INTERNATIONAL TOTAL SERVICES INC, S-1, 1997-06-18

INTERNATIONAL TOTAL SERVICES INC
S-1, 1997-06-18

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<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 18, 1997

REGISTRATION NO. 333-
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------

FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------

INTERNATIONAL TOTAL SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)

<TABLE>
<S> <C> <C>
Ohio 4551 34-1264201
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

Crown Centre
5005 Rockside Road
Independence, Ohio 44131
(216) 642-4522
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------
ROBERT A. WEITZEL
International Total Services, Inc.
Crown Centre
5005 Rockside Road
Independence, Ohio 44131
(216) 642-4522
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------
COPIES TO:

<TABLE>
<S> <C>
ALBERT T. ADAMS, ESQ. THOMAS F. MCKEE, ESQ.
Baker & Hostetler LLP Calfee, Halter & Griswold LLP
3200 National City Center 1400 McDonald Investment Center
1900 East Ninth Street 800 Superior Avenue
Cleveland, Ohio 44114 Cleveland, Ohio 44114
(216) 621-0200 (216) 622-8200
</TABLE>

------------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

<TABLE>
<S> <C> <C> <C> <C>
CALCULATION OF REGISTRATION FEE
==========================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------
Common Stock, without par value... 3,248,750 $12.00 $38,985,000 $11,814
==========================================================================================================
</TABLE>

(1) Includes 423,750 shares registered in connection with the over-allotment
option granted to the Underwriters.

(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(a).

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.

================================================================================
<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION, DATED JUNE 18, 1997

2,825,000 SHARES

[ITS LOGO]

INTERNATIONAL TOTAL SERVICES, INC.
COMMON SHARES

Of the 2,825,000 common shares, without par value (the "Common Shares"),
offered hereby, 2,597,727 shares are being offered by International Total
Services, Inc. ("ITS" or the "Company") and 227,273 shares are being offered by
Robert A. Weitzel, the Company's Chief Executive Officer (the "Selling
Shareholder"). See "Principal and Selling Shareholders." The Company will not
receive any proceeds from the sale of shares by the Selling Shareholder.

Prior to the Offering, there has been no public market for the Common
Shares. It is currently anticipated that the initial public offering price per
Common Share will be between $10.00 and $12.00. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company has applied for trading of the Common Shares on the
Nasdaq National Market under the symbol "ITSW."
------------------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON SHARES.

------------------------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
===============================================================================================
PROCEEDS
PRICE UNDERWRITING PROCEEDS TO THE
TO THE DISCOUNTS AND TO THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2)(3) SHAREHOLDER
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.............. $ $ $ $
- -----------------------------------------------------------------------------------------------
Total(3)............... $ $ $ $
===============================================================================================
</TABLE>

(1) The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."

(2) Before deducting expenses, estimated at $ , payable by the Company.

(3) The Company has granted the Underwriters a 30-day option to purchase up to
423,750 additional Common Shares solely to cover over-allotments, if any. If
that option is exercised in full, the Price to the Public, Underwriting
Discounts and Commissions and proceeds to the Company will be $ ,
$ , and $ , respectively.

The Common Shares are offered by the Underwriters subject to receipt and
acceptance of the shares by them. The Underwriters reserve the right to reject
any orders, in whole or in part. It is expected that delivery of the Common
Shares will be made against payment therefor at the offices of McDonald &
Company Securities, Inc. or through the facilities of The Depository Trust
Company, on or about , 1997.

MCDONALD & COMPANY
SECURITIES, INC.

The date of this Prospectus is , 1997.
<PAGE> 3

[Reserved for Photos]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."

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<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and financial
statements, including the notes thereto, appearing elsewhere in this Prospectus.
Except when otherwise indicated, information in this Prospectus assumes a
12,892.62-for-1 share split of the Company's Common Shares effected immediately
prior to the commencement of the Offering, and assumes no exercise of the
Underwriters' over-allotment option. The Company's fiscal year ends on March 31,
and its fiscal years are identified by reference to the calendar year in which
they begin. For example, the fiscal year ended March 31, 1997 is referred to as
"fiscal 1996."

THE COMPANY

ITS is a leading domestic provider of aviation security and other aviation
services. The Company provides predeparture screening services for more than 60
U.S. and international carriers at more than 130 U.S. airports. ITS has used its
predeparture screening business to establish a growing presence in the broader
aviation services market and believes that it offers a wider array of services
than its competitors in this market. Aviation services offered by ITS include
skycap, baggage handling and aircraft cleaning services, and wheelchair and
electric cart operations. The Company's security services extend beyond aviation
security, and include the provision of commercial security services to
government and business clients, hospitals, arenas and museums.

ITS's revenues have grown at a compounded annual rate of 14.2% over the
past five years, driven by growth in both aviation security and other aviation
services as well as growth resulting from acquisitions. The Company has
experienced significant revenue growth in its predeparture screening business,
attributable primarily to the trend toward consolidation in this market and the
Company's historic ability to pass on wage increases to customers. Aviation
services have also accounted for substantial growth, as airlines have outsourced
noncore services and have begun to consolidate their vendor base to a few
leading vendors such as ITS. ITS believes that these consolidation and
outsourcing trends will continue and that it can realize additional revenue
growth by leveraging its established business presence and relationships to
deliver a wide array of services to its clients at a very competitive overall
cost.

ITS's growth strategy is premised on using its experience in recruiting,
training, motivating and managing the large numbers of personnel needed to
perform the labor-intensive, task-repetitive functions that its services
require. The Company believes that it is well-positioned to realize significant
growth for the following reasons:

- Favorable growth prospects exist in the markets for aviation services and
commercial security services.

- The Company enjoys strong market position and administrative support from
its significant aviation and security experience, extensive market
breadth and competitive cost structure.

- Management is able to exploit the Company's aviation and security
experience to capture revenue in related service segments such as general
aviation services and commercial security.

- The economies of scale resulting from the Company's use of its existing
administrative resources support internal growth and acquisitions.

The Company intends to grow internally and through acquisitions. The
Company expects internal growth will be generated by using the Company's
established business base as a platform for expanding the services it provides
at existing airport and commercial security locations and for developing new
service locations. The Company intends to target acquisition candidates that
will add geographic scope to its existing businesses, broaden its service
offerings and expand its client base. ITS made two acquisitions of aviation
security contracts and four acquisitions of commercial security contracts in
fiscal 1996 that have contributed an aggregate of approximately $11.9 million in
annual revenues and have improved profitability. In addition, in April 1997, the
Company acquired service contracts from Intex Aviation Services, Inc. ("Intex").
Intex provided a variety of aviation services, including baggage handling,
lavatory and water services, de-icing services and aircraft cleaning and ground
support services. On a pro forma basis for the year ended December 31, 1996, the
contracts acquired from Intex generated revenues of approximately $32.3 million.
See

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<PAGE> 5

"Pro Forma Financial Data" and "Management's Discussion and Analysis of Results
of Operations and Financial Condition."

The Company's executive offices are located at Crown Centre, 5005 Rockside
Road, Independence, Ohio 44131, and its telephone number is (216) 642-4522.

THE OFFERING

Common Shares offered...... 2,825,000

By the Company(1)........ 2,597,727

By the Selling
Shareholder.............. 227,273

Common Shares outstanding
after the
Offering(1)(2)........... 6,251,636

Use of Proceeds............ The Company intends to use the net proceeds from
the Offering: (i) to pay approximately $14.0
million of outstanding indebtedness, consisting of
(a) approximately $11.0 million outstanding under a
revolving line of credit with the Company's senior
lender, which matures on March 31, 1999 and bears
interest at the prime rate plus 1 1/2% per annum;
and (b) $3 million of subordinated notes, which
mature on November 25, 2001 and bear interest at an
annual rate of 20%; and (ii) for general corporate
purposes, including working capital to support the
Company's growth, and for possible acquisitions.

Proposed Nasdaq National
Market Symbol............ ITSW
- ---------------
(1) Does not include 423,750 Common Shares that may be sold by the Company if
the over-allotment option granted by the Company to the Underwriters is
exercised in full.

(2) Does not include 267,015 Common Shares reserved for issuance under the
Company's Long Term Incentive Plan or the 15,000 Common Shares reserved for
issuance to the Company's Independent Directors upon completion of the
Offering. See "Management -- Long Term Incentive Plan" and "-- Compensation
of Directors."

4
<PAGE> 6

SUMMARY FINANCIAL AND OPERATING DATA
(AMOUNTS IN THOUSANDS, EXCEPT SHARES, PER-SHARE AMOUNTS AND OPERATING DATA)

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------------------------
PRO FORMA,
ACTUAL AS ADJUSTED
1993 1994 1995 1996 1997 1997(1)
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues...................... $ 68,230 $ 78,173 $ 92,654 $ 95,463 $ 115,242 $ 146,837
Cost of revenues.............. 56,180 66,103 79,981 81,341 98,338 123,713
Gross profit.................. 12,050 12,070 12,673 14,122 16,904 23,124
General and administrative
expenses................... 11,916 11,075 12,655 11,603 13,334 16,533
Operating income.............. 134 995 18 2,519 3,570 6,591
Interest expense (income)
net........................ 22 34 188 523 637 (121)
Income (loss) before income
taxes...................... 112 961 (170) 1,996 2,933 6,712
Income taxes(2)............... 109 1,035 548 958 1,237 2,819
Net income (loss)............. $ 3 $ (74) $ (718) $ 1,038 $ 1,696 $ 3,893
Net income (loss) per share... $ 0 $ (0.01) $ (0.12) $ 0.17 $ 0.34 $ 0.51
Weighted average common and
common equivalent shares... 6,446,310 6,446,310 6,376,728 5,877,999 5,014,847 7,612,575

OPERATING DATA (AT PERIOD END):
Number of employees 8,121 9,006 9,863 9,914 10,690 12,690
</TABLE>

<TABLE>
<CAPTION>
AT MARCH 31,
-------------------------------------------------------------------------
PRO FORMA,
ACTUAL AS ADJUSTED
1993 1994 1995 1996 1997 1997(1)
--------- --------- --------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..... $ 1,108 $ 769 $ 1,267 $ 1,873 $ 1,452 $ 14,322
Working capital (deficit)..... $ (2,004) $ (1,351) $ (4,425) $ (2,951) $ 324 $ 15,451
Total assets.................. $ 12,222 $ 14,843 $ 20,295 $ 20,892 $ 27,001 $ 43,105
Short-term bank debt and
current maturities of
long-term obligations...... $ 236 $ 875 $ 5,658 $ 4,806 $ 2,521 $ 0
Long-term obligations, net of
current maturities(3)...... $ 0 $ 0 $ 152 $ 164 $ 7,556 $ 317
Retained earnings............. $ 3,752 $ 3,678 $ 2,961 $ 3,998 $ 2,784 $ 2,784
Shareholders' equity.......... $ 4,347 $ 4,273 $ 3,139 $ 3,978 $ 3,195 $ 28,394
</TABLE>

- ---------------
(1) Pro forma statement of operations and balance sheet data give effect to the
acquisition of Intex as if it had occurred on April 1, 1996, and as of March
31, 1997, respectively. Such data also give effect to the Offering and the
application of the estimated net proceeds therefrom at an assumed initial
public offering price of $11.00 per share (the midpoint of the estimated
initial public offering price range). See "Use of Proceeds" and "Pro Forma
Financial Data."

(2) No provision (benefit) has been provided for the portion of operating income
resulting from the profit (loss) of International Transport Security, Inc.
("Transport"), a corporation under common ownership with the Company, which
had operated as an "S" corporation prior to its dissolution in March 1996.
See Note A to Consolidated Financial Statements explaining the relationship
of Transport with the Company.

(3) Includes amounts due under revolving credit facility, subordinated debt,
capital lease obligations and other long-term debt.

5
<PAGE> 7

RISK FACTORS

In addition to the other information in this Prospectus, prospective
investors should consider carefully the following factors in evaluating an
investment in the Common Shares offered by this Prospectus.

DEPENDENCE ON AVIATION INDUSTRY

The Company's success is largely dependent on continuing demand for the
Company's services to passenger airlines. That demand is driven by domestic air
travel volume and by the travel volume experienced by, and the financial
condition of, the particular air carriers that choose ITS as a service provider.
Although the volume of air travel has grown significantly in the past ten years,
the aviation industry historically has been highly cyclical. Because the
Company's typical billing arrangements are based on the number of hours of
service provided or flights serviced by the Company, a significant industry
downturn or financial difficulties experienced by particular airline clients
could have a material adverse effect on the volume of services provided.
Additionally, the financial condition of particular airline clients can have a
material impact on the prices that they are willing to pay for the Company's
services. Consolidation in the airline industry also could result in the Company
losing contracts. Outsourcing by U.S. airlines of an increasing number of
nonflight services has increased the demand for the Company's services, but
there can be no assurance that this trend will continue or not be reversed. In
addition, the trend by airlines to select a limited number of vendors to provide
all or a large part of their predeparture screening and other services may not
continue and, if it does continue, there can be no assurance that the Company
will continue to provide the same volume of services which it currently
provides. See "Business -- Aviation Services."

DEPENDENCE ON KEY PERSONNEL

The Company's success will depend in part on the continued service of its
key employees, including, among others, Robert A. Weitzel, the Chief Executive
Officer, James O. Singer, President and Chief Operating Officer, Robert A.
Swartz, Vice President and Chief Financial Officer, and Scott E. Brewer, Vice
President and General Counsel. The loss of one or more of the Company's key
employees could have a material adverse effect on the Company. As the Company
continues to grow, it will need to recruit and retain additional qualified
management personnel, and there can be no assurance that the Company will be
able to do so. See "Management."

RISKS ASSOCIATED WITH MANAGING A GROWING BUSINESS

ITS has rapidly expanded its operations in the past several years. This
growth has placed demands on its management, administrative, operating and
financial resources. The Company's planned continued growth may place a
significant strain on the Company's resources and the Company's future success
may be dependent on its ability to augment its senior management team with
talented people. Several members of the Company's senior management team have
assumed their current positions since the beginning of fiscal 1996. There can be
no assurance that the Company will continue to attract and retain additional
management personnel or implement enhancements to its management systems and
adapt those systems to respond to changes in its business. See
"Business -- Management and Reporting Systems."

RISKS ASSOCIATED WITH ACQUISITION STRATEGY

An important element of the Company's growth strategy is the pursuit of
acquisitions. Acquisitions involve a number of risks, including potentially
adverse short-term effects on the Company's reported operating results,
potentially dilutive issuances of equity securities, the incurrence of debt and
contingent liabilities, diversion of management's attention, dependence on
retention, hiring and training of key personnel, and risks associated with
unanticipated problems or liabilities and amortization of goodwill and an
acquired company's intangible assets, some or all of which could have a material
adverse effect on the Company's business, results of operations and financial
condition. There can be no assurance that the Company will be able to identify,
acquire, integrate or profitably manage acquisitions without substantial costs,
delays or other problems. In addition, there can be no assurance that acquired
businesses will achieve or maintain revenue and

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profitability levels that justify the investment therein. See
"Business -- Growth Strategy -- Growth Through Acquisitions."

POTENTIAL LOSS OF INTEX CONTRACTS

The Company acquired substantially all of the contracts and goodwill of
Intex in April 1997. Prior to the acquisition, Intex lost a number of contracts
to provide cargo and mail services to Delta Airlines. The Company believes that
negative publicity relating to Intex's Atlanta and Cincinnati operations may
have contributed to the loss of these contracts. Since the date of the
acquisition, Intex has lost contracts that generated approximately $1.2 million
in annual revenue. The Intex asset purchase agreement provides for a purchase
price adjustment based upon a multiple of monthly revenues on the acquired
contracts for the period from April 1, 1997 to June 30, 1997. There can be no
assurance that additional contracts held by Intex prior to the acquisition and
assumed by the Company will not be terminated subsequent to the end of the
purchase price adjustment period. The loss of significant additional contracts
related to Intex's business could have a material adverse effect on the
Company's business, results of operations and financial condition. See "Pro
Forma Financial Data" and "Management's Discussion and Analysis of Results of
Operations and Financial Condition."

RELATIONSHIPS WITH CUSTOMERS

ITS derives a significant portion of its revenues from relatively few
clients. In fiscal 1996, Continental Airlines, Inc., United Air Lines, Inc.,
Delta Air Lines, Inc., Southwest Airlines Co., US Airways, Inc. and Trans World
Airlines, Inc. together accounted for approximately 56% of the Company's
revenues. During fiscal 1994, 1995 and 1996, the Company's ten largest clients
accounted for an aggregate of approximately 80%, 71% and 69%, respectively, of
the Company's revenues. The Company's contracts with its clients, consistent
with general industry practice, are generally for one to three year terms but
are terminable by either party on 30 to 90 days' notice. The Company has
provided services to each of its five largest clients during each of the past
five years. While the Company believes that relationships with its customers are
generally satisfactory, it believes that its relationships with certain major
airlines are unsatisfactory. Over the past two fiscal years, the Company has
lost contracts to provide screening services at a number of major airports,
including Los Angeles, San Francisco, Phoenix, Minneapolis, Detroit, Boston and
Ontario, California. The Company continues to provide services at each of these
locations, including, in some cases, screening services. Most of the contracts
lost by the Company were controlled by two airline customers who together
represented approximately 16.7%, 23.7% and 23.2% of the Company's revenues in
1996, 1995 and 1994, respectively. The Company recognizes the need to improve
its relationships with these customers, and is making efforts to accomplish this
objective. These include the addition of a new Chief Operating Officer with
established relationships with several major airlines, and efforts to improve
the quality of local and district management personnel. The quality of
relationships with particular customers varies from time to time as a result of
customer perceptions of the relative quality of the Company's services, the
presence or absence of performance problems and changes in personnel at the
Company and at its major customers. There can be no assurance that one or more
major clients will not terminate, elect to renegotiate or decide not to renew a
Company contract or that the Company will not lose the opportunity to provide
services at one or more client locations. The loss of one or more major clients
or of significant service sites may have a material adverse effect on the
Company. See "Business -- Customers and Contract Terms."

PROBLEMS WITH LOCAL MANAGEMENT SYSTEMS AND CONTROLS

The nature of the Company's operations requires it to maintain local
management systems and controls sufficient to identify and prevent regulatory
violations, theft or other illegal activities by employees and billing
irregularities at its locations. The Company's large, low-wage workforce and
high turnover rates increase the difficulties associated with establishing and
maintaining effective management controls at the local level. The Company has
experienced control-related problems at various locations involving employees'
compliance with regulatory requirements and employee theft. Some of these
incidents have had a material adverse effect on customer relationships and have
led to the termination of client contracts. Because of the nature of the

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<PAGE> 9

Company's business, there can be no assurance that control-related problems will
not arise in the future. See "Business -- Workforce Management."

LIMITED HISTORY OF PROFITABLE OPERATIONS

Although ITS had net income of $1.7 million and $1.0 million for fiscal
1996 and fiscal 1995, respectively, the Company had net losses of $718,000 and
$74,000 for fiscal 1994 and 1993, respectively. There can be no assurance that
the Company's business strategies will be successful or that the Company will be
able to achieve consistent revenue growth or profitability on a quarterly or
annual basis. The Company may experience significant fluctuations in future
operating results as a result of a number of factors, including the costs
associated with future acquisitions, the profitability of acquired operations,
changes in the regulatory environment, and increased competition in the
industries the Company serves.

COMPETITION

The Company believes that its aviation security, other aviation services
and commercial security clients view price as the overriding consideration in
vendor selection and retention. Other important considerations include the
quality of services provided, the geographic availability of services and the
range of services available. The Company competes with outsourcing companies,
specialized contract service providers and its clients' and potential clients'
internal service staffs. While substantial consolidation is occurring in the
predeparture screening market, the markets for other aviation services and
commercial security services remain highly fragmented, with limited barriers to
entry.

Certain of the Company's competitors and potential competitors have
significantly greater financial resources and larger operations than the
Company, and may therefore be better situated to take advantage of expansion
opportunities arising from industry consolidation trends. The Company expects
that the level of competition that it faces will remain high or increase in the
future, and there can be no assurance that the Company will continue to compete
successfully. See "Business -- Competition and Marketing."

DEPENDENCE ON LABOR FORCE

The Company's business is very labor intensive and is characterized by high
rates of personnel turnover, continuous training requirements and periodic
shortages of personnel in some markets. A higher turnover rate among the
Company's employees would increase the Company's recruiting and training costs
and may adversely affect productivity. If the Company were unable to recruit and
retain sufficient personnel, it would be forced to limit its growth or possibly
reduce the scope of its operations. The Company from time to time must increase
its wage rates and employee benefits in order to attract and retain sufficient
qualified employees. Because the Company may not always be able to have its
clients absorb the attendant additional costs, these increases can adversely
affect the Company's financial performance.

FAILURE TO MEET PERFORMANCE REQUIREMENTS

The Company's success will depend on its ability to continue to meet the
performance requirements set by its clients and the government agencies that
regulate them. The Company is subject to random periodic testing by the Federal
Aviation Administration (the "FAA") with regard to adherence to regulations
relating to predeparture screening and passenger profiling, hiring practices
(including background checks, drug testing, training and employee file
maintenance), baggage handling, aircraft security, and document verification.
The services provided by the Company require it to train and manage effectively
low wage workforces with high turnover rates. From time to time, the Company has
failed to meet test standards or a client's service expectations at a particular
location, and, like its competitors, has had contracts terminated because of
customer dissatisfaction with various aspects of its performance. The risk of
contract termination as a result of actual or perceived service failures is
enhanced by the substantial publicity that, because of public concern over
airline security issues, often attends errors in the provision of screening
services. Failure to meet test or other performance standards may result in the
loss of a contract or service location or the Company's license to perform
services, and any such loss could have a material adverse effect on the
Company's reputation,

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<PAGE> 10

business, results of operations and financial condition. See
"Business -- Aviation Services" and "-- Government Regulation."

