106			880		2,061
Net income (loss)		(1,666	)		21,558			21,396		41,288
Goodwill		-			690			-		690
Total assets		10,349			112,425			73,106		195,880

Year ended December 31, 2020:
Revenue	$	-		$	222,654		$	25,765	$	248,419
Depreciation and amortization		72			1,302			716		2,090
Net income (loss)		(3,853	)		6,056			3,199		5,402
Goodwill		-			746			-		746
Total assets		12,488			86,550			41,350		140,388

Year ended December 31, 2019:
Revenue	$	-		$	309,548		$	23,759	$	333,307
Depreciation and amortization		46			1,328			314		1,688
Net income (loss)		(11,740	)		(2,406	)		6,893		(7,253	)
Goodwill		-			681			-		681
Total assets		23,381			64,647			35,419		123,447

	Beginning of year		Charges to Costs and Expenses		Charges to other accounts			Deductions			End of Year

Allowance for doubtful accounts (1):
Year ended December 31, 2019	$	240		261		(83	)		-		$	418
Year ended December 31, 2020	$	418		710		(438	)		-		$	690
Year ended December 31, 2021	$	690		864		(563	)		-		$	991

Allowance for net deferred tax assets:
Year ended December 31, 2019	$	18,478		-		2,568			-		$	21,046
Year ended December 31, 2020	$	21,046		-		-			(3,601	)	$	17,445
Year ended December 31, 2021	$	17,445		-		-			(5,815	)	$	11,630