EMPLOYEE-RELATED COSTS AND CLAIMS EXPOSURE

The Company is required to pay unemployment insurance premiums and workers'
compensation benefits for its employees in the United States. Any increase in
the cost of unemployment insurance or workers' compensation benefits could
adversely affect the Company's profitability. The Company is self-insured for
the first $250,000 of each workers' compensation claim and the first $200,000 of
each liability claim and, accordingly, establishes reserves for future claims
and payments. During fiscal 1996, the Company also implemented a medical
insurance program covering substantially all of its hourly workers. That program
provides medical benefits to eligible employees with minimal employee
contribution. The program provides employees with maximum annual benefits of
$10,000, for which the Company is self-insured and, accordingly, establishes
reserves for future claims and payments. The Company has only recently
established this medical insurance program, and has less experience on which to
base its judgments concerning reserve levels than it does with respect to its
workers' compensation and liability self-insurance programs. There can be no
assurance that the Company's actual workers' compensation, liability or medical
insurance claims will not exceed the amount of the Company's reserves.
Furthermore, there can be no assurance that the Company will be able to pass
along to its clients any increased costs related to unemployment, workers'
compensation and medical claims. See "Business -- Workforce Management."

GOVERNMENT REGULATION

Aviation security matters affecting airports and passenger airlines are
subject to regulation by the FAA and foreign governmental agencies. Demand for
the Company's predeparture screening, passenger profiling and various other
services is significantly affected by applicable regulatory requirements and
security directives issued by governmental authorities. Typically, these
authorities react to terrorist or other criminal activity, or threats of such
activity, in a manner that increases the demand for the Company's aviation
security services. That demand can thereafter diminish as the perceived threat
diminishes. In addition, there can be no assurance that applicable regulations
will not be changed generally in a manner that would affect adversely the demand
for the Company's services. In the Federal Aviation Reauthorization Act of 1996,
Congress directed the FAA, among other things, to develop and implement
certification procedures for providers of predeparture screening services. The
FAA has issued an Advance Notice of Proposed Rulemaking, soliciting comment on a
number of issues relating to the certification of screening companies, but has
not promulgated any proposed rules concerning implementation of the
certification directive. The Company is unable to predict the nature and extent
of any such regulations or their potential impact on its business. Major U.S.
airlines have considered the creation of a nationwide nonprofit security
corporation, funded by the airlines, to handle airport security. Any trend
toward the relaxation of aviation security measures or a shift in responsibility
for aviation security functions could have a material adverse effect on the
Company's business, results of operations or financial condition. In addition,
the Company currently has licenses to operate in several of the major
international airports in Western Europe where licenses are required. The loss
of or failure to obtain a license to operate in one or more airports is likely
to result in the loss of, or the inability to compete for, a major contract. See
"Business -- Government Regulation."

LIABILITIES FOR CLIENT AND EMPLOYEE ACTIONS AND OTHER CLAIMS

Because the Company's employees function in public facilities and in the
workplaces of other businesses, the Company is exposed to possible claims by its
clients' customers and employees of discrimination, harassment, negligence, and
similar claims. The Company is subject to liability for the acts or negligence
of its employees while on assignment that cause personal injury or damages and
to claims of misuse of client proprietary information or theft of client
property. As a provider of security services, the Company faces potential
liability for claims that may arise from any terrorist activity occurring in
circumstances associated with the Company. Although the Company maintains
insurance coverage against such potential liabilities, any such claim against
the Company might exceed the amount of such insurance coverage or fall outside
the type

9
<PAGE> 11

of activities covered by such insurance. Any of these situations could have a
material adverse effect on the Company's business, results of operations or
financial condition. See "Business -- Workforce Management" and "-- Legal
Proceedings."

FLUCTUATIONS IN QUARTERLY OPERATING RESULTS

The Company experiences quarterly variations in revenues and net income as
a result of various factors, including the timing of commencement of new
contracts, changes in its revenue mix, the timing of additional selling, general
and administrative expenses incurred to support new business, the seasonality of
air travel and the effect of acquisitions. The Company's revenues are typically
based on the number of hours of service provided by the Company or the number of
flights serviced. Thus, decreases in air travel generally result in lower
revenues for the Company. While the effects of seasonality on ITS's business
often are obscured by the timing of the addition of new clients and the
performance of new services for existing clients, revenues and net income
typically are at their lowest levels in the first and fourth quarters of the
fiscal year. This reflects lower levels of air travel during these periods and
certain additional expenses, such as annual unemployment insurance premiums,
that become payable with the commencement of a new calendar year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Results and Seasonality."

CONTROL BY PRINCIPAL SHAREHOLDER

Immediately following the Offering, Robert A. Weitzel will beneficially own
approximately 51% of the outstanding Common Shares (approximately 48% if the
Underwriters' over-allotment option is exercised in full). As a result, Mr.
Weitzel will continue to exercise substantial influence over the election of the
Board of Directors and over other matters requiring shareholder approval. This
concentration of voting power may also have the effect of delaying or preventing
a change in control of the Company. See "Management," "Principal and Selling
Shareholders" and "Description of Capital Shares."

NO PRIOR PUBLIC MARKET FOR COMMON SHARES; POTENTIAL VOLATILITY OF SHARE PRICE

Prior to the Offering, there has been no public market for the Common
Shares, and there can be no assurance that an active trading market will develop
or be sustained after the Offering. The initial public offering price will be
determined through negotiation between the Company and the Representatives of
the Underwriters based on various considerations and may not be indicative of
the price at which the Common Shares will trade after the Offering. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The market price of the Common Shares may be
volatile and may be significantly affected by factors such as actual or
anticipated fluctuations in the Company's operating results, announcements of
new services offered by the Company or its competitors, developments with
respect to conditions and trends in the industries served by the Company,
governmental regulation, changes in estimates by securities analysts of the
Company's future financial performance, general market conditions and other
factors. In addition, the stock markets have from time to time experienced
significant price and volume fluctuations that have adversely affected the
market prices of securities of companies for reasons often unrelated to their
operating performance.

SHARES ELIGIBLE FOR FUTURE SALE

No prediction can be made as to the effect, if any, that future sales, or
the availability of Common Shares for future sale, by the Company or by its
executive officers, directors and current shareholders will have on the market
price of the Common Shares prevailing from time to time. Sales of substantial
amounts of Common Shares (including shares issued on the exercise of options),
or the perception that such sales could occur, could adversely affect prevailing
market prices for the Common Shares. The Company and its directors, officers and
current shareholders have agreed not to sell, offer for sale, or otherwise
dispose of any Common Shares for a period of 180 days from the date of this
Prospectus without the prior written consent of McDonald & Company Securities,
Inc. Upon expiration of the lockup period, an aggregate of 77,355 Common Shares
will be eligible for sale in the public market without restriction. An
additional 3,276,180

10
<PAGE> 12

Common Shares will be eligible for resale by existing shareholders, subject to
the volume and manner of sale limitations imposed by Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"). The Company expects
to file, within 180 days after the Offering, a registration statement covering
the issuance of shares underlying share options granted under the Company's Long
Term Incentive Plan. See "Shares Eligible for Future Sale."

CERTAIN ANTI-TAKEOVER PROVISIONS

Chapter 1704 of the Ohio Revised Code prohibits certain transactions,
including mergers, sales of assets and similar corporate transactions involving
Ohio corporations and holders of 10% or more of their voting shares, unless
certain advance approvals are obtained or certain other conditions are met.
Section 1701.831 of the Ohio Revised Code imposes certain advance notice and
shareholder approval requirements with respect to voting share acquisitions that
cross the 20%, 33 1/3% and 50% of voting shares thresholds. Section 1707.041 of
the Ohio Revised Code imposes advance filing and notice requirements with
respect to certain tender offers and invitations for tenders for more than 10%
of the outstanding common shares of certain Ohio corporations. The Company's
Articles of Incorporation authorize the Company's Board of Directors, without
action by the shareholders, to specify the terms of and to issue preferred
shares of the Company. These restraints, requirements and authorizations, and
the substantial percentage of Common Shares that Mr. Weitzel will hold following
the Offering, could discourage potential acquisition proposals and could delay
or prevent a change in control of the Company. See "Description of Capital
Shares."

IMMEDIATE AND SUBSTANTIAL DILUTION

At March 31, 1997, the Company had a net tangible book value deficit of
$(0.31) per share. Purchasers of Common Shares in the Offering will incur
immediate and substantial dilution of $7.15 in the net tangible book value per
Common Share, assuming an initial public offering price of $11.00 per share (the
midpoint of the estimated initial offering price range). See "Dilution."

FORWARD-LOOKING STATEMENTS

This Prospectus contains statements that constitute forward-looking
statements. Those statements appear in a number of places in this Prospectus and
include statements regarding the intent, belief or current expectations of the
Company, its directors or its officers with respect to: (i) the declaration or
payment of dividends; (ii) potential acquisitions by the Company; (iii) the use
of the proceeds of the Offering; (iv) the Company's financing plans; and (v)
trends affecting the Company's financial condition or results of operations.

Prospective investors are cautioned that any such forward-looking statement
is not a guarantee of future performance and involves risks and uncertainties,
and that actual results may differ materially from those in the forward-looking
statement as a result of various factors. The accompanying information contained
in this Prospectus, including, without limitation, the information set forth
above and the information under the headings "Management's Discussion and
Analysis of Financial Condition and Results of Operations," identifies important
factors that could cause such differences. With respect to any such
forward-looking statement that includes a statement of its underlying
assumptions or bases, the Company cautions that, while it believes such
assumptions or bases to be reasonable and has formed them in good faith, assumed
facts or bases almost always vary from actual results, and the differences
between assumed facts or bases and actual results can be material depending on
the circumstances. When, in any forward-looking statement, the Company, or its
management, expresses an expectation or belief as to future results, that
expectation or belief is expressed in good faith and is believed to have a
reasonable basis, but there can be no assurance that the stated expectation or
belief will result or be achieved or accomplished.

11
<PAGE> 13

USE OF PROCEEDS

The net proceeds to be received by the Company from the sale of the
2,597,727 Common Shares offered by the Company are estimated to be approximately
$25.4 million, after deducting underwriting discounts and commissions and
estimated offering expenses payable by the Company, assuming an initial public
offering price of $11.00 per share (the midpoint of the estimated initial
offering price range).

The Company intends to use the net proceeds from the Offering: (i) to pay
approximately $14.0 million of outstanding indebtedness, consisting of (a)
approximately $11.0 million outstanding under a revolving line of credit with
the Company's senior lender, which matures on March 31, 1999 and bears interest
at the prime rate plus 1 1/2% per annum, and (b) $3.0 million of subordinated
notes, which mature on November 25, 2001 and bear interest at an annual rate of
20%; and (ii) for general corporate purposes, including working capital to
support the Company's growth and for possible acquisitions. The Company used
approximately $1.2 million of the proceeds of the subordinated notes to purchase
2,002,727 of the Company's Common Shares from a former shareholder and
approximately $1.4 million of the subordinated notes to acquire certain security
contracts from JJ Protective Services, Inc. in November 1996. The remainder of
the proceeds of the subordinated notes was used for working capital.

Although the Company regularly evaluates possible acquisition
opportunities, it is not currently engaged in any negotiations and is not a
party to any agreement, letter of intent or other arrangement regarding any
material acquisition. Pending the use of proceeds as described above, the net
proceeds will be invested in short-term, interest-bearing, investment grade
securities. See "Business -- Growth Strategy -- Growth Through Acquisitions."

DIVIDEND POLICY

The Company has never paid cash dividends on its Common Shares. The Company
does not anticipate paying cash dividends on its Common Shares in the
foreseeable future because it intends to retain its earnings to finance the
expansion of its business and for general corporate purposes. The declaration
and payment of any dividends will be at the discretion of the Company's Board
and will depend on, among other things, the Company's earnings, financial
condition, capital requirements, level of indebtedness, contractual restrictions
with respect to payment of dividends and other factors considered relevant by
the Board. The Company's current credit arrangements prohibit the payment of
dividends. The credit arrangements anticipated to be entered into after the
Offering will permit the payment of dividends, subject to certain restrictions.
See "Management's Discussion and Analysis of Financial Condition and Result of
Operations -- Liquidity and Capital Resources."

12
<PAGE> 14

DILUTION

The pro forma net tangible book value of the Company as of March 31, 1997
was a deficit of $(1,150,552) or $(0.31) per share. The net tangible book value
per Common Share represents the amount of the Company's shareholders' equity,
less intangible assets, divided by the 3,660,357 Common Shares outstanding at
that date. The dilution data does not reflect the redemption in April 1997 of
6,446 shares from a former employee for $1.40 per share pursuant to a
shareholders' agreement.

Net tangible book value dilution per Common Share represents the difference
between the amount per share paid by purchasers of the 2,825,000 Common Shares
in the Offering and the pro forma net tangible book value per Common Share
immediately after completion of the Offering. After giving effect to the sale by
the Company of the 2,597,727 Common Shares offered hereby, at an assumed initial
public offering price of $11.00 per share (the midpoint of the estimated initial
offering price range) and after deduction of underwriting discounts and
commissions and estimated offering expenses, the pro forma net tangible book
value of the Company as of March 31, 1997 would have been approximately
$24,050,000 or $3.85 per share. This represents an immediate increase in pro
forma net tangible book value of $4.16 per share to existing shareholders and an
immediate dilution in pro forma net tangible book value of $7.15 per share to
purchasers of Common Shares in the Offering, as illustrated in the following
table:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $11.00
Pro forma net tangible book value per share at March 31,
1997......................................................... $(0.31)
Increase per share attributable to new investors.............. $ 4.16
------
Pro forma net tangible book value per share after the Offering..... $ 3.85
------
Net tangible book value dilution per share to new investors........ $ 7.15
======
</TABLE>

The following table sets forth, on a pro forma basis as of March 31, 1997,
the differences between the number of Common Shares purchased from the Company,
the effective cash contributed paid and the average price per share paid by
existing shareholders and by new investors purchasing Common Shares in the
Offering at the assumed initial public offering price of $11.00 per share (the
midpoint of the estimated initial offering price range):

<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED -------------------------------------------
------------------------ AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
--------- ---------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)........ 3,660,357 58.4% $ 44,000 0.2% $ 0.01
New investors................... 2,597,727 41.6% $28,575,000 99.8% $ 11.00
--------- -----
6,258,084 100.0%
</TABLE>

- ---------------

(1) The number of shares shown excludes an aggregate of 282,015 Common Shares
reserved for issuance under the Company's option plans, 215,262 of which are
expected to be subject to options to be awarded in connection with the
Offering. See "Management -- Compensation of Directors" and "-- Long Term
Incentive Plan." Sales of Common Shares by the selling shareholder in the
Offering will reduce the number of Common Shares held by existing
shareholders to approximately 3,426,636 shares, or 54.8% of the total shares
outstanding, and will increase the number of shares held by new investors to
2,825,000, or 45.2% of the total shares outstanding.

13
<PAGE> 15

CAPITALIZATION

The following table sets forth the capitalization of the Company as of
March 31, 1997, as adjusted to give effect to the sale by the Company of the
2,597,727 Common Shares offered by the Company, assuming an initial public
offering price of $11.00 per share (the midpoint of the estimated initial public
offering price range) and the application of the estimated net proceeds
therefrom as set forth under "Use of Proceeds." This table should be read in
conjunction with the Pro Forma Financial Data, and the Consolidated Financial
Statements of the Company and the notes thereto included elsewhere in this
Prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1997
-----------------------
PRO FORMA,
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Short-term debt and current maturities of long-term debt............. $ 2,521 $ 0
======= =======
Long-term debt, net of current maturities(1)......................... 7,556 317
------- -------
Shareholders' equity
Preferred shares, without par value; 5,000,000 shares authorized;
none issued or outstanding......................................
Common shares, without par value, 20,000,000 shares authorized;
3,660,357 shares issued and outstanding and 6,251,636 issued and
outstanding as adjusted(2)...................................... 36 62
Additional paid-in capital(2)...................................... 473 25,646
Retained earnings.................................................. 2,784 2,784
Cumulative translation adjustments................................. (98) (98)
------- -------
Total shareholders' equity................................. 3,195 28,394
------- -------
Total capitalization....................................... $10,751 $28,711
======= =======
</TABLE>

- ---------------
(1) Consists of revolving bank debt of $4.3 million and subordinated debt of $3
million, both of which are being repaid from the proceeds of the Offering,
and $317,000 of capital lease obligations and other long-term debt. The
Company will also use $2.6 million from the proceeds to repay the debt
incurred in April, 1997 for the acquisition of the aviation business of
Intex Aviation Services, Inc.

(2) The "Pro Forma, As Adjusted" column does not reflect the redemption in April
1997 of 6,446 shares from a former employee for $1.40 per share pursuant to
a shareholders agreement, or the 423,750 shares reserved for issuance upon
the exercise of the Underwriters' over-allotment option. The "Pro Forma, As
Adjusted" column also does not include an aggregate of 282,015 Common Shares
issuable under the Company's option plans, all of which are anticipated to
be subject to options to be awarded in connection with the Offering.

14
<PAGE> 16

PRO FORMA FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

The following sets forth an Unaudited Pro Forma Combined Income Statement
and an Unaudited Pro Forma Combined Balance Sheet, in each case giving effect
to: (i) the Intex acquisition (as described under "Business -- Growth
Strategy -- Growth Through Acquisitions") and (ii) the Offering and the
application of the net proceeds therefrom at an assumed initial public offering
price of $11.00 per share (as described under "Use of Proceeds"). The historical
information in these pro forma statements for the Company is as of and for the
year ended March 31, 1997; historical information for Intex is as of and for the
year ended December 31, 1996. The Company's Unaudited Pro Forma Combined Income
Statement presents the effects of the acquisition and the use of proceeds from
the Offering as if those events had been consummated at the beginning of the
periods presented. The Company's Unaudited Pro Forma Combined Balance Sheet
presents the effects of those events as if each had been consummated on March
31, 1997. The Unaudited Pro Forma Combined Financial Information of the Company
is presented for illustrative purposes only and does not purport to present the
financial position or results of operations of the Company had the Intex
acquisition and the Offering occurred on the dates indicated, nor is it
necessarily indicative of results of operations that may be expected in the
future.

The pro forma adjustments relating to the acquisition represent the
Company's preliminary determinations of purchase accounting adjustments based
upon available information and certain assumptions the Company considers
reasonable under the circumstances. The pro forma adjustments relating to the
Offering represent the Company's estimate of the effect of using the net
proceeds to reduce outstanding debt. Final results could differ from those set
forth herein. See "Risk Factors -- Forward Looking Statements."

The following unaudited pro forma combined financial information should be
read in conjunction with the more detailed information, including the Financial
Statements and Notes thereto, included elsewhere in this Prospectus.

15
<PAGE> 17

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

INCOME STATEMENT
YEAR ENDED
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

16
<PAGE> 18

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

BALANCE SHEET
MARCH 31, 1997
(AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
ITS INTEX ADJUSTMENTS ADJUSTMENTS
MARCH 31, DECEMBER 31, FOR PRO FORMA FOR ADJUSTED
1997 1996 ACQUISITION SUBTOTAL OFFERING PRO FORMA
--------- ------------ ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 1,452 $ 733 $ (733)(7) $ 1,452 $ 25,399(8) $14,522
(12,329)(5)
Accounts receivable, net of
allowance for doubtful accounts of
$100,000.......................... 11,784 5,693 (5,693)(7) 11,784 11,784
Security equipment held for sale.... 294 294 294
Uniforms............................ 770 770 770
Deferred tax assets................. 1,494 1,494 1,494
Prepaid expenses and other assets... 492 749 (749)(7) 492 492
------- ------- ------- ------- -------- -------
Total current assets.............. 16,286 7,175 (7,175) 16,286 13,070 29,356
Notes receivable from officers........ 445 445 445
Property and equipment................ 7,590 524 50(9) 7,640 7,640
(524)(7)
Less accumulated depreciation and
amortization........................ (4,336) (338) 338(7) (4,336) (4,336)
------- ------- ------- ------- -------- -------
3,254 186 (136) 3,304 3,304
Intangibles, less accumulated
amortization........................ 4,346 5,755(9) 10,101 10,101
Security deposits and other........... 2,670 (2,571)(9) 99 99
------- ------- ------- -------
7,016 3,184 10,200 10,200
------- ------- ------- ------- -------- -------
Total Assets................. $27,001 $7,361 $(4,127) $30,235 $ 13,070 $43,305
======= ======= ======= ======= ======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable....................... $ 2,400 $5,562 $ 2,571(9) $ 4,971 $ (4,971)(5) $ 0
(5,562)(7)
Current maturities of long-term
obligations....................... 120 49 (49)(7) 120 (120)(5) 0
Trade accounts payable.............. 2,748 121 (121)(7) 2,748 2,748
663(9)
Accrued payroll and payroll taxes... 8,703 956 (956)(7) 9,366 9,366
Other accrued liabilities........... 1,418 1,418 1,418
Income taxes payable................ 573 4 (4)(7) 573 573
------- ------- ------- ------- -------- -------
Total current liabilities......... 15,962 6,692 (3,458) 19,196 (5,091) 14,105
Deferred tax liabilities.............. 289 289 289
Long-term obligations................. 7,555 101 (101)(7) 7,555 (7,238)(5) 317
Shareholders' equity:
Common shares....................... 36 11 (11)(7) 36 26(8) 62
Additional paid-in capital.......... 473 473 25,173(8) 25,646
Cumulative translation adjustment... (98) (98) (98)
Retained earnings................... 2,784 557 (557)(7) 2,784 2,784
------- ------- ------- ------- -------- -------
Total shareholders' equity... 3,195 568 (568) 3,195 25,399 28,594
------- ------- ------- ------- -------- -------
Total liabilities and
shareholders' equity....... $27,001 $7,361 $(4,127) $30,235 $ 13,070 $43,305
======= ======= ======= ======= ======== =======
</TABLE>

17
<PAGE> 19

- ---------------
(1) Represents adjustments to Intex's operating revenues and cost of operating
revenues associated with contracts lost by Intex during 1996, which does not
include contracts representing $1.2 million in annual revenues lost since
April 1997.

(2) Represents a reduction in Intex's historical costs for workers'
compensation, liability insurance, medical insurance and personnel relations
to conform them to the cost structure associated with the Company's
programs.

(3) Represents a reduction in compensation expense associated with the
elimination of certain salaries paid to Intex officers not employed by the
Company subsequent to the acquisition.

(4) Represents the additional depreciation and amortization costs to be charged
to expense after allocation of the purchase price in the Intex acquisition.

(5) Represents the use of the estimated net proceeds from the Offering to repay
outstanding indebtedness under the Company's credit facilities ($6,758),
outstanding subordinated indebtedness ($3,000) and the expected final
payment in connection with the Intex acquisition ($2,751).

(6) Represents an adjustment to the historical provision for income taxes to
reflect the application of the Company's estimated effective tax rate of 42%
after giving effect to the foregoing adjustments and to make a provision for
income taxes of Intex, which had previously operated as an S corporation.

(7) Represents the elimination of assets and liabilities reflected on the
historical financial statements of Intex but not acquired by the Company.

(8) Represents the estimated net proceeds from the Offering of $11.00 per share
after deduction of underwriting discounts and commissions and estimated
Offering expenses.

(9) Represents adjustments associated with the allocation of the estimated
purchase price for the Intex acquisition. On March 31, 1997, the Company
made a cash deposit of $2,751 toward the expected purchase price of $5,805,
including assumed liabilities aggregating $663. The purchase price and the
final payment are subject to adjustment based upon the revenues associated
with the purchased contracts for the period from April 1, 1997 to June 30,
1997. The allocation of the estimated purchase price for the Intex
acquisition is as follows:

<TABLE>
<S> <C>
Service contracts........................................................... $ 575
Furniture and fixtures...................................................... 50
Goodwill.................................................................... $5,180
------
Total.............................................................. $5,805
======
</TABLE>

(10) Earnings per share are computed by dividing net earnings, after giving
effect to preferred dividend requirements, by the weighted average number
of shares outstanding; including, in the as adjusted column, shares to be
issued in the Offering.

18
<PAGE> 20

SELECTED CONSOLIDATED FINANCIAL INFORMATION
(AMOUNTS IN THOUSANDS, EXCEPT SHARES, PER SHARE AMOUNTS AND OPERATING DATA)

The selected financial data of the Company for the years ended March 31,
1995, March 31, 1996 and March 31, 1997 are derived from audited financial
statements. These financial statements and the notes thereto appear elsewhere in
this Prospectus. The selected financial data of the Company for the years ended
March 31, 1993 and March 31, 1994 have been derived from unaudited financial
statements. Those unaudited financial statements include all adjustments,
consisting only of normal recurring accruals, which the Company considers
necessary for a fair presentation of its financial position and results of
operations for those periods. The data should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Use of Proceeds, Pro Forma Financial Data and the Consolidated
Financial Statements and the notes thereto, and the other financial information
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................ $ 68,230 $ 78,173 $ 92,654 $ 95,463 $ 115,242
Cost of revenues........................ 56,180 66,103 79,981 81,341 98,338
------- ------- ------- ------- -------
Gross profit............................ 12,050 12,070 12,673 14,122 16,904
General and administrative expenses..... 11,916 11,075 12,655 11,603 13,334
------- ------- ------- ------- -------
Operating income........................ 134 995 18 2,519 3,570
Interest expense (income) net........... 22 34 188 523 637
------- ------- ------- ------- -------
Income (loss) before income taxes....... 112 961 (170) 1,996 2,933
Income taxes(1)......................... 109 1,035 548 958 1,237
------- ------- ------- ------- -------
Net income (loss).................... $ 3 $ (74) $ (718) $ 1,038 $ 1,696
======= ======= ======= ======= =======
Net income (loss) per share............. $ 0.00 $ (0.01) $ (0.12) $ 0.17 $ 0.34
Weighted average common and common
equivalent shares.................... 6,446,310 6,446,310 6,376,728 5,877,999 5,014,847
OPERATING DATA (AT PERIOD END):
Number of employees..................... 8,121 9,006 9,863 9,914 10,690
</TABLE>

<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 1,108 $ 769 $ 1,267 $ 1,873 $ 1,452
Working capital (deficit)............... (2,004) (1,351) (4,425) (2,951) 324
Total assets............................ 12,222 14,843 20,295 20,892 27,001
Short-term bank debt and current
maturities of long-term debt......... 236 875 5,658 4,806 2,521
Long-term obligations, net of current
maturities(2)........................ 0 0 152 164 7,556
Retained earnings....................... 3,752 3,678 2,961 3,998 2,784
Shareholder's equity.................... 4,347 4,273 3,139 3,978 3,195
</TABLE>

- ---------------
(1) No provision (benefit) has been provided for the portion of operating income
resulting from the profit (loss) of International Transport Security, Inc.,
a corporation under common ownership with the Company, which had operated as
an "S" corporation. See Note A to Consolidated Financial Statements
explaining the relationship of Transport with the Company.

(2) Includes amounts due under revolving credit facility, subordinated debt,
capital lease obligations and other long-term debt.

19
<PAGE> 21

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITS provides aviation security, ramp and ground handling and passenger
services, and commercial security services. The Company's revenues have grown
from $68.2 million in fiscal 1992 to $115.2 million in fiscal 1996, reflecting a
compound annual growth rate of 14.2%.

The gross margins associated with airline security services typically have
been lower than the gross margins associated with other airline services,
reflecting the maturity of the market for airline security services and the
intensity of price competition in that market. While airline security services
have long been outsourced, airlines have only recently begun to outsource many
other airline services. Consequently, the market for these other services is
more fragmented and less mature than the market for airline security services.
The Company anticipates that, as the airline services market matures, gross
margins will experience compression as a result of increasing competition in the
market and the increasing importance of cost considerations to the airlines that
outsource these services.

The Company's services are provided under contracts that typically have
terms of from one to three years but are cancelable by either party on 30 to 90
days' notice. Although contract terms vary significantly, clients generally pay
at an hourly rate for services provided. Certain services, such as aircraft
lavatory cleaning, are billed on a flat fee for service basis, and certain
others are billed at a fixed monthly rate. The Company recognizes revenues as
the related services are performed.

Prior to fiscal 1995, ITS's strategy included using technological
innovation to drive the growth of its business, and the Company made significant
research and development expenditures in support of this strategy. In
recognition of the importance of cost considerations in customer purchasing
decisions, the Company in fiscal 1995 determined to reduce its cost structure in
order to enhance its competitive position. As a consequence of this decision,
ITS made several important operational changes that contributed to a significant
improvement in its financial results. These changes included reductions in
corporate headquarters staff and executive compensation, the development of
divisional budgeting systems and the implementation of compensation programs
tied to the achievement of budgeted performance levels. The Company also made
efforts to enhance its management and control systems in order to improve
accounts receivable collection and streamline its purchasing arrangements.

Acquisitions played an important role in the Company's revenue and earnings
growth during fiscal 1996, and they are expected to remain an important
component of ITS's growth strategy during future periods. ITS seeks acquisition
candidates that will add geographic coverage to the Company's existing
businesses, broaden its service offerings and expand its customer base. The
Company's recent acquisitions have involved the purchase of service contracts
and property and equipment related to those contracts, but not the liabilities
associated with the sellers' businesses. Management believes that the
acquisition of service contracts, rather than of stock or of assets unrelated to
those contracts, significantly reduces the cost of integrating acquired
operations.

In fiscal 1996, ITS completed six acquisitions of service contracts, all of
which were accounted for under the purchase method, and their operations are
reflected in ITS's consolidated financial statements for all periods subsequent
to the date of the acquisition. All of these acquisitions involved providers of
airline security or commercial security services. These acquisitions contributed
approximately $11.9 million in total revenues during fiscal 1996. In addition,
in April 1997, the Company acquired service contracts from Intex Aviation
Services. Intex did not provide security services; instead, it provided a
variety of other aviation services, including baggage handling, lavatory and
water services, de-icing services and aircraft cleaning and ground support
services. For the year ended December 31, 1996, Intex recognized revenues of
approximately $32.3 million from the contracts acquired by ITS. Intex's
operations are not reflected in the Company's consolidated financial statements
for fiscal 1996. See "Pro Forma Financial Data."

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<PAGE> 22

RESULTS OF OPERATIONS

The following table sets forth Statement of Operations data as a percentage
of revenues for the periods indicated:

<TABLE>
<CAPTION>
MARCH 31, MARCH 31, MARCH 31,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Revenues................................................ 100.0% 100.0% 100.0%
Gross profit............................................ 13.7 14.8 14.7
Selling, general and administrative expenses............ 13.7 12.2 11.6
----- ----- -----
Operating income (loss)................................. 0.0 2.6 3.1
Interest expense........................................ 0.2 0.5 0.5
----- ----- -----
Income (loss) before income taxes....................... (0.2) 2.1 2.6
Income taxes............................................ 0.6 1.0 1.1
----- ----- -----
Net income (loss)....................................... (0.8)% 1.1% 1.5%
===== ===== =====
</TABLE>

Year Ended March 31, 1997 Compared to Year Ended March 31, 1996

Revenues. Revenues in fiscal 1996 increased by $19.8 million, or 20.7%, as
compared to fiscal 1995. This increase is attributable to an increase in
revenues from the six acquisitions that were completed during the year, and from
the addition of continuous bag search services that were required by the FAA
during the year, as well as increased revenues from the U.S. minimum wage
increase October 1, 1996 and an increase in revenues from existing customers for
aircraft cleaning and ground handling. Of the $19.8 million increase in
revenues, $11.9 million was attributable to the acquisitions ($9.1 million in
predeparture screening and $2.8 million in industrial security), $4.2 million to
continuous bag search, $2.3 million to the minimum wage increase and $1.4
million to aircraft cleaning and ground handling.

Gross Profit. Gross profit was $16.9 million in fiscal 1996 compared to
$14.1 million in fiscal 1995, an increase of 19.9%. The improvement was
primarily attributable to an increase in hourly rates under certain contracts,
higher utilization of personnel and improved operating efficiencies at most
locations. Overall gross profit margins also increased because of cost reduction
measures implemented Company-wide, including decreases in worker's compensation
and liability insurance rates based on cost reduction measures and a favorable
claims history.

For the fiscal calendar ended December 31, 1996, Intex had gross profit of
$5.3 million, or 12.8% of total revenues. The Company had gross profit of $16.9
million, or 14.7% of total revenues. On a pro forma basis, after giving effect
to the Intex acquisition, the Company's gross profit percentage for fiscal 1996
would have increased to 15.7%. This increase reflects savings resulting from the
elimination of certain lower-margin contracts that Intex lost prior to the
acquisition, as well as a reduction in certain workers' compensation and
insurance costs attributable to the lower cost of comparable Company programs.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses in fiscal 1996 were $13.3 million compared to $11.6
million in the prior year, an increase of 14.7%. Measured as a percentage of net
sales, these expenses were 11.6% in fiscal 1996 and 12.2% in fiscal 1995, a
decrease of 4.9% attributable to improved overhead absorption resulting from the
growth of revenues over the prior year. On a pro forma basis, after giving
effect to the Intex acquisition, the Company's selling, general and
administrative expense for fiscal 1996 would have been 11.3% of total revenues,
primarily as a result of improved overhead absorption resulting from the larger
pro forma revenue base.

Interest Expense. Interest expense increased in fiscal 1996 to $637,000
from $523,000 in fiscal 1995 because of an increase in the amount of debt
outstanding. The debt was incurred primarily in connection with the
acquisitions.

Income Taxes. The Company's consolidated effective income tax rate in
fiscal 1996 was 42.2% as compared to 42.4% in fiscal 1995. The Company's
effective tax rate will vary from period to period depending

21
<PAGE> 23

on the breakdown of earnings among the various operating subsidiaries and the
treatment of earnings items by the relevant tax authorities and income tax
effects deferred from prior periods.

Net Income. As a result of the foregoing, the Company's net income
increased to $1.7 million in fiscal 1996 from $1.0 million in fiscal 1995, an
increase of 63.4%.

The Company anticipates that the Intex acquisition will have a significant
effect on the mix of its revenues. During each of the past three fiscal years,
predeparture screening services have represented approximately 50% of the
Company's revenues. Intex historically did not provide these services, but
instead focused on other aviation services. In light of Intex's significant
historical revenue from these other aviation services, the Company believes
that, as a percentage of revenue, predeparture screening services will decrease
and other aviation services will increase during future periods.

Year Ended March 31, 1996 Compared to Year Ended March 31, 1995

Revenues. Revenues in fiscal 1995 increased by $2.8 million, or 3.0%, as
compared to fiscal 1994. This increase is exclusively attributable to an
increase in revenues from the sale of high efficiency screening systems to
airline customers. Service revenues remained relatively constant as compared to
fiscal 1994. Revenues from new business were offset by revenues lost as a result
of an airline customer's decision to terminate a discount passenger service
operating at a number of airports served by the Company.

Gross Profit. Gross profit was $14.1 million in fiscal 1995 compared to
$12.7 million in fiscal 1994, an increase of 11.0%. Measured as a percentage of
net sales, gross profit margins increased to 14.8% in fiscal 1995 from 13.7% in
fiscal 1994. The improvement in fiscal 1995 was attributable primarily to cost
reduction measures implemented Company-wide, including decreases in worker's
compensation and liability insurance rates based on cost reduction measures and
a favorable claims history.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses in fiscal 1995 were $11.6 million compared to $12.7
million in the prior year, a decrease of 8.7%. Measured as a percentage of net
sales, these expenses were 12.2% in fiscal 1995 and 13.7% in fiscal 1994, a
decrease of 10.9%. The improvement was primarily attributable to cost reduction
measures implemented Company-wide, including a decrease in workers' compensation
and liability insurance rates for administrative employees and reductions in
headquarters staff and executive compensation.

Interest Expense. Interest expense increased in fiscal 1995 to $523,000
from $188,000 in fiscal 1994 because of an increase in the amount of debt
outstanding. The debt was incurred in connection with normal operations.

Income Taxes. The Company's consolidated effective income tax rate in
fiscal 1995 was 42.4%.

Net Income. As a result of the foregoing, the Company's net income
increased from a loss of $718,000 in fiscal 1994 to net income of $1.0 million
in fiscal 1995.

LIQUIDITY AND CAPITAL RESOURCES

The Company's business is labor intensive. Consequently, it has substantial
needs for cash throughout its fiscal year. During fiscal 1996, the Company's
cash requirements were heightened by its acquisition program and the need to
support the higher levels of revenue resulting from those acquisitions.
Operating activities generated cash of approximately $1.9 million in both fiscal
1996 and 1995. Financing activities generated net cash of $3.9 million during
fiscal 1996, primarily as a result of borrowings under various credit
arrangements, offset by $1.2 million in purchases of treasury shares and $52,000
in principal payments on long-term indebtedness.

Principal uses of funds, in addition to working capital requirements,
included expenditures associated with the Company's acquisition program. During
fiscal 1996, these included $2.7 million in acquisitions of service contracts
and related goodwill and noncompete agreements, a $2.6 million purchase price
deposit in connection with the Intex acquisition, and $1.1 million in purchases
of property and equipment. The Company also used approximately $1.2 million
during fiscal 1996 to acquire outstanding Common Shares from certain current and
former shareholders.

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<PAGE> 24

In April 1997, the Company acquired substantially all of Intex's aviation
services business through the assumption of various existing contracts. Under
the terms of the purchase agreement, the Company's $2.6 million deposit was
credited toward the purchase price. The total purchase price payable to the
former owner of Intex will be determined on the basis of a multiple of monthly
revenues on the acquired contracts for the period from April 1, 1997 to June 30,
1997. The balance of the purchase price is payable on July 15, 1997. Subsequent
to the date of the acquisition, Intex lost contracts worth $1.2 million in
annual revenue.

The Company currently has a credit facility with its senior lender. The
credit facility includes a revolving credit facility providing maximum
availability of $10.5 million, a $2.0 million term loan and a $900,000 term
loan. Borrowings under the credit facility are secured by all of the Company's
domestic accounts receivable, equipment and other assets. Amounts outstanding
under the revolving line of credit bear interest at 1.25% over the bank's prime
rate, and availability under the line is limited to an amount equal to 80% of
qualifying domestic and 50% of qualifying foreign accounts receivable. The
revolving line of credit matures on March 31, 1999. At May 31, 1997,
approximately $3.0 million was available for borrowing under the revolving line
of credit. The $2.0 million term loan provided under the facility bears interest
at a fixed rate of 9.832% and is subject to monthly amortization of principal at
the rate of $41,667 beginning in May 1997, with a final payment of $1.7 million
on November 1, 1997. The $900,000 term loan bears interest at 2.00% over the
bank's prime rate and will mature on December 31, 1997.

The Company also has outstanding $3.0 million principal amount of a
subordinated promissory note issued to an institutional lender. Amounts
outstanding under this note are subordinated to all borrowings under the credit
facility and the acquisition facility described above. Interest on the note is
payable quarterly at a fixed rate of 20% per annum. The principal amount of the
note is to be paid in equal quarterly installments of $250,000 over a period of
12 quarters beginning February 1999.

As of May 31, 1997, the Company had approximately $11.5 million outstanding
under the various credit arrangements described above. The Company intends to
repay this indebtedness in full with the proceeds of this Offering.

In connection with this Offering, the Company intends to replace its
existing credit facility with a new revolving credit facility with its senior
lender. The Company has received a commitment letter with respect to the new
facility. The commitment letter provides and the Company currently anticipates
that, subject to the completion of the Offering, the negotiation and execution
of definitive documentation and other customary conditions, the lender will
provide a two-year revolving credit facility providing maximum availability of
$30 million. The Company anticipates that amounts borrowed under the new credit
facility will bear interest at rates varying from LIBOR plus 1.5% to the bank's
prime rate plus 2%, and will mature in September 1999. Amounts outstanding under
the new credit facility will be secured by substantially all of the Company's
assets. It is anticipated that the new credit facility will limit the Company's
ability to incur additional indebtedness and pay dividends, and will require the
Company to maintain prescribed debt-to-equity and fixed charge coverage ratios
and minimum net worth levels and to satisfy other financial covenants. Although
the Company believes that financing on the terms outlined above will be
available subsequent to the completion of the Offering, there can be no
assurance thereof.

The Company's capital expenditure budget for fiscal 1997 is approximately
$1.0 million. Capital expenditures for the current fiscal year are expected to
relate to facility and equipment improvements.

The Company believes that the net proceeds from the Offering, together with
its available cash, cash generated from operating activities and amounts
anticipated to be available under its new credit facility will be sufficient to
meet its anticipated cash requirements through the end of fiscal 1998.

QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY

The Company's operations are subject to seasonal fluctuations. The
Company's revenues and operating income typically reach their highest levels
during the third quarter of the fiscal year, reflecting the higher level of air
travel during the holiday season. Revenues and net income typically are at their
lowest levels in the first and fourth quarters of the fiscal year, as a result
of lower levels of air travel during these periods and certain additional
expenses, such as annual unemployment insurance premiums, that become payable
with the commencement of a new calendar year.

23
<PAGE> 25

BUSINESS

COMPANY OVERVIEW

- Favorable growth prospects exist in the markets for aviation services and
commercial security services.

- The Company enjoys strong market position and administrative support from
its significant aviation and security experience, extensive market
breadth and competitive cost structure.

- Management is able to exploit the Company's aviation and security
experience to capture revenue in related service segments such as general
aviation services and commercial security.

- The economies of scale resulting from the Company's use of its existing
administrative resources support internal growth and acquisitions.

The Company intends to grow internally and through acquisitions. The
Company expects internal growth will be generated by using the Company's
established business base as a platform for expanding the services it provides
at existing airport and commercial security locations and for developing new
service locations. The Company intends to target acquisition candidates that
will add geographic scope to its existing businesses, broaden its service
offerings and expand its client base. ITS made two acquisitions of aviation
security contracts and four acquisitions of commercial security contracts in
fiscal 1996 that have contributed an aggregate of approximately $11.9 million in
annual revenues and have improved profitability. In addition, in April 1997, the
Company acquired service contracts from Intex. Intex provided a variety of
aviation services, including baggage handling, lavatory and water services,
de-icing services and aircraft cleaning and ground support services. On a pro
forma basis for the year ended December 31, 1996, the contracts acquired from
Intex generated revenues of approximately $32.3 million. See "Pro Forma
Financial Data" and "Management's Discussion and Analysis of Results of
Operations and Financial Condition."

AVIATION SERVICES

General.

In 1973, the FAA mandated that airlines conduct predeparture screening of
all passengers at most airports in the U.S. Because the labor-intensive nature
of predeparture screening imposed substantial administrative burdens, most
airlines opted to contract out predeparture screening and other security
services

24
<PAGE> 26

to third party contractors. Certain other airline services, such as food service
and fueling, historically have also been contracted out by the airlines. In the
past several years, market forces have driven airlines to outsource a number of
other labor-intensive aviation services in order to permit management to focus
on the essential aspects of their businesses and to reduce labor and benefit
costs and administrative overhead.

As the costs of labor have increased, airlines now frequently outsource
baggage claim and check services, skycap, baggage handling, aircraft cleaning
and wheelchair assistance services, and inter-gate cart services. Ticketing and
check-in services are also beginning to be outsourced. Many small, regional
carriers still provide their own ground handling and cleaning services, offering
additional growth opportunities for contractors such as the Company.

Aviation Security Services.

Predeparture Screening. The Company is a leading provider of domestic
airline predeparture screening services. ITS currently employs approximately
4,500 full-time equivalent predeparture screeners in more than 130 U.S. airports
in 44 states. The Company's predeparture screening services include conducting
x-ray or electro-magnetic inspection of all carry-on baggage, manual searches of
suspicious baggage and metal-detector searches of all passengers. The Company
derived approximately 50% of its revenues from predeparture screening services
in each of the last three fiscal years.

Other Airline Security Services. ITS provides passenger profiling services
and document verification agents, primarily in Europe and Asia, where airlines
and airports have been obliged by regulatory agencies and the political climate
to devote significant resources to the prevention of terrorist activity.
Airlines contract with ITS to provide document verification (customs) agents who
interview passengers as they enter or leave a country via an international
flight. In the domestic market, ITS also provides guarding and control of
airport entrances, checking of employee identification cards and baggage,
guarding and control of employee parking lots and under-the-wing guarding of
parked aircraft. Airline security services other than predeparture screening
accounted for less than 5% of the Company's revenues in each of the last three
fiscal years.

Other Aviation Services.

The Company provides nonsecurity aviation services, attempting to take
advantage of its existing base of operations and overhead costs in its airport
security operations. It also provides these services for airlines with which it
does not have security contracts.

Ramp and Ground Handling Services. The ramp and ground handling services
provided by ITS are described in the chart below.

<TABLE>
<CAPTION>
SERVICE DESCRIPTION
- -------------------------------------------- --------------------------------------------
<S> <C>
Baggage Handling............................ Conveyance of checked baggage from terminal
to baggage compartment of plane and from
plane to baggage carousel
Aircraft Cleaning........................... Interior: cleaning interior parts of the
aircraft between flights and at end of the
aircraft's flight day.
Exterior: washing exterior of aircraft.
Lavatory and Water Services................. Use of equipment to empty lavatory and
replace the water source with potable water.
De-icing.................................... Spraying ice-melting substance on aircraft
prior to departure from gate.
</TABLE>

The Company derived approximately 12.2%, 12.7% and 14.2% of its revenues
from ramp and ground handling services in fiscal 1996, 1995 and 1994,
respectively.

Passenger Services. The Company's passenger services include providing
skycaps for curbside check-in, baggage assistance and help with routine
passenger problems, wheelchair operators to transport disabled or elderly
passengers to and from the check-in area and the plane, and electric cart
drivers to provide inter-gate

25
<PAGE> 27

transport for passengers who need to board flights at distant gates. Passenger
services are a growing source of revenue for ITS, representing approximately
19.6%, 22.7% and 23.8% of the Company's revenues in fiscal 1994, 1995 and 1996,
respectively.

COMMERCIAL SECURITY SERVICES

ITS provides uniformed security officer services, business and facility
access control, security consulting, special event security and security
assessment to a broad range of commercial clients, including in office and
government buildings, airports, hospitals, malls, distribution centers, sports
arenas, museums and other facilities. The Company recently acquired the service
contracts of several regional commercial security providers, including JJ
Protective Services, Inc., which had approximately $7.7 million in sales in 1996
in Minnesota, Wisconsin, Michigan and Colorado, and Maximum Protective Services
of Texas, Inc., which had $1.5 million in annual sales in Texas.

The Company entered the commercial security market in the early 1990s,
attracted by the market's favorable fundamentals and the opportunity to further
capitalize on its aviation security experience. Industrial security is a $100
billion per year industry that employed approximately 2 million people in 1996,
according to the American Society for Industrial Security in Arlington, Virginia
("ASIS"). ASIS data indicates that the industry is highly fragmented, with
approximately 160,000 companies registered as protection companies. Commercial
security accounted for approximately 9.7%, 11.0% and 11.7% of the Company's
revenue in fiscal 1996, 1995, and 1994, respectively.

SECURITY PRODUCTS DISTRIBUTION

In addition to its service offerings, the Company distributes a line of
security products through its Crown Technical Services, Inc. subsidiary. These
products are sold with or without airline security services and offer
significantly better margins than many of the services that ITS provides. In
1992, the Company introduced its High Efficiency Screening System ("HESS"), an
ITS-designed integrated security system that physically replaces the standard
checkpoint configuration found in most U.S. airports. The Company also offers,
either with the entire HESS system or alone, an exit aisle motion detector,
which replaces the guard who stands at most terminals, to ensure that boarding
passengers do not pass through the departing passenger aisle. The Company also
offers a separate line of hand-held and walk-through metal detectors, which it
sells to banks, schools, the federal government, and large businesses.

The Company derived approximately 3.0%, 2.2% and 1.5% of its revenues from
sales of security products in fiscal 1996, 1995 and 1994, respectively.

GROWTH STRATEGY

The Company's growth strategy emphasizes both internal growth and growth
through acquisitions. The Company focuses on using its experience in recruiting,
training, motivating and managing the large numbers of personnel needed to
handle labor-intensive, task-repetitive jobs to capitalize on the trend toward
outsourcing labor-intensive services. The Company believes that its strong
position in the airline security business provides an effective platform from
which to take advantage of opportunities in other elements of the airline
services businesses. The Company also believes that its experience in managing
the personnel requirements of its airline security business provides
opportunities to expand into related labor-intensive service businesses, such as
commercial security services.

Growth Through Expansion of Existing Businesses.

Airline security services currently represent approximately 50% of the
Company's revenue. The Company believes a handful of large companies serve most
of the domestic airline security market, in part because increasing federal
regulation has made the cost of doing business prohibitive for smaller
contractors. Airline security contracts tend to be very cost competitive:
prevailing bids often offer only slightly lower costs. ITS believes that because
of its size and ability to leverage its overhead costs, it is well positioned to
increase its revenues, as airlines seek to consolidate their third party
contracts and minimize the costs associated with

26
<PAGE> 28

these functions. In addition, the Company believes it can increase the revenue
and profitability associated with its other airline security offerings.

ITS believes that its ability to use its "installed base" of airline
security business to increase the range of other services that it provides to
its airline customers is an equally important element of its growth strategy.
The administrative base supporting the Company's airline security services at an
airport can be used to support other services without significant additional
costs, which can give ITS an important advantage in competing with other
providers of airline services on the basis of price. The Company's division and
field management teams actively seek these opportunities and are experienced in
exploiting them. ITS has experienced recent growth in the demand for its ramp
and ground handling and passenger services and expects these services to provide
opportunities for continued growth. The Company intends to identify new business
opportunities and to use its existing marketing, management and administrative
systems, as well as its strong airline relationships, to expand its reach in
these areas. ITS currently performs these services primarily in the United
States but intends to package these services with its security services in
international markets. Because all carriers, regardless of location, need
airplane cleaning, baggage handling and passenger related services, ITS believes
that the potential market for these services is as large as, if not larger than,
the airline security market.

The Company believes that the management and administrative resources it
has developed to manage its aviation-related operations in 44 states provide it
with the capacity to expand its commercial security business in a number of
geographic areas without significant additional overhead costs. By leveraging
its existing administrative base, the Company seeks to increase its share of the
highly fragmented commercial security market.

Growth Through Acquisitions.

The Company generally acquires existing service contracts and the goodwill,
property and equipment related to those contracts and does not assume
liabilities associated with the seller's business. It targets acquisition
candidates that will add geographic coverage to its existing businesses, broaden
its service offerings and expand its client base. ITS generally seeks
acquisitions that it believes can make an immediate contribution to
profitability, although it also pursues opportunities that have strategic value
to its business even if the returns appear less immediate. ITS is willing to
retain members of an acquired company's management team that it believes can
contribute expertise. Management believes the Company has certain advantages
that may enable it to implement its acquisition strategy more successfully than
its competition. Specifically, management believes that its self-insurance and
risk management practices and its centralized administration of payroll and
billing functions have resulted in a lower cost structure than many of its
competitors have. This cost structure generally enables ITS to improve margins
of acquired businesses. The Company will seek to implement its operating
strategies at acquired companies while retaining existing management talent of
those companies.

The Company has completed seven acquisitions since July 1996. The largest
of these acquisitions was the purchase in April 1997 of the airline service
contracts and related goodwill of Intex, based in Greenville, South Carolina.
Intex contracts cover ramp and ground handling services, including baggage
handling, and lavatory and water services for clients in 28 locations across the
United States. The Intex contracts also include aircraft cleaning and ground
support and facility services at some of these locations. Delta Air Lines, with
whom Intex held its largest ramp and ground handling contract, has become ITS's
biggest aviation services customer as a result of the purchase. In connection
with the Intex acquisition, ITS intends to develop its ramp and ground handling
services with existing customers.

Other acquisitions in the aviation services industry include the contracts
and related goodwill of Andy Frain Services, Inc., acquired in July 1996, which
produced $7.5 million in annual sales in Salt Lake City, Anchorage, Oakland,
Phoenix and Seattle, and of Airport Terminal Services, Inc. ("ATS"), purchased
in July 1996, which produced $4.5 million in annual predeparture screening sales
in St. Louis, Kansas City, Dallas and Los Angeles. As a result of the ATS
acquisition, the Company acquired significant market share in St. Louis, which
is TWA's hub.

27
<PAGE> 29

In the commercial security area, the Company acquired the contracts and
goodwill of four companies with varied geographic coverage in fiscal 1996. In
November 1996, the Company acquired security contracts from JJ Protective
Services, Inc. that generated $7.7 million in annual revenue in Minnesota,
Wisconsin, Michigan and Colorado. In January 1997, the Company acquired security
contracts from Maximum Protective Services, Inc. that generated $1.5 million in
annual revenue in Texas. In March 1997, the Company purchased contracts that
provided $298,000 in annual revenue from City Security Services, Inc. in San
Antonio, Texas, and in August 1996, it purchased contracts that provided
$175,000 in annual revenue from ABC Security Guard Services, Inc. in Columbus,
Ohio.

COMPETITION AND MARKETING

The Company competes in international, national, regional and local markets
with specialized contract service providers, outsourcing companies, and its
clients' and potential clients' internal service staffs. While substantial
consolidation is occurring in the Company's markets, portions of these markets
remain extremely competitive and highly fragmented, with limited barriers to
entry. Industry participants compete mainly on the basis of price, as well as
the quality of service provided, their ability to provide national and
international services, and the range of services offered. ITS believes its
primary competitive advantage is its low administrative overhead, which enables
it to offer competitive costs for large contracts. The Company has been
successful in minimizing its workers compensation and liability insurance costs
and in leveraging its administrative base to add new contracts with minimal
increase in overhead cost. In addition, ITS believes that it offers a broader
range of services than its competitors.

Airline Security Services. Contracts for predeparture screening services
tend to be highly competitive among a handful of experienced providers and are
generally awarded to the low-cost provider. At the same time, the airlines are
sensitive about security lapses and may cancel a contract based on even minor
security breaches. While ITS believes it has an advantage because of its size
and overhead in underbidding other companies, the Company faces the same
challenge as its competitors in providing consistent service at the minimum wage
rates offered by the airlines for screeners. The Company's principal competitors
in domestic predeparture screening include Globe Aviation Securities
Corporation, AHL Services, Inc. and Huntleigh, Inc.

In the international security arena, where training and service generally
are more important, the Company strives to distinguish itself by developing
training programs and screening methods that meet the demands of its customers.
The Company's passenger profilers are trained in questioning techniques that are
designed to elicit cooperation and to avoid offense to innocent travelers. In
addition, because the Company's method of profiling is less intrusive than other
security methods, ITS considers it to be more cost-effective and
passenger-friendly than other systems. Currently, the Company has a small number
of contracts to provide these services in Europe and Asia. The Company's main
competitors for international profiling and screening services are Aviation
Defense International, Inc., ICTS International, N.V., AHL Services, Inc. and
International Aviation Security, Inc.

Ramp and Ground Handling Services. Airlines have found it cost effective
to outsource ramp and ground handling functions because they often require an
investment in hard equipment, which can be expensive for carriers with few
flights. ITS has taken advantage of the opportunity to offer a package of new or
refurbished equipment, maintenance and the required manpower, all for a per-hour
labor charge. In addition, ITS considers potential revenue gains from ground
handling and passenger business when negotiating new security business, and is
sometimes able to package combinations of services to clients at a lower overall
cost than it could offer for one type of service alone. The Company has
typically offered ground handling or passenger services as "add on" services to
its screening business. It also offers these services on a stand-alone basis at
certain locations. In this area, the Company competes with the airlines,
Signature Flight Support Services, AMR Services, Ogden Allied Support Services,
Hudson General, and Service Master Co.

ITS has sought to increase the volume of its cleaning business by focusing
on providing fast, reliable service. The Company conducts an Aircraft Appearance
and Facility Audit Program through which it continually monitors its own
performance. Under this program, ITS supervisors and managers conduct a pre-

28
<PAGE> 30

determined number of audits based on the number of planes serviced for a
particular client. The Company provides the results of the audit to the client
regularly, emphasizing areas requiring improvement. ITS believes that its
clients appreciate the continuous and honest feedback the audit program provides
and that this approach enables the Company to correct problems that might not
otherwise come to its attention until the client became dissatisfied. The
Company believes, based on discussions with its customers, that it is the only
cleaning service provider that has such a program.

Passenger Services. Unlike predeparture screening services, customer
service is as important as cost in the awarding of domestic passenger service
contracts. Because passenger service providers such as skycaps, wheelchair
operators and cart drivers have a high level of interaction with passengers, ITS
has developed specialized training programs that emphasize customer service and
empathy. In 1996, the Company was awarded a contract to provide Continental
Airlines, Inc. skycaps nationwide. The Company's main competitors for passenger
services include the airlines, AHL, Globe Aviation Securities Corporation, and
Huntleigh, Inc.

Commercial Security. The commercial security field is highly fragmented.
There are as many as 160,000 separate providers of commercial and industrial
security services, and the Company does not believe that any participant has a
significant share of the market. While ITS has made only minor inroads into this
market, the Company's competitive strength in this area comes from its low
overhead costs and its ability to assimilate acquired commercial security
businesses into its existing administrative structure. In the commercial
security field, the major providers include Borg-Warner Security Corporation,
Guardsmark, Inc. and The Wackenhut Corporation.

MANAGEMENT AND REPORTING SYSTEMS

ITS is headquartered in Cleveland, Ohio and conducts its domestic
operations through an Eastern, a Central and a Western division. International
operations are conducted through the International Division. Each domestic
division has a President, who reports to the Company's Chief Operating Officer,
and a Controller. Each division has two or more district offices. Each district
has two or more recruiters and trainers who are responsible for ensuring that
the Company has adequate personnel to staff service contracts in that district.
The district managers report to their respective division presidents. Each
service site has a manager who reports to the applicable district manager.

All payroll and billing information is entered at the service sites and
transmitted to the Company's headquarters. Headquarters administrative personnel
verify the information, issue all client invoices for services, and authorize
the issuance of payroll checks from the division offices. The Company believes
that its payroll system facilitates on-time personnel payment and Company
control over unwarranted overtime costs.

The large number and geographic dispersion of the Company's employees, and
the volume of the Company's business that is documented on a chargeable hours
basis, create substantial administrative burdens. The Company believes that its
IBM mainframe computer system, implemented in February 1990 and upgraded in June
1993, enables it to manage efficiently its current and reasonably foreseeable
administrative requirements. The Company uses the system to, among other things,
monitor all company finance functions, audit training records, manage and
monitor payroll and billing, report on field irregularities, maintain
accountability of weapons detection, and manage client database information.

WORKFORCE MANAGEMENT

As of April 30, 1997, the Company had approximately 12,700 full and
part-time employees engaged in performing its client services. The Company's
services are characterized by task-repetitive, low wage functions, and the
Company, like its competitors, experiences high turnover and incurs substantial
hiring and training costs. The Company believes that maximizing employee
retention is important to reducing operating costs and providing high quality
service to its clients. Accordingly, the Company places significant emphasis on
motivating its employees and reducing turnover. In January 1997, the Company
instituted an employee medical benefit plan, which provides medical benefits to
eligible employees with minimal employee

29
<PAGE> 31

contribution. In addition, the Company grants various bonuses and awards to
exceptional employees, in part to further enhance retention.

Because employee turnover is inherent in the nature of its business, ITS
allocates significant resources to recruiting potential employees. Each
applicant must complete an interview and a written application. In addition, FAA
regulations require that each applicant provide proof of citizenship or resident
alien status, and each applicant is subject to a five- or ten-year background
verification, depending upon the position, and a pre-employment drug screen.

The Company has experienced control-related problems at various locations
involving employees' compliance with regulatory requirements. Some of these
incidents have had a material adverse effect on customer relationships and have
led to the termination of client contracts. Because of the nature of the
Company's business, there can be no assurance that control-related problems will
not arise in the future.

Approximately 330 skycap employees at Newark International Airport, 170
predeparture screeners at Logan International Airport in Boston and 85
predeparture screeners in Anchorage, Alaska are covered by collective bargaining
agreements. Each of these agreements was assumed by the Company in connection
with an acquisition of a contract previously held by another vendor. In fiscal
1996, unions initiated three efforts to organize Company employees in various
locations, each of which failed. The Company considers its relations with its
employees to be good.

CUSTOMERS AND CONTRACT TERMS

The Company derives a significant portion of its revenues from a few
clients. In fiscal 1996, Continental Airlines, Inc. (18.9%), United Air Lines,
Inc. (11.8%), Delta Air Lines, Inc. (7.0%), Southwest Airlines Co. (6.7%), U.S.
Airways, Inc. (6.5%) and Trans World Airlines, Inc. (5.3%) accounted for 56.2%
of the Company's revenues. During fiscal 1996, 1995 and 1994, the Company's ten
largest clients accounted for an aggregate of 68.6%, 79.9%, and 78.5%,
respectively, of the Company's revenues.

While the Company believes that relations with its customers are generally
satisfactory, it believes that relations with certain major airlines are
unsatisfactory. Over the past two fiscal years, the Company has lost contracts
to provide screening services at a number of major airports, including Los
Angeles, San Francisco, Phoenix, Minneapolis, Detroit, Boston and Ontario,
California. Most of the contracts lost by the Company were controlled by two
airline customers who together represented approximately 16.7%, 23.7% and 23.2%
of the Company's revenues in 1996, 1995 and 1994, respectively. The Company
recognizes the need to improve its relationships with these customers, and is
making efforts to accomplish this objective. These include the addition of a new
Chief Operating Officer with established relationships with several major
airlines and efforts to improve the quality of local and district management
personnel. The Company continues to provide services at each of these locations,
including, in some cases, screening services.

The services provided by the Company require it to train and manage
effectively low wage workforces with high turnover rates. From time to time, the
Company has failed to meet test standards or a client's service expectations at
a particular location, and, like its competitors, has had contracts terminated
because of customer dissatisfaction with various aspects of its performance. The
risk of contract termination as a result of actual or perceived service failures
is enhanced by the substantial publicity that, because of public concern over
airline security issues, often attends errors in the provision of screening
services. Failure to meet test or other performance standards may result in the
loss of a contract or service location or the Company's license to perform
services, and any such loss could have a material adverse effect on the
Company's reputation, business, results of operations and financial condition.

The Company's contracts with clients, including those that it obtains
through acquisitions, generally have one to three year terms but are cancelable
by either party on 30 to 90 days notice. The Company invoices its aviation
services clients weekly or biweekly. The Company invoices its commercial
security clients weekly, which is typical in that field.

The Company's contracts with airlines typically provide that the Company
will indemnify the client against claims for property damage, or personal injury
or death to any person, arising out of the negligent acts

30
<PAGE> 32

or omissions of ITS, unless the claim results from a negligent act of the
client. In addition, these contracts provide that the Company will pay FAA fines
of up to $10,000 per incident if it is responsible for the actions that give
rise to the fine.

LEGAL PROCEEDINGS

Because the Company's employees function in public facilities and in the
workplaces of other businesses, the Company is exposed to possible claims by its
clients' customers and employees of discrimination, harassment and negligence,
and similar claims. The Company is subject to liability for the acts or
negligence of its employees while on assignment that cause personal injury or
damages, and to claims of misuse of client proprietary information or theft of
client property. As a provider of security services, the Company faces potential
liability for claims that may arise from any terrorist activity occurring in
circumstances associated with the Company. Although the Company maintains
insurance coverage against such potential liabilities, any such claim against
the Company might exceed the amount of such insurance coverage or fall outside
the type of activities covered by such insurance.

In May 1997, a United States District Court in Philadelphia, Pennsylvania,
rendered a judgment in the amount of $900,000 against the Company in connection
with a employment discrimination lawsuit. The Company believes that it has
accrued adequate reserves to cover the judgment and plans to contest the
judgment on appeal.

On December 2, 1996, the United States Equal Employment Opportunity
Commission (the "EEOC") filed suit against the Company in the United States
District Court for the Southern District of Indiana on behalf of two named
plaintiffs and a class of similarly situated female employees of the Company
(the "Plaintiffs"). The EEOC's complaint alleges that the Company engaged in
sexual harassment of the Plaintiffs in violation of federal law. The EEOC seeks
to force the Company to refrain from the alleged sexual harassment in the
future, and to compensate the Plaintiffs for pecuniary and non-pecuniary losses
claimed to have resulted from the alleged harassment. The Company plans to
vigorously contest the suit.

The Company is also involved in various legal proceedings, including
routine civil actions instituted by the FAA with respect to test failures,
background check and recordkeeping matters, that arise in the ordinary course of
its business. The Company does not believe that the ultimate outcome of these
proceedings will have a material adverse effect on the Company's business,
assets, financial condition or results of operations.

GOVERNMENT REGULATION

Certain of the Company's clients are subject to various regulations and
directives issued by the FAA. Under current regulations, independent
contractors, such as the Company, that perform services for air carriers and
airport authorities share responsibility for aviation security with air
carriers, airport authorities, the FAA and various other federal, state and
local agencies. At airports throughout the United States, the FAA tests security
systems and conducts threat and vulnerability assessments. Through the use of
its regulatory powers, the FAA directs the aviation industry to implement
measures that address existing and anticipated threat situations.

FAA regulations require each air carrier and airport authority to implement
an FAA-approved security program. Airport authorities are responsible for
maintaining a secure environment on airport grounds and for providing law
enforcement support and training. Air carriers are responsible for the security
of all people and items connected to their aircraft, including passengers,
baggage, and maintenance and flight crews. The FAA has promulgated regulations
requiring air carriers to conduct predeparture screening of all passengers and
property that will be carried in an aircraft cabin. These regulations also
provide basic standards for the screeners, and equipment and procedures to be
used in predeparture screening activities. FAA regulations also mandate
pre-employment background checks of persons hired to serve as screeners.
Although an air carrier is permitted to outsource its screening function, FAA
regulations require the air carrier to provide oversight in order to assure that
all requirements are met. For example, FAA regulations require an air carrier's
ground security coordinator to review security-related functions and initiate
corrective action for noncompliance, and to conduct an annual evaluation of each
person assigned screening duties. In addition to the oversight

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<PAGE> 33

responsibilities imposed on air carriers, the FAA itself regularly conducts
tests of predeparture screening checkpoints at U.S. airports. Failure to meet
requirements imposed by the FAA or the air carrier or the failure of various
tests administered by the FAA can result in fines and other penalties to the
responsible air carrier, which are in turn passed on to the screening company
under the terms of the contract between the provider and the carrier. Regulatory
compliance problems and test failures may also result in the termination of a
security contract or of services at the affected site.

Historically, entities providing predeparture screening services have not
been subject to certification or direct regulation by the FAA. However, recent
events, including the April 1995 bombing of the Alfred P. Murrah Federal
Building in Oklahoma City and the explosion of TWA Flight 800 in July 1996, have
focused intense governmental scrutiny on issues relating to the deterrence of
domestic terrorism and aviation security. As a result, at least three separate
governmental authorities have recommended changes in laws relating to aviation
security and have authorized studies of new regulations designed to increase
airport safety. These governmental initiatives have focused on, among other
things, the need for standards to apply to providers of predeparture screening
services.

The first new mandates resulting from this increased focus were issued in
October 1996, when the United States Congress approved the Federal Aviation
Reauthorization Act of 1996 (the "1996 Act"). Among the directives in the 1996
Act are requirements that airlines and airports periodically assess their
security systems, that background checks be conducted for all predeparture
screeners and other employees associated with baggage or cargo, and that the FAA
"certify" companies that provide predeparture screening services. The 1996 Act
also directed the FAA and the United States Department of Transportation to
assist airlines in developing computer-assisted and other appropriate passenger
profiling programs, authorized a 90-day study of the practicality of
transferring security responsibilities from airlines to airports or to the
government, and granted funds to the National Academy of Science for a study of
systems to detect weapons and explosives. Other areas being investigated by
Congress include the feasibility of requiring a match of all checked bags with a
boarded passenger and increased inspection of air cargo.

The Gore Commission, which was formed following the explosion of TWA Flight
800, included the heads of various federal agencies and was charged with making
recommendations on how a partnership between the U.S. government and industry
participants can achieve improved aviation security. The Gore Commission issued
its final report on February 12, 1997, and recommended: (i) development of
uniform performance standards for selection, training and certification of
predeparture screening companies; (ii) implementation of procedures for matching
of passengers and checked baggage on a nationwide basis no later than December
31, 1997; (iii) the continued development and implementation of an automated
passenger profiling system; and (iv) utilization of U.S. Customs Service
personnel and computer systems to complement the efforts of the FAA and other
federal agencies. The FAA has initiated rulemaking procedures that would
implement certain of these recommendations.

The Aviation Security Advisory Committee ("ASAC"), a committee of
government and industry participants, was formed following the crash of Pan Am
flight 103 in 1989 and is charged with coordinating the flow of aviation
security information and countermeasures within the United States. In July 1996,
ASAC began an effort to strengthen the domestic aviation security "baseline" and
formed a working group to recommend specific measures. In its report issued on
December 12, 1996, ASAC recommended that no change be made in the current
structure or assignment of responsibilities for aviation security. ASAC did
recommend, however, that the FAA initiate rulemaking procedures for
"certification" of security contractors and made numerous recommendations with
respect to specific aviation security measures, which are generally consistent
with those proposed by the Gore Commission.

Subsequent to the issuance of the Gore Commission and ASAC recommendations,
the FAA issued an Advanced Notice of Proposed Rulemaking (the "APRM") relating
to the certification directive contained in the 1996 Act. In the APRM, the FAA
solicited public comment on a number of issues relating to the certification of
companies providing predeparture screening services. Issues upon which comment
was solicited include the information to be collected by an air carrier prior to
contracting with a screening company, the nature and scope of air carriers'
oversight responsibilities for screening companies, methods for

32
<PAGE> 34

evaluating screener performance and improving screener training, the
qualification of screening companies and the appropriate nature of the
certification process and the constraints that should be imposed on new
screening companies. The comment period associated with the APRM expired on May
1, 1997. To date, the FAA has not promulgated any proposed rules concerning the
implementation of the 1996 Act's certification directive, and the Company is
unable to predict the nature and extent of such regulations or their potential
impact on the Company's business.

In addition to the certification directive contained in the 1996 Act,
executives of certain major air carriers have proposed the transfer of security
responsibilities from third party contractors to a nationwide nonprofit security
corporation, funded by the air carriers. Any shift in responsibility for
aviation security to such an entity or to the government could have a material
adverse effect on the Company's results of operations and financial condition.

Risk analysis through profiling has been utilized in various forms by U.S.
carriers since 1986. In 1995, the FAA mandated that all U.S. carriers adopt a
uniform methodology of risk analysis through profiling at their "high-risk"
stations. In April 1996, the United States enacted a new anti-terrorism law,
which, among other things, mandates that foreign air carriers flying to and from
airports in the United States use security measures identical to those required
of U.S. airlines serving the same airports. In July 1996, as an initial response
to the explosion of TWA Flight 800, the FAA issued a "security directive"
applicable to all international flights originating from the United States,
which requires the implementation of certain passenger and cargo classifications
similar to some of the profiling procedures included in the Company's profiling
method.

The Company's aviation and commercial security services are subject to
regulation by various state and local authorities. The Company is also required
to obtain and maintain various licenses and permits from state and local
authorities to provide aviation and commercial security services, as well as
certain other services.

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<PAGE> 35

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The Board of Directors of the Company currently consists of two members,
Robert A. Weitzel and his spouse. The Company will expand the Board of
Directors, on or prior to completion of the Offering, to five persons, including
three independent Directors. Directors will be elected at each annual meeting of
shareholders and will serve until their successors are duly elected and
qualified.

The Company's Articles of Incorporation provide that the Board of Directors
must consist of a majority of Independent Directors. In the event of the
resignation or removal of an Independent Director, the resulting vacancy will be
filled by the remaining Independent Directors.

Executive officers of the Company are elected and serve at the discretion
of the Board of Directors until their successors are duly chosen and qualified.

The following table sets forth certain information concerning the
individuals who will be directors and officers of the Company on the completion
of the Offering.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Robert A. Weitzel.................. 62 Director and Chief Executive Officer
James O. Singer.................... 53 Director, President and Chief Operating Officer
Robert A. Swartz................... 34 Vice President and Chief Financial Officer
Scott E. Brewer.................... 35 Vice President and General Counsel
Daniel J. Richards................. 39 Eastern Division President
Stephen Metzler.................... 39 Central Division President
Gene Empey......................... 53 Western Division President
Dillard Woodson.................... 49 International Division President
Lee C. Howley...................... 49 Proposed Director
Ivan J. Winfield................... 62 Proposed Director
Jerry V. Jarrett................... 66 Proposed Director
</TABLE>

The following is a biographical summary of the business experience of the
current and proposed directors and officers of the Company.

Robert A. Weitzel, a Director since 1987, is the Chief Executive Officer of
the Company. He has served as the Chief Executive Officer of the Company since
1987 and was President from 1987 to April 1997. He served as Senior Vice
President from 1982 to 1987 and Vice President from 1978 to 1982.

James O. Singer, a Director since June 1997, has been President and Chief
Operating Officer since joining the Company in April 1997. Mr. Singer was
employed by AMR Services Corporation, an aviation services company, as
President-Airline Services Division from May 1989 to June 1995. From 1995 until
April 1997, Mr. Singer worked as a consultant in the aviation industry.

Robert A. Swartz is the Vice President and Chief Financial Officer of the
Company. He has served in this capacity since October 1995. From April 1989 to
October 1995, he was Chief Financial Officer for ASM International, a service
company. From August 1987 to April 1989, he was a senior auditor with Grant
Thornton LLP.

Scott E. Brewer is the Vice President and General Counsel of the Company.
He has served as Vice President since April 1995 and General Counsel since
September 1993. Mr. Brewer was in the private practice of law from October 1988
to August 1993.

Daniel J. Richards is the Eastern Division President of the Company. He has
served in this position since December 1996. From March 1994 to December 1996 he
was Director Ground Handling/Director Field Operations for American
International Freight, an air cargo service company. He served as a Field
Service Supervisor for Airborne Express, an air cargo service company, from
January 1993 to March 1994. He served

34
<PAGE> 36

as Vice President of Operations for Evergreen Aviation, an air cargo service
company, from June 1991 to December 1992.

Stephen Metzler is the Central Division President of the Company. He has
served in this capacity since April 1996. He served as Vice President Eastern
Division from May 1995 to April 1996 and District Manager from May 1994 to May
1995. He served as Aircraft Appearance Manager from December 1991 to May 1994.

Gene Empey is the Western Division President of the Company. He has served
in this capacity since December 1988.

Dillard Woodson is the International Division President of the Company. He
has served in this capacity since February 1997. He served as the Vice President
of Systems and Training from February 1996 to February 1997. He served as the
Technical Management Consultant to CSA Airlines in Prague from January 1994 to
February 1996. He served as the General Manager for Liberia for Intercon
Security Ltd., a commercial security company, from April 1993 to June 1993. Mr.
Woodson was an artillery officer in the United States Marine Corps from 1968 to
June 1993.

Ivan Winfield is currently Associate Professor and Chairholder of the
Herzog Chair in Free Enterprise at Baldwin Wallace College, in Berea, Ohio. Mr.
Winfield retired in 1994 from Coopers & Lybrand, L.L.P. From 1978 to 1990 he was
managing partner of the firm's Oklahoma practice and from 1990 to 1994 he was
managing partner of the firm's Northeast Ohio practice. Mr. Winfield is a
Trustee of The Fairport Funds and is Chairman of its audit committee. Mr.
Winfield is also a Director of HMI Industries, Inc. and is Chairman of its
finance committee. Mr. Winfield also serves as a Director of Boykin Lodging
Company, a publicly held real estate investment trust.

Lee C. Howley, Jr. has been the sole owner and president of Howley &
Company, a real estate brokerage and development company, since 1981, and has
been the sole owner and Chairman of Coast Management Company, a cleaning and
real estate management company, since 1987. Since January 1992 Mr. Howley has
served as the Chairman of the Convention and Visitors Bureau of Greater
Cleveland. Mr. Howley serves on the Board of Directors of LESCO, Inc., a
publicly held manufacturer and supplier of lawn care products, and Boykin
Lodging Company.

Jerry V. Jarrett joined Ameritrust Company National Association, a national
banking association, in 1974, and served as its Chairman and Chief Executive
Officer from 1983 until 1990. Mr. Jarrett serves as a director of Forest City
Enterprises Inc., a real estate leasing company, and United Way International.
He is a member of the Distribution Committee of the Cleveland Foundation and
Treasurer of The Musical Arts Association (The Cleveland Orchestra). Mr. Jarrett
is also a trustee of The Cleveland Clinic Foundation and of The Greater
Cleveland Advisory Board of the Salvation Army, of which he is past Chairman.

COMMITTEES

In connection with the Offering, the Board will establish an Audit
Committee and a Compensation Committee. Messrs. Winfield, Howley and Jarrett
will serve as the members of both committees.

The Audit Committee will have responsibility for reviewing and making
recommendations regarding the Company's employment of independent accountants,
the annual audit of the Company's financial statements and the Company's
internal controls, accounting practices and policies. The Compensation Committee
will be responsible for determining the nature and amount of compensation of the
executive officers of the Company and administering the Company's employee
benefit plans.

LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Ohio Revised Code provides, with certain limited exceptions, that a
director may be held liable in damages for his act or omission as a director
only if it is proved by clear and convincing evidence that he undertook the act
or omission with deliberate intent to cause injury to the corporation or with
reckless disregard for its best interest.

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<PAGE> 37

The Ohio Revised Code authorizes Ohio corporations to indemnify officers
and directors from liability if the officer or director acted in good faith and
in a manner reasonably believed by the officer or director to be in or not
opposed to the best interest of the corporation, and, with respect to any
criminal actions, if the officer or director has no reason to believe his action
was unlawful. In the case of an action by or on behalf of corporation,
indemnification may not be made (i) if the person seeking indemnification is
adjudged liable for negligence or misconduct, unless the court in which such
action was brought determines such person is fairly and reasonably entitled to
indemnification or (ii) if liability asserted against such person concerns
certain unlawful distributions. The indemnification provisions of the Ohio Code
require indemnification if a director or officer has been successful on the
merits or otherwise in defense of any action, suit or proceeding that he was a
party to by reason of the fact that he is or was a director or officer of the
corporation. The indemnification authorized under Ohio law is not exclusive and
is in addition to any other rights granted to officers and directors under the
articles of incorporation or code of regulations of the corporation or any
agreement between officers and directors and the corporation. A corporation may
purchase and maintain insurance or furnish similar protection on behalf of any
officer or director against any liability asserted against him and incurred by
him in his capacity, or arising out of the status, as an officer or director,
whether or not the corporation would have the power to indemnify him against
such liability under the Ohio Code.

The Company's Code of Regulations provides for the indemnification of
directors and officers of the Company to the maximum extent permitted by Ohio
law as authorized by the Board of Directors of the Company, and for the
advancement of expenses incurred in connection with the defense of any action,
suit or proceeding that he was a party to by reason of the fact that he is or
was a director of the Company upon the receipt of any undertaking to repay such
amount unless it is ultimately determined that the director is entitled to
indemnification.

The Company is seeking an insurance policy that will provide coverage in
the amount of $5,000,000 for the officers and directors of the Company against
claims arising out of alleged wrongful acts by such persons in their respective
capacities as officers and directors of the Company.

EXECUTIVE COMPENSATION

Summary Compensation Table. The following table sets forth information
regarding the compensation of the Chief Executive Officer and certain
individuals serving as executive officers during the last fiscal year,
(collectively, the "Named Executive Officers"), for services rendered in all
capacities to the Company during fiscal 1996.

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION FY(1) SALARY($) BONUS($) COMPENSATION($)(2) COMPENSATION($)(3)
- ----------------------------------- ---- -------- -------- ------------------ ------------------
<S> <C> <C> <C> <C> <C>
Robert A. Weitzel.................. 1996 $312,250 $200,244 $447
President and Chief Executive
Officer(4)
Robert A. Swartz................... 1996 $ 67,600 $ 38,848 $159,142(5)
Vice President and Chief
Financial Officer
Scott Dennison(6).................. 1996 $ 68,658 $ 48,137
President, Crown Technical
Services
Scott Brewer....................... 1996 $ 50,000 $ 38,239 $ 43,402(5)
Vice President and General
Counsel
Steven Metzler..................... 1996 $ 69,999 $ 28,895 $216
Central Division President
Gene Empey......................... 1996 $ 82,515 $ 11,562
Western Division President
</TABLE>

- ---------------
(1) Includes compensation earned, awarded or paid for the fiscal year ended
March 31, 1997.

(2) No Named Executive Officer received perquisites or other personal benefits
in excess of the lesser of $50,000 or 10% of such individual's salary plus
annual bonus.

36
<PAGE> 38

(3) Represents amounts contributed by the Company to the Company's 401(k) Plan,
as matching contributions relating to before-tax contributions made by such
individual.

(4) Effective September 1, 1997, Mr. Weitzel's annual salary will be reduced to
$300,000. Mr. Weitzel will also be entitled to a $100,000 bonus, payable
within 90 days after the end of fiscal 1997, if the Company achieves its
budgeted net income for fiscal 1997.

(5) Amounts reported under the caption "Other Annual Compensation" reflect the
cash value of Common Shares awarded to the Named Executive Officers on
November 1, 1996 as determined by an independent appraisal. The Common
Shares awarded to such persons are subject to shareholders agreements, to
which the Company is a party. See "-- Shareholders Agreements."

(6) Mr. Dennison resigned from the Company in February 1997.

There were no options outstanding or granted in fiscal 1996.

EMPLOYMENT CONTRACTS

Robert A. Weitzel, James O. Singer, Robert A. Swartz and Scott E. Brewer
have entered into employment contracts with the Company. Mr. Weitzel's agreement
provides for an initial three-year term that is automatically extended for an
additional year at the end of each year of the agreement, subject to the right
of either party to terminate the agreement by giving two years' prior written
notice. The agreement for Mr. Singer provides that he is responsible for the
day-to-day operations of the Company. The agreement also provides for an initial
two-year term that is automatically extended for an additional year at the end
of each year of the agreement, subject to the right of either party to terminate
the agreement by giving six months' prior written notice. The agreements for
Messrs. Swartz and Brewer provide for an initial one-year term that is
automatically extended for an additional year at the end of each year of the
agreement, subject to the right of either party to terminate the agreement by
giving six months' prior written notice.

Mr. Weitzel will also be entitled to a annual base compensation of
$300,000, and a bonus of up to $100,000, if the Company achieves its budgeted
net income for fiscal 1997. Mr. Singer will receive a salary of $150,000 and a
bonus of $100,000. Mr. Swartz will receive a salary of $71,500 and a bonus of
0.75% of operating income if the Company achieves its monthly operating budget
goals. Mr. Brewer will receive a salary of $50,000 and a bonus of 0.75% of
operating income if the Company achieves its monthly operating goals. For
purposes of the bonuses payable for 1997, the Compensation Committee will
calculate appropriate prorated amounts. Messrs. Weitzel, Singer, Swartz and
Brewer will also be granted an aggregate of 200,262 options to purchase Common
Shares in connection with the Offering. See "Long Term Incentive Plan."

Each agreement provides that the employee will not compete with the Company
in the aviation services or commercial security business during his employment
or at any time during a period of up to two years immediately following the
termination of his employment. Further, each agreement provides that upon (i)
the termination of the employee's employment by the Company other than for
"cause" (as defined in the employment contracts) or by the employee for certain
actions of the Company, such as effecting a material adverse change in the
employee's duties and responsibilities, or (ii) a "change of control" of the
Company (as defined in the employment contracts), the employee will be entitled
to all of the compensation and benefits payable to him under the employment
contract for the remainder of the stated term of the employment contract.

SHAREHOLDERS AGREEMENTS

Robert A. Swartz, Scott E. Brewer and Gene Empey have each entered into a
Shareholder Agreement with the Company (collectively, the Shareholders
Agreements). The Shareholders Agreements provide certain rights of first refusal
to the Company and the other shareholders of the Company to purchase any Common
Shares proposed to be transferred by such officers, at a price equal to the
lesser of (i) the price proposed to be paid by the transferee or (ii) a price
determined on an annual basis by the Company and Mr. Weitzel (which price will
not exceed the net book value of the Common Shares) (the "Agreement Price"). In
addition, the Shareholders Agreements provide that, upon the death of any such
officer or the

37
<PAGE> 39

termination of his employment, the Company shall purchase all of the Common
Shares owned by him at the Agreement Price. The Shareholders Agreements also
give the Company the right to purchase all of such Common Shares at the
Agreement Price if the Division for which such officer is responsible fails to
achieve budgeted levels of profitability, and provide the other shareholders
with an option to purchase such Common Shares at the Agreement Price in the
event of the disability of any such officer.

COMPENSATION COMMITTEE INTERLOCKS

The Company does not currently have a board committee performing the
function of a compensation committee. Robert A. Weitzel made decisions with
regard to the compensation of the Company's executive officers for fiscal 1996.
After the consummation of the Offering, the Board of Directors will create a
Compensation Committee consisting of the independent directors. See "Certain
Transactions" for information concerning transactions between the Company and
Mr. Weitzel.

COMPENSATION OF DIRECTORS

The Company intends to pay its Independent Directors an annual fee of
$12,000 and a fee of $1,000 for each directors' meeting and each committee
meeting attended. Each director may elect to receive his compensation in the
form of grants of Common Shares. No other directors will receive directors'
fees. Upon completion of the Offering, each Independent Director will receive an
option for 5,000 Common Shares exercisable at the initial public offering price
of the Common Shares, which option will vest fully within the first two years of
issuance and will have a term of ten years.

DIRECTORS' DEFERRED COMPENSATION PLAN

The purpose of the Company's Directors' Deferred Compensation Plan (the
"Deferred Plan") is to assist it in attracting and retaining persons of
competence and stature to serve as outside directors by giving them the option
to defer receipt of the fees payable to them by the Company for their services
as directors. A director is eligible to participate in the Deferred Plan if he
or she receives fees for services as a director and is not employed by the
Company. The Deferred Plan is administered by Company officers and directors who
are (i) appointed by the Board of Directors of the Company and (ii) not eligible
to participate in the Deferred Plan. The Deferred Plan is applicable to all
director's fees payable with respect to periods commencing on or after the
consummation of the Offering. The value of amounts credited to a director in the
Deferred Plan increases or decreases based on the market value of the Company's
Common Shares plus the value of dividends or other distributions on the
Company's Common Shares. Distribution of amounts credited to a director in the
Deferred Plan commences (i) on a date elected by the director, so long as that
the date is not earlier than the January 1 following the year in which the
director attains age 72, or (ii) within ninety (90) days after the date of the
director's death or disability.

LONG TERM INCENTIVE PLAN

The purpose of the Company's Long Term Incentive Plan (the "Plan") is to
promote the long-term growth and profitability of the Company by enabling it to
attract, retain and reward key employees of the Company and its affiliates and
to strengthen the mutuality of interest between such key employees and the
Company's shareholders. Grants of incentive or nonqualified share options,
restricted shares, deferred shares, share purchase rights, share appreciation
rights in tandem with options ("SARs"), other share-based awards, or any
combination thereof, may be made under the Plan. Officers and key employees who
are responsible for or contribute to the management, growth or profitability of
the business of the Company and its affiliates are eligible for grants and
awards under the Plan. The Compensation Committee will administer the Plan and
determine the type, amount and timing of grants and awards. The members of the
Compensation Committee are not eligible to participate in the Plan. The Company
has reserved 267,015 Common Shares for issuance under the Plan. No Participant
in the Plan may be granted share options or other share awards in any calendar
year for more than 100,000 shares. Upon the Closing, Messrs. Weitzel, Singer,
Swartz and Brewer will be granted options to purchase 66,760, 33,362, 50,070,
and 50,070 shares, respectively, under the Plan. The share limitations, shares
reserved and the terms of outstanding awards will be adjusted, as the
Compensation

38
<PAGE> 40

Committee deems appropriate, in the event of a share dividend, split or other
change in the corporate structure of the Company affecting the shares.

Share Options and Tandem SARs. The term of each option granted under the
Plan will not exceed 10 years from the date of grant, and the exercise price of
share options may not be less than 100% of the fair market value (as defined in
the Plan) of the shares on the date the option is granted. The Compensation
Committee may grant tandem SARs to any person granted an option under the Plan.
Each tandem SAR will represent the right to receive, in cash or shares as the
Compensation Committee determines, a distribution in an amount equal to the
excess of the fair market value of the option shares (to which the SAR
corresponds) on the date of exercise over the exercise price for those shares.
Each tandem SAR expires at the same time as its corresponding option. The
exercise of an option will result in an immediate forfeiture of its
corresponding SAR, and the exercise of an SAR will cause an immediate forfeiture
of its corresponding option. The Plan provides that all options and tandem SARs
will vest on a change in control (as defined in the Plan) of the Company.

Share Awards. The Compensation Committee may award Common Shares under the
Plan and may place restrictions on the transfer or defer the date of receipt of
those shares. Each award will specify any applicable restrictions or deferral
date, the duration of those restrictions, and the time at which the restrictions
lapse. Participants will be required to deposit shares with the Company during
the period of any restrictions. The Compensation Committee may also grant share
purchase rights for which the purchase price may not be less than 100% of the
fair market value (as defined in the Plan) on the date of grant.

Other Share-Based Awards. The Compensation Committee may grant other
awards of shares and other awards that are valued or otherwise based on the
Company's Common Shares.

Miscellaneous. The Plan provides for vesting, exercise or forfeiture of
rights granted under the Plan on retirement, death, disability, termination of
employment or a change of control. The Board of Directors may modify, suspend or
terminate the Plan as long as it does not impair the rights thereunder of any
participant. Under applicable law, the holders of Common Shares must approve any
increase in the maximum number of shares reserved for issuance under the Plan,
any change in the classes of employees eligible to participate in the Plan and
any material increase in the benefits accruing to participants.

39
<PAGE> 41

CERTAIN TRANSACTIONS

Company Purchases of Shares. In February 1994, Robert A. Weitzel borrowed
$200,000 from the Company, evidenced by a promissory note bearing interest at
the rate of 8.0% per annum (the "Note"). Mr. Weitzel utilized the $200,000 to
purchase 200 of the Company's Class E Preferred Shares, par value $1,000 per
share (the "Class E Preferred"), from a former officer of the Company. The
Company acquired the Class E preferred from Mr. Weitzel in March 1997 in
exchange for cancellation of the Note, with accrued and unpaid cumulative
dividends offset against accrued interest on the Note, resulting in
approximately $8,000 of interest remaining to be paid by Mr. Weitzel.

In December 1996, the Company purchased 2,002,727 Common Shares from a
former officer of the Company for $1,200,000.

Indebtedness of Principal Shareholder. In May 1993, Robert A. Weitzel,
President and Chief Executive Officer of the Company, borrowed $252,720 from the
Company at an annual rate of interest of 8.15%, evidenced by a promissory note
and secured by a mortgage on Mr. Weitzel's home. Mr. Weitzel also borrowed
$70,000 from the Company in January 1994, at an annual interest rate of 10%,
evidenced by a promissory note. The largest aggregate amount of indebtedness Mr.
Weitzel had outstanding in favor of the Company was $1,978,000, $1,866,000 and
$1,763,000 in fiscal 1996, 1995 and 1994, respectively. The current amount of
Mr. Weitzel's indebtedness to the Company is $445,119, including the interest
referred to above and approximately $100,000 that is delinquent. Mr. Weitzel
will repay his indebtedness to the Company at the time of consummation of the
Offering.

Acquisition of NBC Leasing, Inc. NBC Leasing, Inc. ("NBC") was merged into
the Company in March 1997. NBC had leased certain machinery and equipment to the
Company prior to the merger. The Company paid $50,000 in management fees to NBC
in each of fiscal 1996, 1995 and 1994. NBC was owned by certain shareholders and
employees of the Company, including Robert A. Weitzel, who was issued 4,126
Common Shares in exchange for his 75% interest in NBC in connection with the
merger. In connection with the merger, the Company cancelled $1,694,000 in notes
and accrued interest receivable from the shareholders of NBC and $1,694,000 in
notes payable to the NBC shareholders by NBC were contributed to capital.

International Transport Security, Inc. International Transport Security,
Inc. ("Transport") was a corporation under common ownership with the Company
until it was dissolved in March 1996. Prior to March 31, 1996, Transport
provided management services to the Company. Transport incurred $4.3 million,
$4.6 million and $959,000 in payroll costs in fiscal 1994, 1995 and 1996 and
received from the Company $4.1 million, $3.8 million and $696,000 in management
fees in fiscal 1994, 1995 and 1996. See "Consolidated Financial Statements."

Agreement with Norman H. Wood. On September 22, 1987, shareholders holding
substantially all of the outstanding shares of ITS executed a written consent in
which they agreed to distribute to Norman H. Wood, who was at that time the
Company's Chief Operating Officer, 6.546% of the net proceeds received by them
upon the sale of the Company. Mr. Weitzel has agreed to settle any claims that
Mr. Wood may have with respect to that instrument by transferring to Mr. Wood
73,101 of his own Common Shares of the Company at the time of consummation of
the Offering.

40
<PAGE> 42

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Shares on a fully diluted basis as of March
31, 1997, and as adjusted to reflect the sale of the Common Shares offered
hereby, for: (a) each of the Company's Directors; (b) each person known by the
Company to own beneficially more than 5% of the outstanding Common Shares on a
fully diluted basis; (c) each Named Executive Officer; and (d) the Company's
executive officers and Directors as a group. All information with respect to
beneficial ownership by the Company's directors, officers or beneficial owners
has been furnished by the respective director, officer or beneficial owner, as
the case may be. Except as otherwise described in the notes below, the following
beneficial owners have sole voting power and sole investment power with respect
to all Common Shares set forth opposite their names.

<TABLE>
<CAPTION>
COMPANY COMMON SHARES BENEFICIALLY OWNED
-----------------------------------------------------------
BEFORE THE AFTER THE
OFFERING SHARES OFFERING
-------------------- BEING --------------------
NAME AND ADDRESS(1) NUMBER PERCENT OFFERED NUMBER PERCENT
------------------------------ ---------- ------ ---------- ---------- ------
<S> <C> <C> <C> <C> <C>
Robert A. Weitzel............. 3,438,990 94.12% 227,273 3,211,717 51.37%
James O. Singer(2)............ 0 0 0 0
Robert A. Swartz.............. 41,901 1.15 41,901 0.67
Scott E. Brewer............... 16,116 0.44 16,116 0.26
Stephen Metzler............... 0 0 0 0
Scott Dennison................ 0 0 0 0
Gene Empey.................... 6,446 0.18 6,446 0.10
Ivan J. Winfield(2)........... 0 0 0 0
3901 Insworth
Pepper Pike, Ohio 44124
Lee C. Howley, Jr.(2)......... 0 0 0 0
5430 Portage Drive
Vermillion, Ohio 44089
Jerry V. Jarrett(2)........... 0 0 0 0
2614 Fairwood Drive
Pepper Pike, Ohio 44124
All Directors and executive
officers
as a group (11 persons)..... 3,503,453 95.88% 3,276,180 52.36%
</TABLE>

- ---------------
(1) Unless otherwise indicated, the address of each beneficial owner is Crown
Centre, 5005 Rockside Road, Independence, Ohio 44031.

(2) Each of these individuals will receive options to purchase Common Shares in
the following amounts in connection with the Offering: Mr. Singer (33,362
shares); Mr. Winfield (5,000 shares); Mr. Howley (5,000 shares); and Mr.
Jarrett (5,000 shares).

41
<PAGE> 43

DESCRIPTION OF CAPITAL SHARES

The following summary description of the Company's capital shares does not
purport to be complete and is qualified in its entirety by reference to the
Amended and Restated Articles of Incorporation of the Company (the "Articles")
and the Code of Regulations of the Company, which are included as exhibits to
the Registration Statement of which this Prospectus forms a part.

The Articles authorize (a) 20 million Common Shares, without par value, of
which 3,653,909 were issued and outstanding immediately prior to the Offering
and (b) five million Serial Preferred Shares, without par value ("Serial
Preferred Shares"), none of which is issued and outstanding. After completion of
the Offering, a total of 6,251,636 Common Shares will be issued and outstanding.

COMMON SHARES

Subject to the rights of the holders of any outstanding Preferred Shares,
the holders of Common Shares are entitled to receive such dividends as may be
declared by the Board and to share ratably in assets available for distribution
upon liquidation. There are no pre-emptive rights, conversion rights, redemption
provisions or sinking fund provisions with respect to Common Shares under the
Articles. Holders of Common Shares are entitled to one vote per share. All
Common Shares offered hereby, upon completion of the Offering, will be fully
paid and nonassessable.

PREFERRED SHARES

The Board is empowered to authorize the issuance of Serial Preferred Shares
which may be issued in one or more series. All series of Serial Preferred Shares
will rank equally and will be identical in all respects, except that the Board
may fix with respect to each such series without further action by the
shareholders, prior to issuance thereof, the following terms: (a) the
designation of the series; (b) the authorized number of shares of the series,
subject to certain increases and decreases as determined by the Board from time
to time; (c) the dividend rate or rates of the series; (d) the date or dates
from which dividends shall accrue and (if applicable) will be cumulative and the
dates on which and the period or periods for which dividends, if declared, shall
be payable, including the means by which such dates and periods may be
established; (e) any redemption rights and redemption prices; (f) the terms and
amounts of any sinking fund; (g) the amounts payable on shares of the series on
any voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Company; (h) whether the shares of the series are convertible
into Common Shares or shares of any other class and, if so, the conversion rate
or rates or price or prices, any adjustments thereof and all other terms and
conditions upon which such conversion may be made; and (i) any restrictions on
the issuance of shares of the same or any other class or series. The holders of
Serial Preferred Shares will have no voting rights, except as otherwise provided
by law as specifically provided in the Articles with respect to certain matters,
such as the election of two members of the Board upon default by the Company in
the payment of dividends for a 540-day period and amendments to the Articles
that would adversely affect the rights of holders of Serial Preferred Shares.
All series of Preferred Shares would rank, as to dividend and liquidation
rights, senior to Common Shares.

Because of its discretion with respect to the creation and issuance of any
series of Preferred Shares without shareholder approval, the Board could
adversely affect the voting power and other rights of the holders of Common
Shares. The ability of the Board to issue Preferred Shares, while providing
flexibility in connection with financings, acquisitions and other corporate
purposes, could have the effect of discouraging an attempt by another person or
entity, through the acquisition of a substantial number of Common Shares, to
acquire control of the Company with a view to effecting a merger, sale of the
Company's assets or similar transaction, since the issuance of Preferred Shares
could be used to dilute the share ownership of a person or entity seeking to
obtain control of the Company with a view to effecting a merger, sale of the
Company's assets or similar transaction. Additionally, issuance of Preferred
Shares could result in there being a class of shares with conversion features
and preference over Common Shares with respect to dividends and distributions in
liquidation and could also result in the dilution of net income and book value
per share of the Company.

42
<PAGE> 44

CERTAIN ANTI-TAKEOVER PROVISIONS

Chapter 1704 of the Ohio Revised Code prohibits certain transactions,
including mergers, sales of assets and similar corporate transactions, involving
Ohio corporations and holders of 10% or more of their voting shares, unless
certain advance approvals are obtained or certain other conditions are met.
Section 1701.831 of the Ohio Revised Code imposes certain advance notice and
shareholder approval requirements with respect to voting share acquisitions that
cross the 20%, 33 1/3% and 50% of voting shares thresholds. Section 1707.041 of
the Ohio Revised Code imposes advance filing and notice requirements with
respect to certain tender offers and invitations for tenders for more than 10%
of certain Ohio corporations. These restraints could discourage potential
acquisition proposals and could delay or prevent a change in control of the
Company.

TRANSFER AGENT AND REGISTRAR

The Transfer Agent and Registrar for the Common Shares is First Chicago
Trust Company, Inc. of New York, located in New York, New York.

SHARES ELIGIBLE FOR FUTURE SALE

Sales of substantial amounts of Common Shares in the public market, or the
perception that those sales could occur, could adversely affect the prevailing
market price of Common Shares and make it more difficult for the Company to sell
equity securities in the future at a time and price that it considers
appropriate.

Immediately following completion of the Offering, the Company will have
6,251,636 Common Shares outstanding. All of the 2,825,000 Common Shares being
sold in the Offering (or 3,248,750 shares if the Underwriters' over-allotment
option is exercised in full) will be freely tradeable (other than by an
"affiliate" of the Company as such term is defined in the Securities Act)
without restriction or registration under the Securities Act. Of the Common
Shares owned by Management, 3,276,180 shares will be eligible for public sale
only if registered under the Securities Act or an exemption from registration is
available, including Rule 144 thereunder, and only following release from or
expiration of a 180 day lockup agreement with the Underwriters.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted Common Shares
for at least one year but less than two years will be entitled to sell in any
three-month period a number of such shares that does not exceed the greater of
(i) 1.0% of the then outstanding Common Shares (approximately 62,516 shares
immediately after the Offering) or (ii) the average weekly trading volume of
Common Shares on the Nasdaq National Market during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
Commission. Sales pursuant to Rule 144 are also subject to certain other
requirements relating to manner of sale, notice and availability of current
public information about the Company. A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the three months immediately preceding the sale is entitled to sell
restricted shares pursuant to Rule 144(k) without regard to the limitations
described above, if two years have expired since the later of the date on which
those restricted shares were acquired from the Company or the date they were
acquired from an affiliate of the Company.

The Company and all of its Directors, officers and current shareholders who
will hold, upon completion of the Offering, 3,426,636 Common Shares have agreed
that they will not, directly or indirectly, without the prior written consent of
the Underwriters, and except for any grant of options under the Long-Term
Incentive Plan, as described herein, offer, sell, grant any option to purchase
or otherwise dispose (or announce any offer, sale, grant of any option to
purchase or other disposition) of any Common Shares, or any securities
convertible into, or exchangeable or exercisable for, Common Shares, for a
period of 180 days after the Closing Date of the Offering.

43
<PAGE> 45

UNDERWRITING

In the Underwriting Agreement, the Underwriters, represented by McDonald &
Company Securities, Inc. (the "Representative"), have agreed, severally, subject
to the terms and conditions therein set forth, to purchase from the Company and
the Selling Shareholder, and the Company and the Selling Shareholder have agreed
to sell to them, the number of Common Shares totaling 2,825,000 shares, set
forth opposite their respective names below. The Underwriters are committed to
take and pay for all shares if any shares are purchased.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
McDonald & Company Securities, Inc........................................
-------
Total................................................................ 2,825,000
=======
</TABLE>

The Company has been advised by the Representative that the Underwriters
propose to offer the Common Shares to the public at the public offering price
set forth on the cover page of this Prospectus. The Underwriters may allow to
certain selected dealers who are members of the National Association of
Securities Dealers, Inc. (the "NASD") a discount not exceeding $ per share,
and the Underwriters may allow, and such selected dealers may re-allow, a
discount not exceeding $ per share to other dealers who are members of the
NASD. After the Offering, the public offering price and the discount to dealers
may be changed by the Representative.

The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a maximum
of 423,750 Common Shares at the public offering price, less the underwriting
discount, as set forth on the cover page of this Prospectus. The Underwriters
may exercise that option only to cover over-allotments in the sale of the Common
Shares that the Underwriters have agreed to purchase. To the extent that the
Underwriters exercise such option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase the same percentage of
the option shares as the number of shares to be purchased and offered by that
Underwriter in the table above bears to the total.

The Company and the Selling Shareholder have agreed to indemnify the
Underwriters against certain liabilities which may be incurred in connection
with the Offering, including liabilities under the Securities Act of 1933.

The Company, the Selling Shareholder and the directors, executive officers
and current shareholders of the Company have agreed that they will not offer,
sell, transfer or otherwise dispose of any Common Shares, or any securities
convertible into or exchangeable for Common Shares, for a period of 180 days
from the date of this Prospectus, without the prior written consent of McDonald
& Company Securities, Inc.

The Representative has advised the Company that the Underwriters do not
intend to confirm sales of Common Shares offered by this Prospectus to any
accounts over which they exercise discretionary authority.

At the request of the Company, up to 100,000 Common Shares offered in the
Offering have been reserved for sale to employees of the Company and certain
members of their families. The price of those shares to those persons will be
equal to the public offering price set forth on the cover page of this
Prospectus. The number of shares available to the general public will be reduced
to the extent those persons purchase reserved shares. Any shares not so
purchased will be offered in the Offering at the public offering price set forth
on the cover page of this Prospectus.

44
<PAGE> 46

In connection with the Offering and in compliance with applicable law, the
Underwriters may overallot or effect transactions that stabilize, maintain, or
otherwise affect the market price of the Common Shares at levels above those
that might otherwise prevail in the open market, including by entering
stabilizing bids, effecting syndicate covering transactions or imposing penalty
bids. A stabilizing bid means the placing of any bid, or the effecting of any
purchase, for the purpose of pegging, fixing or maintaining the price of a
security. A syndicate covering transaction means the placing of any bid on
behalf of the underwriting syndicate or the effecting of any purchase to reduce
a short position created in connection with the Offering. A penalty bid means an
arrangement that permits McDonald & Company Securities, Inc., as managing
underwriter, to reclaim a selling concession from a syndicate member in
connection with the Offering when securities originally sold by the syndicate
member are purchased in stabilizing or syndicate covering transactions. These
transactions may be effected on the Nasdaq National Market or otherwise. The
Underwriters are not required to engage in any of these activities. Any such
activities, if commenced, may be discontinued at any time.

Prior to the Offering, there has not been any public market for the Common
Shares. Consequently, the initial public offering price for the Common Shares
included in the Offering will be determined by negotiations between the Company
and the Representative. Among the factors considered in determining that price
will be the history of and prospects for the Company's business and the industry
in which it competes, an assessment of the Company's management and the present
state of the Company's development, the past and present revenues and earnings
of the Company, the prospects for growth of the Company's revenues and earnings,
the current state of the economy in the United States and the current level of
economic activity in the industry in which the Company competes and in related
or comparable industries, and currently prevailing conditions in the securities
markets, including current market valuations of publicly traded companies that
are comparable to the Company.

LEGAL MATTERS

The validity of the Common Shares offered hereby will be passed upon for
the Company by Baker & Hostetler LLP, Cleveland, Ohio and certain legal matters
will be passed upon for the Underwriters by Calfee, Halter & Griswold LLP,
Cleveland, Ohio.

EXPERTS

The financial statements included in this Prospectus, except as they relate
to the unaudited periods, have been so included in reliance on the reports of
Grant Thornton LLP, independent accountants, given on the authority of said firm
as experts in auditing and accounting.

Effective October 20, 1995, the Company replaced Ernst & Young LLP as its
independent accountants. The decision to change accountants was approved by the
Board of Directors. There were no disagreements with the former accountants on
any matter of accounting principles or practices, or auditing scope or
procedure. Ernst & Young LLP has not audited or otherwise expressed an opinion
on any of the financial statements included in this Registration Statement.

45
<PAGE> 47

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement (of which this Prospectus is a part) on
Form S-1 under the Securities Act with respect to the securities offered hereby.
This Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. Statements contained in this
Prospectus as to the content of any contract or other document are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference and the
exhibits and schedules thereto. The Registration Statement and those exhibits
and schedules can be inspected and copied at the public reference facilities
maintained by the Commission at its principal office at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional
offices located at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 66061 and 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of that material can also be obtained from the Public Reference
Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 29549, at prescribed rates. The Commission also maintains a Web
site (address http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that filed electronically
with the Commission.

The Company intends to furnish its shareholders with annual reports
containing consolidated financial statements audited by its independent
certified public accountants and with quarterly reports containing unaudited
condensed consolidated financial statements for each of the first three quarters
of each fiscal year.

46
<PAGE> 48

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
International Total Services, Inc. and Subsidiaries
Report of Independent Certified Public Accountants.................................. F-2
Consolidated Balance Sheets at March 31, 1997 and 1996.............................. F-3
Consolidated Statements of Earnings for the years ended March 31, 1997, 1996 and
1995............................................................................. F-4
Consolidated Statements of Shareholders' Equity for the years ended March 31, 1997,
1996 and 1995.................................................................... F-5
Consolidated Statements of Cash Flows for the years ended March 31, 1997, 1996 and
1995............................................................................. F-6
Notes to Consolidated Financial Statements.......................................... F-7

Intex Aviation Services, Inc.
Report of Independent Certified Public Accountants.................................. F-15
Balance Sheets at December 31, 1996 and 1995........................................ F-16
Statements of Earnings for the years ended December 31, 1996, 1995 and 1994......... F-17
Statements of Shareholders' Equity for the years ended December 31, 1996, 1995 and
1994............................................................................. F-18
Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994....... F-19
Notes to Financial Statements....................................................... F-20
</TABLE>

F-1
<PAGE> 49

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
SHAREHOLDERS AND BOARD OF DIRECTORS
INTERNATIONAL TOTAL SERVICES, INC.

We have audited the accompanying consolidated balance sheets of International
Total Services, Inc. and subsidiaries as of March 31, 1997 and 1996, and the
related consolidated statements of earnings, shareholders' equity, and cash
flows for each of the three years in the period ended March 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
International Total Services, Inc. and subsidiaries as of March 31, 1997 and
1996, and the consolidated results of their operations and their consolidated
cash flows for each of the three years in the period ended March 31, 1997 in
conformity with generally accepted accounting principles.

GRANT THORNTON LLP

Cleveland, Ohio
May 9, 1997, except for the first paragraph of
Note A and the second and third paragraphs
of Note J for which the date is June 17, 1997

F-2
<PAGE> 50

INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS

CURRENT ASSETS
Cash and cash equivalents................................................. $ 1,452,028 $ 1,872,787
Accounts receivable -- net of allowance for doubtful accounts of $100,000
in each year............................................................ 11,784,252 9,075,726
Deferred taxes............................................................ 1,493,521 1,284,901
Other current assets...................................................... 1,555,988 1,175,646
----------- -----------
Total current assets............................................... 16,285,789 13,409,060
Notes Receivable from Officers.............................................. 445,119 2,271,949
Property and Equipment
Security equipment........................................................ 2,758,716 2,385,900
Service equipment......................................................... 1,657,055 1,565,135
Computer equipment........................................................ 1,758,405 1,320,141
Furniture and fixtures.................................................... 859,933 547,761
Leasehold improvements.................................................... 56,387 56,387
Autos..................................................................... 499,835 203,581
----------- -----------
7,590,331 6,078,905
Less accumulated depreciation and amortization............................ 4,335,864 2,740,118
----------- -----------
3,254,467 3,338,787
Intangibles, less accumulated amortization of $648,480 and $440,783 in 1997
and 1996, respectively.................................................... 4,345,518 1,792,973
Security Deposits and Other................................................. 2,670,244 79,329
----------- -----------
7,015,762 1,872,302
----------- -----------
$27,001,137 $20,892,098
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to bank..................................................... $ 2,400,000 $ 4,753,424
Current maturities of long-term obligations............................... 120,536 52,281
Trade accounts payable.................................................... 2,747,803 2,784,346
Accrued payroll and payroll taxes......................................... 8,702,819 7,337,828
Other accrued expenses.................................................... 1,417,662 1,030,259
Income taxes payable...................................................... 572,875 401,704
----------- -----------
Total current liabilities.......................................... 15,961,695 16,359,842
Deferred Tax Liability...................................................... 288,827 390,207
Long-Term Obligations....................................................... 7,555,649 164,140
Commitments and Contingencies............................................... -- --
STOCKHOLDERS' EQUITY
Class A preferred stock, $2,000 par value -- authorized 50 shares,
issued 10 shares in 1996............................................... -- 20,000
Class E preferred stock, $1,000 par value -- authorized 300 shares,
issued and outstanding 200 shares in 1996.............................. -- 200,000
Common stock, without par value, stated at $.01 per share -- authorized
20,000,000 shares, issued 3,660,357 and 6,446,310 shares in 1997 and
1996, respectively..................................................... 36,604 64,463
Additional paid-in capital.............................................. 472,892 362,193
Cumulative translation adjustment....................................... (98,854) (78,174)
Retained earnings....................................................... 2,784,324 3,998,377
----------- -----------
3,194,966 4,566,859
Less treasury stock, 10 shares Class A preferred stock and 806,727
shares of common stock in 1996......................................... -- 588,950
----------- -----------
3,194,966 3,977,909
----------- -----------
$27,001,137 $20,892,098
=========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-3
<PAGE> 51

INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
----------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Operating revenues............................... $115,241,516 $ 95,462,891 $ 92,654,181
Cost of operating revenues....................... 98,337,729 81,340,962 79,981,094
------------ ------------ ------------
Gross profit................................ 16,903,787 14,121,929 12,673,087
Selling, general and administrative expenses..... 13,333,545 11,603,393 12,654,456
------------ ------------ ------------
Operating profit............................ 3,570,242 2,518,536 18,631
Other expense (income)
Interest expense............................... 764,845 654,057 332,772
Interest income................................ (127,510) (131,531) (144,361)
------------ ------------ ------------
637,335 522,526 188,411
------------ ------------ ------------
Earnings (loss) before income taxes......... 2,932,907 1,996,010 (169,780)
Income taxes..................................... 1,237,117 958,427 547,852
------------ ------------ ------------
NET EARNINGS (LOSS)......................... $ 1,695,790 $ 1,037,583 $ (717,632)
------------ ------------ ------------
Earnings (loss) per share........................ $ 0.34 $ 0.17 $ (0.12)
============ ============ ============
Weighted average number of shares................ 5,014,847 5,877,999 6,376,728
============ ============ ============
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE> 52

INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
UNREALIZED
CLASS A CLASS E ADDITIONAL LOSS ON CUMULATIVE
PREFERRED PREFERRED COMMON PAID-IN MARKETABLE TRANSLATION
STOCK STOCK STOCK CAPITAL SECURITIES ADJUSTMENT
--------- --------- ------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT APRIL 1, 1994......................... $20,000 $ 200,000 $64,463 $362,193 $(27,893) $ (24,480)
Translation adjustment........................... -- -- -- -- -- 15,002
Unrealized loss on securities.................... -- -- -- -- (23,624) --
Purchase of 10 shares of Class A Preferred Stock
and 572,198 shares of common stock for
treasury....................................... -- -- -- -- -- --
Issuance of 25,785 common shares from treasury... -- -- -- -- -- --
Net loss......................................... -- -- -- -- -- --
------- -------- ------- -------- -------- --------
BALANCE AT MARCH 31, 1995........................ 20,000 200,000 64,463 362,193 (51,517) (9,478)
Translation adjustment........................... -- -- -- -- -- (68,696)
Sale of marketable securities.................... -- -- -- -- 51,517 --
Purchase of 286,099 shares of common stock for
treasury....................................... -- -- -- -- -- --
Issuance of 25,785 common shares from treasury... -- -- -- -- -- --
Net earnings..................................... -- -- -- -- -- --
------- -------- ------- -------- -------- --------
BALANCE AT MARCH 31, 1996........................ 20,000 200,000 64,463 362,193 -- (78,174)
Purchase of 2,028,477 shares of common stock for
treasury....................................... -- -- -- -- -- --
Issuance of 45,124 common shares from treasury... -- -- -- 171,000 -- --
Translation adjustment........................... -- -- -- -- -- (20,680)
Dividends declared -- Class E Preferred Stock.... -- -- -- -- -- --
Redemption Class E Preferred Stock............... -- (200,000) -- -- -- --
Merger of NBC Leasing............................ -- -- -- 34,862 -- --
Retirement of Treasury Stock..................... (20,000) -- (27,859) (95,163) -- --
Net earnings..................................... -- -- -- -- -- --
------- -------- ------- -------- -------- --------
BALANCE AT MARCH 31, 1997........................ $ -- $ -- $36,604 $472,892 $ -- $ (98,854)
======= ======== ======= ======== ======== ========

TOTAL
RETAINED TREASURY STOCKHOLDERS'
EARNINGS STOCK EQUITY
---------- ---------- ------------
<S> <C> <C> <C>
BALANCE AT APRIL 1, 1994......................... $3,678,426 $ -- $4,272,709
Translation adjustment........................... -- -- 15,002
Unrealized loss on securities.................... -- -- (23,624)
Purchase of 10 shares of Class A Preferred Stock
and 572,198 shares of common stock for
treasury....................................... -- (425,000) (425,000)
Issuance of 25,785 common shares from treasury... -- 18,025 18,025
Net loss......................................... (717,632) -- (717,632)
---------- ---------- ----------
BALANCE AT MARCH 31, 1995........................ 2,960,794 (406,975) 3,139,480
Translation adjustment........................... -- -- (68,696)
Sale of marketable securities.................... -- -- 51,517
Purchase of 286,099 shares of common stock for
treasury....................................... -- (200,000) (200,000)
Issuance of 25,785 common shares from treasury... -- 18,025 18,025
Net earnings..................................... 1,037,583 -- 1,037,583
---------- ---------- ----------
BALANCE AT MARCH 31, 1996........................ 3,998,377 (588,950) 3,977,909
Purchase of 2,028,477 shares of common stock for
treasury....................................... -- (1,226,584) (1,226,584)
Issuance of 45,124 common shares from treasury... -- 31,544 202,544
Translation adjustment........................... -- -- (20,680)
Dividends declared -- Class E Preferred Stock.... (52,000) -- (52,000)
Redemption Class E Preferred Stock............... -- -- (200,000)
Merger of NBC Leasing............................ (1,219,513) 2,638 (1,182,013)
Retirement of Treasury Stock..................... (1,638,330) 1,781,352 --
Net earnings..................................... 1,695,790 -- 1,695,790
---------- ---------- ----------
BALANCE AT MARCH 31, 1997........................ $2,784,324 $ -- $3,194,966
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-5
<PAGE> 53

INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
-------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net earnings...................................... $ 1,695,790 $ 1,037,583 $ (717,632)
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation................................... 837,466 897,291 771,950
Amortization................................... 207,697 268,321 166,812
Loss (gain) on disposal of equipment........... 297,719 (113,998) (14,583)
Gain on sale of marketable securities.......... -- (27,251) --
Deferred income taxes.......................... (310,000) (294,785) (313,914)
Stock compensation............................. 202,544 18,025 18,025
Changes in operating assets and liabilities:
Accounts receivable.......................... (2,708,526) (500,940) (1,322,894)
Other current and noncurrent assets.......... (518,417) 11,827 (880,673)
Trade accounts payable....................... 314,826 404,191 430,293
Accrued expenses............................. 1,923,565 263,658 1,704,441
---------- ---------- ----------
Net cash provided by (used in) operating
activities.............................. 1,942,664 1,963,922 (158,175)
INVESTING ACTIVITIES:
Additions to property and equipment............... (1,051,649) (900,599) (1,518,057)
Proceeds received from sale of equipment.......... 160,278 542,844 220,200
Proceeds from sale of marketable securities....... -- 109,185 --
Payments for acquisitions of businesses, primarily
by purchase of security contracts.............. (2,760,242) -- (2,838,365)
Deposit on acquisition of business of Intex
Aviation Services, Inc......................... (2,570,886) -- --
---------- ---------- ----------
Net cash (used in) provided by investing
activities.............................. (6,222,499) (248,570) (4,136,222)
FINANCING ACTIVITIES:
Net borrowings (payments) on note payable to
bank........................................... 2,005,072 (819,021) 5,108,880
Borrowings on subordinated debt................... 3,000,000 -- --
Borrowings on long-term debt...................... 153,550 77,763 343,200
Principal payments on long-term debt.............. (52,282) (99,364) (135,922)
Purchase of treasury stock........................ (1,226,584) (200,000) (425,000)
---------- ---------- ----------
Net cash provided by (used in) financing
activities.............................. 3,879,756 (1,040,622) 4,891,158
Effect of exchange rates on cash.................... (20,680) (68,696) 15,002
---------- ---------- ----------
NET (DECREASE) INCREASE IN CASH........... (420,759) 606,034 611,763
Cash and cash equivalents at beginning of year...... 1,872,787 1,266,753 654,990
---------- ---------- ----------
Cash and cash equivalents at end of year............ $ 1,452,028 $ 1,872,787 $ 1,266,753
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for:
Interest....................................... $ 782,382 $ 610,333 $ 331,474
========== ========== ==========
Income taxes................................... $ 1,230,953 $ 1,137,953 $ 1,312,282
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-6
<PAGE> 54

INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997, 1996 AND 1995

NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies consistently applied in
the preparation of the combined financial statements follows. All share and per
share amounts have been adjusted for the 12,892.62 for 1 stock split declared on
June 17, 1997.

Business

International Total Services, Inc. (the Company) is a provider of
commercial security and aviation services, providing personnel and management
support to airlines at airports primarily in the United States and Europe. One
airline customer accounted for 18.9%, 18.4% and 27.6% of operating revenues for
the years ended March 31, 1997, 1996 and 1995, respectively. Another airline
customer accounted for 11.8%, 15% and 13.6% of operating revenues for the same
periods. Furthermore, five airline customers, including the two noted above,
accounted for approximately 51%, 51% and 56% of operating revenues for the years
ended March 31, 1997, 1996 and 1995, respectively, and 35%, 39% and 42%,
respectively, of accounts receivable at those dates.

Principles of Consolidation

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

International Transport Security, Inc. (Transport) was a corporation under
common ownership with the Company until it was dissolved in March 1996. The sole
function of Transport was to pay compensation to the officers and other
corporate personnel of the Company for which Transport received a management
fee. Accordingly, Transport's accounts have been included in the consolidated
financial statements through the date of dissolution. Upon dissolution of
Transport, the Company began paying all compensation directly.

NBC Leasing, Inc. (NBC) was a corporation under common ownership until it
was acquired by and merged into the Company on March 31, 1997. The acquisition
was accounted for in a manner similar to a pooling; as such, NBC's assets and
liabilities were recorded at historical cost as of the date of acquisition.

NBC leased machinery and equipment to the Company on a month-to-month
basis. Lease payments for the years ended March 31, 1997, 1996 and 1995 amounted
to $138,384, $205,297 and $260,862, respectively. The Company provided
management and financial consulting services to NBC and recognized management
fee income in the amount of $60,000 in all three years.

Cash Flow Statement

For purposes of the Statement of Cash Flows, the Company considers all
short-term, highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.

During the year ended March 31, 1997, the Company entered into the
following noncash transactions:

(1) The Company redeemed 200 shares of Class E preferred stock from
its principal shareholder in exchange for a $200,000 note receivable from
the shareholder. In addition, the Company declared $52,000 in dividends,
including all dividend arrearages, on the preferred shares and paid the
dividends by reducing the accrued interest receivable due on the note.

(2) The Company acquired NBC by issuing from treasury 4,126 shares of
common stock to its principal shareholder, paying $12,500 to the other NBC
shareholders and by offsetting $1,695,414 in notes and accrued interest
receivable due from the shareholders of NBC against corresponding

F-7
<PAGE> 55

INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

obligations of NBC to the shareholders. The notes and interest receivable
included $1,271,560 due from the Company's principal shareholder. The
shareholders of NBC were also officers of the Company.

Fair Value of Financial Instruments

Statement of Financial Accounting Standards No. 107, Disclosures About Fair
Value of Financial Instruments (SFAS 107), requires disclosure of the following
information about the fair value of certain financial instruments for which it
is practicable to estimate that value. For purposes of the following disclosure,
the fair value of a financial instrument is the amount at which the instrument
could be exchanged in a current transaction between willing parties, other than
in a forced sale or liquidation. These amounts represent management's best
estimates of fair value.

The carrying value of cash and cash equivalents, net trade receivables and
payables approximate fair value due to the relatively short period to maturity
of these instruments. The carrying value of long-term debt approximates fair
value based on borrowing rates currently available to the Company for debt with
comparable maturities. The carrying value of notes receivable from officers
approximates fair value based on the interest rates on the notes compared to
rates available to the Company for comparable investments.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided over
the estimated useful lives of the respective assets, principally five or seven
years, using the straight-line method.

Intangibles

During fiscal years ended March 31, 1997 and 1995, the Company acquired
various aviation service businesses, primarily through the assumption of certain
security service contracts for approximately $2,795,000 and $2,838,000,
respectively. A substantial portion of the purchase price was allocated to
intangibles, the balance of which are noted below:

<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1997 1996
----------- ----------
<S> <C> <C>
Goodwill................................................ $ 2,309,000 $1,678,000
Service contracts....................................... 251,000 187,000
Covenant not to compete................................. 200,000 200,000
----------- ----------
$ 2,760,000 $2,065,000
=========== ==========
</TABLE>

In fiscal 1997, the Company changed its estimate of the useful life of
acquired goodwill from 5 and 10 years to 20 years based upon what management
believes is a better approximation of the life of the contracts, including
renewals, based on the Company's retention rate and the additional business
obtained as a result of entering new markets through the acquisition of existing
contracts. As a result, amortization expense for 1997 was approximately $140,000
less than what it would have been under the previous methods. The service
contracts and covenants not to compete are being amortized over their remaining
lives of up to five years. Amortization of intangibles was $207,697, $268,321
and $166,812 for the fiscal years ended March 31, 1997, 1996 and 1995,
respectively.

Management of the Company assesses the recoverability of its long-lived
assets by using projected undiscounted future cash flows to determine whether
the carrying amount of the asset can be recovered over its remaining life. The
evaluation of long-lived assets also takes into consideration operating results
and trends and prospects of the Company. Based on the assessments made,
management believes no impairment of the Company's intangible and tangible
assets has occurred.

F-8
<PAGE> 56

INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The Company's methodology is consistent with the provisions of Statement of
Financial Accounting Standards No. 121 (FAS 121), Accounting for the Impairment
of Long-Lived Assets and Assets To Be Disposed Of.

Research and Development

During the fiscal year ended March 31, 1995, the Company incurred and
charged to expense approximately $500,000 in research and development costs. No
such costs were incurred in the fiscal years ended March 31, 1997 or 1996.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

NOTE B -- CAPITAL STOCK

Through March 31, 1997 the Company had authorized five classes of preferred
stock (A through E), at which date there were 50 authorized shares of Class A
preferred. Ten of the Class A preferred had been issued, all of which were
reacquired for $25,000 in 1995 and retired in 1997. Class A shares had 6%
cumulative dividend rights and were redeemable at the Company's option. There
also were 300 authorized shares of Class E preferred. The 200 shares issued and
outstanding at March 31, 1996 and 1995 were redeemed and retired in 1997. Class
E shares had 8% cumulative dividend rights. In March 1997, the Company declared
and paid dividends on Class E preferred shares in the amount of $52,000 which
included all dividends in arrears at that date. Additionally there were 100
authorized shares each of Class B, C and D nonvoting preferred stock, none of
which were issued.

During 1995, 1996 and 1997, the Company reacquired 572,198 shares, 286,099
shares and 2,028,477 shares of its common stock. During the three years, the
Company reissued 96,694 of those shares, including 45,124 shares valued at
$202,544 granted to certain officers in November 1996. The Company retired all
treasury shares as of March 31, 1997. In April 1997 the Company reacquired and
retired 6,446 shares from a former employee for $9,000.

NOTE C -- FINANCING ARRANGEMENTS

The Company has a committed credit facility secured by all domestic
accounts receivable, equipment, and other assets. The facility consists of a
revolving promissory note of $10,500,000, a $2,000,000 term loan and a $900,000
term loan. The revolving promissory note bears interest at 1.25% over the bank's
prime rate (8 1/2% at March 31, 1997). The credit facility provides the Company
with a credit line based upon 80% of domestic and 50% of foreign outstanding
accounts receivable less than 90 days past due and carries an annual commitment
fee of .2% on the daily average unused amount of the commitments. Effective
March 31, 1997, the revolving promissory note was amended and the maturity date
was extended until March 31, 1999. Accordingly, the note has been classified as
long-term debt and excluded from the table below at March 31, 1997.

The $2,000,000 term loan bears interest at a fixed rate of 9.832% and
requires monthly principal payments of $41,667 beginning May 1997 with a final
lump sum payment of $1,749,998 due November 1, 1997. The $900,000 term loan
bears interest at 2% over the bank's prime rate. The unpaid balance on the
$900,000 term loan is due December 31, 1997.

F-9
<PAGE> 57

INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Notes payable to bank consists of the following:

<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Revolving promissory note................................ $ -- $3,853,424
$2,000,000 term loan..................................... 2,000,000 --
$900,000 term loan....................................... 400,000 900,000
---------- ----------
$2,400,000 $4,753,424
========== ==========
</TABLE>

NOTE D -- INCOME TAXES

The provision for income taxes consists of the following for the years
ended March 31:

<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Pretax Income
Domestic................................ $ 2,497,259 $ 1,898,242 $ 481,855
Foreign................................. 435,648 361,078 227,002
----------- ----------- -----------
Total (A)............................ $ 2,932,907 $ 2,259,320 $ 708,857
=========== =========== ===========
Current
Federal................................. $ 1,095,000 $ 883,738 $ 460,128
State................................... 253,000 232,702 145,704
Foreign................................. 199,117 136,772 67,863
Settlement of federal liability......... -- -- 188,071
----------- ----------- -----------
Total current........................ 1,547,117 1,253,212 861,766
Deferred
Federal................................. (260,000) (250,567) (263,632)
State................................... (50,000) (44,218) (50,282)
----------- ----------- -----------
Total deferred....................... (310,000) (294,785) (313,914)
----------- ----------- -----------
Total Provision...................... $ 1,237,117 $ 958,427 $ 547,852
=========== =========== ===========
</TABLE>

- ---------------

(A) Excludes Transport's loss as an "S-Corporation", $263,310 in 1996 and
$878,637 in 1995.

F-10
<PAGE> 58

INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Deferred income taxes reflect the tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and for income tax purposes. Significant components of deferred tax
assets and liabilities relate to the following at March 31:

<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Deferred compensation................... $ 428,000 $ 360,000 $ 360,000
Accrued workers' compensation........... 359,950 400,283 209,818
Accrued legal expenses.................. 535,762 324,078 293,577
Other accruals not currently
deductible........................... 179,738 163,864 70,872
Amortization of intangibles............. 51,470 21,798 7,765
Allowance for doubtful accounts......... 40,000 40,000 40,498
State income taxes...................... 45,866 30,578 25,820
Other................................... 50,045 54,630 40,280
----------- ----------- -----------
Total deferred tax assets............ $ 1,690,831 $ 1,395,231 $ 1,048,630
=========== =========== ===========
Deferred tax liabilities:
Depreciation............................ $ 340,297 $ 412,005 $ 446,333
Deferred expenses....................... 111,514 57,144 --
Other................................... 34,326 31,388 2,388
----------- ----------- -----------
Total deferred tax liabilities....... $ 486,137 $ 500,537 $ 448,721
=========== =========== ===========
Net deferred tax assets.............. $ 1,204,694 $ 894,694 $ 599,909
=========== =========== ===========
</TABLE>

A reconciliation of the provision for income taxes with the U.S. Federal
Statutory tax rate is as follows:

<TABLE>
<CAPTION>
1997 PERCENT 1996 PERCENT 1995 PERCENT
---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Statutory tax rates
Federal rate............................ $ 997,188 34.0% $ 768,169 34.0% $ 241,011 34.0%
State income tax -- net of federal
tax................................... 128,460 4.4% 124,399 5.5% 62,979 8.9%
Effective rates of foreign tax.......... 50,997 1.8% 14,005 0.6% (9,318) (1.3%)
Non deductible items.................... 59,848 2.0% 64,988 2.9% 69,842 9.9%
Settlement of income tax liability for
years ended March 31, 1990 -- 1992
resulting from an Internal Revenue
Service examination................... -- -- -- -- 188,071 26.5%
Other -- net............................ 624 0.0% (13,134) (0.6%) (4,733) (0.7%)
---------- ----- ---------- ----- ---------- -----
$1,237,117 42.2% $ 958,427 42.4% $ 547,852 77.3%
========== ===== ========== ===== ========== =====
</TABLE>

NOTE E -- LONG-TERM OBLIGATIONS

Long-term obligations consist of the following at March 31:

<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Revolving bank note........................ $ 4,358,496 $ -- $ --
Subordinated debt.......................... 3,000,000 -- --
Capital lease obligations.................. 164,140 216,421 186,836
Other...................................... 153,549 -- 51,186
---------- ---------- ----------
7,676,185 216,421 238,022
Less current portion..................... 120,536 52,281 85,942
---------- ---------- ----------
$ 7,555,649 $ 164,140 $ 152,080
========== ========== ==========
</TABLE>

F-11
<PAGE> 59

INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The revolving bank note represents borrowings under the Company's domestic
credit facility as described in Note C. The note matures March 31, 1999.

The subordinated debt consists of a note payable, due in twelve quarterly
principal installments of $250,000, beginning February 1999. Quarterly interest
payments are made on a current basis at a fixed rate of 20%. The note is
subordinated to all borrowings provided under the bank credit facility contained
in Note C.

The capital lease obligations relate to equipment used in the Company's
operations. The cost of property and equipment at March 31, 1997, 1996 and 1995
includes $280,963, $280,963 and $203,200, respectively, related to these capital
leases, while accumulated depreciation includes $86,265, $48,649 and $8,711,
respectively.

The following is a schedule by years of future minimum lease payments under
capital leases together with the present value of the net minimum lease payments
as of March 31, 1997:

<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
--------------------------------------------------------------------
<S> <C>
1998................................................................ $ 71,642
1999................................................................ 71,642
2000................................................................ 44,285
--------
Total minimum lease payments........................................ 187,569
Less amount representing interest................................... 23,429
--------
Present value of net minimum lease payments......................... $164,140
========
</TABLE>

Aggregate maturities for all long-term obligations at March 31, 1997 are as
follows:

<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------------------------------
<S> <C>
1998.............................................................. $ 120,536
1999.............................................................. 4,726,773
2000.............................................................. 1,078,876
2001.............................................................. 1,000,000
2002.............................................................. 750,000
----------
$7,676,185
==========
</TABLE>

NOTE F -- LEASE OBLIGATIONS

The Company leases certain equipment and facilities under operating leases
which expire at various dates through December 31, 2001. The future minimum
lease commitments under these operating leases are as follows:

<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
------------------------------------------------------------------
<S> <C>
1998.............................................................. $1,036,576
1999.............................................................. 708,338
2000.............................................................. 559,247
2001.............................................................. 520,718
2002.............................................................. 363,239
----------
$3,188,118
==========
</TABLE>

Rent expense incurred under operating leases was $1,440,274, $1,721,867 and
$1,653,709 for the years ended March 31, 1997, 1996 and 1995, respectively.

F-12
<PAGE> 60

INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

NOTE G -- RELATED PARTY TRANSACTIONS

The notes receivable from officers at March 31, 1997 consist of two notes
from the Company's principal shareholder, plus accrued interest thereon. One
note, in the amount of $252,720, bears interest at the rate of 8.15% and is
secured by a mortgage on the shareholder's home. The other note, in the amount
of $70,000, is unsecured and bears interest at the rate of 10%. Both notes
provide for monthly payments of principal and interest, which payments were
delinquent at March 31, 1997. The shareholder will repay his indebtedness to the
Company at the time of consummation of the Offering referred to in Note J.
Interest income on shareholder notes amounted to $119,285, $136,737 and $136,105
in the years ended March 31, 1997, 1996 and 1995, respectively.

NOTE H -- LITIGATION

The Company is subject to on-going legal proceedings and claims which arise
in the ordinary course of its business. While the ultimate outcome of these
matters cannot be reasonably estimated at this time, these actions, when
ultimately settled or adjudicated, will not, in the opinion of management, have
a material adverse effect on the financial condition or results of operations of
the Company. The Company has accrued for matters where management has determined
that it is probable a liability for which a loss or range of loss can be
reasonably estimated has been incurred.

NOTE I -- COMMITMENT

The Company carries high deductible workers' compensation insurance that
provides coverage to all employees except for those in states that require
coverage under the state's workers' compensation funds. The coverage has a
deductible of $250,000 per occurrence and an aggregate deductible of $950,000
per policy. Under the terms of the insurance agreements, the Company has $90,000
in cash on deposit with insurance carriers and an outstanding letter of credit
in the amount of $922,000 on deposit with one carrier at March 31, 1997 under an
old policy. These funds and letter of credit serve as collateral for any claims
incurred but not reported. The Company has an accrued liability for unpaid
claims and claims incurred but not reported of $861,402, $714,124 and $558,149
at March 31, 1997, 1996 and 1995, respectively.

NOTE J -- SUBSEQUENT EVENTS

Effective April 1, 1997, the Company, through the assumption of various
contracts, acquired substantially all of the aviation service business of Intex
Aviation Services, Inc. for approximately $5,805,000, which amount included the
assumption of $663,000 of liabilities related to the contracts. A deposit of
approximately $2,571,000 was paid prior to that date and has been recorded in
"Other Assets" on the March 31, 1997 balance sheet. The remaining amount due of
$2,571,000 is payable in 105 days and is subject to adjustments based upon
billings during that period on the contracts acquired.

On June 17 1997, the Company's Board of Directors approved the filing of a
Registration Statement under the Securities Act of 1933 for a public offering of
up to 3,248,750 shares of common stock. Net proceeds from the sale of common
stock are estimated to be approximately $25.4 million. The Company will use a
portion of the proceeds to reduce its outstanding borrowings. The remainder of
the proceeds will be used for general corporate purposes, including working
capital to support the Company's growth and possible acquisitions.

Also on June 17, 1997, the shareholders of the Company approved an
amendment to the Company's Articles of Incorporation increasing the authorized
shares of stock to 20,000,000 common shares and 5,000,000 serial preferred
shares.

F-13
<PAGE> 61

INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

NOTE K -- EARNINGS PER SHARE

Earnings (loss) per share are determined by dividing net earnings (loss) by
the weighted average number of common shares outstanding during each period,
after giving effect to preferred dividend requirements. In February 1997, the
Financial Accounting Standards Board issued SFAS No. 128 "Earnings per Share".
This statement simplifies the standards for computing earnings per share ("EPS")
and makes them comparable to international EPS standards. This statement is
effective for financial statements issued for periods ending after December 15,
1997. The Company does not believe adoption of this standard will have a
significant impact on reported EPS.

F-14
<PAGE> 62

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
SHAREHOLDERS AND BOARD OF DIRECTORS
INTEX AVIATION SERVICES, INC.

We have audited the accompanying balance sheets of Intex Aviation Services, Inc.
as of December 31, 1996 and 1995, and the related statements of earnings,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Intex Aviation Services, Inc.
as of December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996, in
conformity with generally accepted accounting principles.

GRANT THORNTON LLP

Cleveland, Ohio
April 18, 1997

F-15
<PAGE> 63

INTEX AVIATION SERVICES, INC.
- --------------------------------------------------------------------------------
BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents....................................... $ 733,214 $ 290,898
Accounts receivable............................................. 5,692,734 9,546,396
Prepaid expenses................................................ 749,372 420,470
----------- -----------
Total current assets.................................... 7,175,320 10,257,764
PROPERTY AND EQUIPMENT
Furniture and fixtures.......................................... 42,370 51,394
Machinery and equipment......................................... 481,567 381,931
----------- -----------
523,937 433,325
Less accumulated depreciation................................... 338,023 311,662
----------- -----------
185,914 121,663
----------- -----------
$ 7,361,234 $10,379,427
=========== ===========

LIABILITIES AND SHAREHOLDER'S EQUITY
CURRENT LIABILITIES
Notes payable to bank........................................... $ 5,562,000 $ 8,280,000
Current portion of long-term debt............................... 48,982 47,832
Trade accounts payable.......................................... 120,825 190,782
Accrued liabilities............................................. 956,040 1,110,782
State income taxes payable...................................... 4,160 75,852
----------- -----------
Total current liabilities............................... 6,692,007 9,705,248
LONG-TERM DEBT.................................................... 101,411 150,394
SHAREHOLDER'S EQUITY
Common stock, par value $1 per share -- authorized -- 100,000
shares, issued and outstanding 11,250 shares................. 11,250 11,250
Retained earnings............................................... 556,566 512,535
----------- -----------
567,816 523,785
----------- -----------
$ 7,361,234 $10,379,427
=========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-16
<PAGE> 64

INTEX AVIATION SERVICES, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF EARNINGS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Operating revenues............................... $ 41,161,899 $ 48,552,512 $ 22,714,733
Cost of operating revenues....................... 35,877,280 42,393,448 18,595,731
----------- ----------- -----------
Gross profit........................... 5,284,619 6,159,064 4,119,002
Selling, general and administrative expenses..... 3,247,915 2,875,072 1,482,154
----------- ----------- -----------
Operating profit....................... 2,036,704 3,283,992 2,636,848
Other expense (income):
Interest expense............................... 532,717 504,910 58,299
Other.......................................... (55,850) (21,194) 826
----------- ----------- -----------
476,867 483,716 59,125
----------- ----------- -----------
Earnings before income taxes........... 1,559,837 2,800,276 2,577,723
Provision for state income taxes................. 40,280 95,589 97,674
----------- ----------- -----------
NET EARNINGS........................... $ 1,519,557 $ 2,704,687 $ 2,480,049
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-17
<PAGE> 65

INTEX AVIATION SERVICES, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1994.......................... $ 11,250 $ 426,915 $ 438,165
Net earnings...................................... -- 2,480,049 2,480,049
Distributions paid to shareholder................. -- (2,208,120) (2,208,120)
----------- ----------- -----------
BALANCE AT DECEMBER 31, 1994........................ 11,250 698,844 710,094
Net earnings...................................... -- 2,704,687 2,704,687
Distributions paid to shareholder................. -- (2,890,996) (2,890,996)
----------- ----------- -----------
BALANCE AT DECEMBER 31, 1995........................ 11,250 512,535 523,785
Net earnings...................................... -- 1,519,557 1,519,557
Distributions paid to shareholder................. -- (1,475,526) (1,475,526)
----------- ----------- -----------
BALANCE AT DECEMBER 31, 1996........................ $ 11,250 $ 556,566 $ 567,816
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-18
<PAGE> 66

INTEX AVIATION SERVICES, INC.
- --------------------------------------------------------------------------------
STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings...................................... $ 1,519,557 $ 2,704,687 $ 2,480,049
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation................................... 83,784 80,255 73,122
Changes in operating assets and liabilities:
Accounts receivable.......................... 3,853,662 (4,672,996) (3,550,519)
Prepaid expenses............................. (328,902) (216,403) (172,372)
Accounts payable............................. (69,957) (19,469) 157,686
Accrued liabilities.......................... (154,742) 346,954 522,242
Accrued state taxes.......................... (71,692) 4,639 (22,922)
---------- ---------- ----------
Net cash provided by (used in) operating
activities.............................. 4,831,710 (1,772,333) (512,714)
INVESTING ACTIVITIES
Purchases of property and equipment -- net........ (148,035) (76,580) (69,515)
FINANCING ACTIVITIES
Principal payments on long-term debt.............. (47,833) (46,682) (45,536)
Proceeds from note payable to bank................ 3,550,000 7,675,000 3,705,000
Principal payments on note payable to bank........ (6,268,000) (3,020,000) (580,000)
Distributions paid to shareholder................. (1,475,526) (2,890,996) (2,208,120)
---------- ---------- ----------
Net cash (used in) provided by financing
activities.............................. (4,241,359) 1,717,322 871,344
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................. 442,316 (131,591) 289,115
Cash and cash equivalents at beginning of year...... 290,898 422,489 133,374
---------- ---------- ----------
Cash and cash equivalents at end of year............ $ 733,214 $ 290,898 $ 422,489
========== ========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-19
<PAGE> 67

INTEX AVIATION SERVICES, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994

NOTE A -- BACKGROUND AND SIGNIFICANT ACCOUNTING POLICIES

Background

Intex Aviation Services, Inc. (the "Company"), which was incorporated as a
South Carolina corporation on December 7, 1988, cleans and services airplanes
and airport terminals under contracts with airlines at various locations in the
United States. Approximately 92% of revenues are earned through services for a
single airline. Substantially all trade accounts receivable at December 31, 1996
and 1995 were due from this customer. The Company does not generally require
collateral.

Subsequent to December 31, 1996, the Company sold to International Total
Services, Inc. ("ITS") approximately 50 contracts which represented
approximately 98% of sales in 1996 and 1995 and 100% of sales in 1994. The
selling price of the contracts was $5,805,000, which included the assumption by
ITS of $663,000 of liabilities related to the contracts. The Company received
$2,571,000 cash as a down payment on March 31, 1997. The remaining amount due of
$2,571,000 is payable in 105 days and is subject to adjustments based upon
billings on the contracts sold during that period.

Property and Equipment

Property and equipment are stated at cost. Depreciation is provided over
the estimated useful lives of the respective assets, principally five to seven
years, using accelerated methods.

Income Taxes

The Company's sole shareholder has elected under Subchapter S of the
Internal Revenue Code and under Section 12-7-235 of the South Carolina Code of
laws to include the Company's income in his own income for income tax purposes.
The Company is still subject to income taxes in certain states.

Income tax payments totaled approximately $41,000, $96,000 and $121,000 in
1996, 1995 and 1994, respectively.

Cash Flow Statement

For purposes of the Statement of Cash Flows, the Company considers all
short-term, highly liquid investments with a maturity of three months or less to
be cash equivalents.

Use of Estimates

Fair Values of Financial Instruments

The carrying amounts of cash and cash equivalents, notes payable to banks
and long-term debt approximate their fair value. Interest rates on notes payable
to banks adjust monthly to market rates. The fair value of long-term debt was
estimated based on the Company's current incremental borrowing rates for a
similar type of arrangement.

F-20
<PAGE> 68

INTEX AVIATION SERVICES, INC.
- --------------------------------------------------------------------------------
NOTES TO FINANCIAL STATEMENTS -- CONTINUED

NOTE B -- NOTES PAYABLE TO BANKS

The Company is party to a revolving loan agreement with a bank under which
it may borrow $6,000,000. Interest is payable monthly on the principal amount of
advances outstanding at the bank's prime rate. The agreement is guaranteed by
the Company's sole shareholder. Under the agreement, the Company has pledged
substantially all of its accounts receivable and property and equipment as
collateral.

The Company is also party to a line of credit with another bank under which
it may borrow up to $5,000,000. Interest is payable monthly on the principal
outstanding at the bank's prime rate. The agreement is guaranteed by the
Company's sole shareholder.

Interest paid was approximately $533,000, $505,000 and $59,000 in 1996,
1995 and 1994, respectively.

NOTE C -- LONG-TERM DEBT

Long-term debt consists of the following at December 31:

<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Note payable to former shareholder.......................... $ 49,285 $ 65,714
Due to former shareholder under non-compete agreement....... 101,108 132,512
-------- --------
150,393 198,226
Less current maturities..................................... 48,982 47,832
-------- --------
$101,411 $150,394
======== ========
</TABLE>

The note payable to former shareholder is payable in quarterly installments
of $4,107 plus interest at 7% per annum. The obligation arose in connection with
the purchase and retirement of the Company's common stock held by the former
shareholder.

The non-compete obligation was incurred in connection with the buy-back of
shares noted above and is payable in quarterly installments ranging from $8,023
to $8,817 over the non-compete period which ends on November 3, 1999.

Principal maturities of long-term debt subsequent to December 31, 1996 are
as follows:

<TABLE>
<S> <C>
1997................................................................ $ 48,982
1998................................................................ 50,133
1999................................................................ 51,278
--------
150,393
Less current portion................................................ 48,982
--------
$101,411
========
</TABLE>

NOTE D -- RELATED PARTY TRANSACTIONS

The Company leases its corporate office from its principal shareholder
under a month-to-month agreement for $2,500 per month. Rent expense under this
lease totaled $30,000 in 1996, 1995 and 1994.

NOTE E -- COMMITMENTS AND CONTINGENCIES

The Company has been named as a defendant in various lawsuits filed by
certain former employees. The lawsuits include claims of race discrimination and
worker's compensation. The Company believes the suits are completely without
merit and intends to vigorously defend its position in each case; however, the
ultimate outcome of the lawsuits cannot presently be determined. Accordingly, no
provision for any liability that may result has been made in the accompanying
financial statements.

F-21
<PAGE> 69

============================================================

NO DEALER, SALESMAN OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDER OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY COMMON SHARES BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVER OF THIS PROSPECTUS OR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO
THE DATE HEREOF.

------------------------

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................... 3
Risk Factors..................................... 6
Use of Proceeds.................................. 12
Dividends and Dividend Policy.................... 12
Dilution......................................... 13
Capitalization................................... 14
Pro Forma Financial Data......................... 15
Selected Consolidated Financial Information...... 19
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 20
Business......................................... 24
Management....................................... 34
Certain Transactions............................. 40
Principal and Selling Shareholders............... 41
Description of Capital Shares.................... 42
Shares Eligible for Future Sale.................. 43
Underwriting..................................... 44
Legal Matters.................................... 45
Experts.......................................... 45
Additional Information........................... 46
Index to Financial Statements.................... F-1
</TABLE>

UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON SHARES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

============================================================

2,825,000 SHARES

[ITS LOGO]

INTERNATIONAL TOTAL SERVICES, INC.

COMMON SHARES
------------------------
PROSPECTUS
------------------------
MCDONALD & COMPANY
SECURITIES, INC.
, 1997
============================================================
<PAGE> 70

PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities offered hereby. Except for the
Securities and Exchange Commission registration fee, the NASD filing fee and the
Nasdaq National Market listing fee, all amounts are estimates.

<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee........................ $11,814
The Nasdaq Stock Market Listing Fee........................................ *
National Association of Securities Dealers, Inc. Filing Fee................ 4,399
Blue Sky Fees and Expenses (including counsel)............................. *
Printing and Engraving Expenses............................................ *
Accounting Fees and Expenses............................................... *
Legal Fees and Expenses.................................................... *
Director and Officer Liability Insurance................................... *
Transfer Agent's and Registrar's Fees and Expenses......................... *
Miscellaneous.............................................................. *
-------
Total................................................................. $ *
=======
</TABLE>

- ---------------

* To be filed by Amendment.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Code of Regulations of the Company provides for indemnification of any
director, officer or employee in certain instances, as permitted under Section
1701.13(E) of the Ohio Revised Code, against expenses, judgments, decrees,
fines, penalties or amounts paid in settlement in connection with the defense of
any action, suit or proceeding, criminal or civil, to which he was, is or may be
a party by reason of his status as such director, officer or employee.

A director, officer or employee is entitled to indemnification only if a
determination is made (i) by the directors of the Company acting at a meeting at
which a quorum consisting of directors who neither were nor are parties to or
threatened with any such action, suit or proceeding is present, (ii) if such a
quorum is not obtainable or if a majority vote of a quorum of disinterested
directors so directs, in a written opinion by independent legal counsel, (iii)
by the shareholders or (iv) by the Court of Common Pleas or the court in which
such action, suit or proceeding was brought, that such director, officer or
employee (a) was not, and has not been adjudicated to have been, negligent or
guilty of misconduct in the performance of his duty to the Company, (b) acted in
good faith and in a manner he reasonably believed to be in the best interest of
the Company and (c) in any matter the subject of a criminal action, suit or
proceeding, had no reasonable cause to believe that his conduct was unlawful.

Additionally, Section 1701.13(E)(5)(a) of the Ohio Revised Code provides
that, unless prohibited by specific reference in a corporation's articles of
incorporation or code of regulations, a corporation shall pay a director's
expenses, including attorneys' fees, incurred in defending an action, suit or
proceeding brought against a director in such capacity, whether such action,
suit or proceeding is brought by a third party or by or in the right of the
corporation, provided the director delivers to the corporation an undertaking to
(a) repay such amount if it is proved in a court of competent jurisdiction that
his action or failure to act was undertaken with deliberate intent to injure the
corporation or with reckless disregard for the best interests of the corporation
and (b) reasonably cooperate with the corporation in such action, suit or
proceeding.

Section 1701.13(E)(7) of the Ohio Revised Code provides that a corporation
may purchase insurance or furnish similar protection for any director, officer
or employee against any liability asserted against him in any such capacity,
whether or not the corporation would have power to indemnify him under Ohio law.
Such

II-1
<PAGE> 71

insurance may be purchased from or maintained with a person in which the
corporation has a financial interest.

ITEM 15. SALES OF UNREGISTERED SECURITIES

The Company issued 0.50 Common Shares to each of four employees on March
31, 1995 and 0.50 Common Shares to each of four employees on March 31, 1996. The
Company also issued 2.00 Common Shares to one employee and 0.75 Common Shares to
two employees on November 27, 1996. Each issuance was made in consideration of
services rendered to the Company, was valued at $57,870 per Common Share, and
was made in reliance on the exemption from registration set forth in Section
4(2) of the Securities Act of 1933. The Company issued 0.32 Common Shares to
Robert A. Weitzel, its Chief Executive Officer, in a merger transaction
effective March 31, 1997, in exchange for his 75% interest in NBC Leasing, Inc.,
a former provider of leasing services to the Company. This issuance was valued
at $117,000 per Common Share and was made in reliance on the exemption from
registration set forth in Section 4(2) of the Securities Act of 1933.

The numbers and per share values of Common Shares set forth above do not
give effect to the 12,892.62 for 1 share split described in the Prospectus
included in this registration statement.

II-2
<PAGE> 72

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits. The following is a list of exhibits in this Registration
Statement.

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------------------------
<S> <C>
*1 Form of Underwriting Agreement.
3.1(i) Amended and Restated Articles of Incorporation of the Registrant.
*3.1(ii) Code of Regulations of the Registrant.
*3.2 Form of Amended and Restated Code of Regulations of the Registrant.
*4 Specimen Certificate representing Common Shares.
*5 Opinion of Counsel to the Registrant.
*10.1 Asset Purchase Agreement dated as of March 7, 1997, between the Company and
Intex Aviation Services, Inc.
*10.2 Third Amended And Restated Consolidated Replacement Credit Facility And
Security Agreement, dated as of March 31, 1997, by and between Bank One,
Cleveland, N.A., and the Company.
*10.3 Term Promissory Note, dated March 31, 1997, by the Company to Bank One,
Cleveland, N.A.
*10.4 Revolving Promissory Note, dated March 31, 1997 by the Company to Bank One,
Cleveland, N.A.
*10.5 Note Purchase Agreement, dated as of November 25, 1996, by and among Seidler
Capital Partners L.P. and the Company.
*10.6 First Amendment to Note Purchase Agreement, dated as of March 31, 1997, by and
among the Company and Seidler Capital Partners L.P.
*10.7 Promissory Note, dated November 25, 1996, by the Company to Seidler Capital
Partners L.P.
*10.8 Employment Agreement between the Company and Robert A. Weitzel.
*10.9 Employment Agreement between the Company and James D. Singer.
*10.10 Employment Agreement between the Company and Robert A. Swartz.
*10.11 Employment Agreement between the Company and Scott E. Brewer.
*10.12 Buy/Sell Agreement dated as of March 1, 1995 between the Company and Gene
Empey.
*10.13 Buy/Sell Agreement dated as of January 26, 1996 between the Company and Scott
Brewer.
*10.14 Buy/Sell Agreement dated as of January 26, 1996 between the Company and Bob
Swartz.
*10.15 Buy/Sell Agreement dated as of November 27, 1996 between the Company and Bob
Swartz.
*10.16 Buy/Sell Agreement dated as of February 27, 1997 between the Company and Scott
Brewer.
*10.17 Buy/Sell Agreement dated as of February 27, 1997 between the Company and Bob
Swartz.
*10.18 International Total Services, Inc. Directors' Deferred Compensation Plan.
*10.19 International Total Services, Inc. Long Term Incentive Plan.
11 Statement Regarding Computation of Per Share Earnings.
*16 Letter from Ernst & Young LLP Regarding Change in Certifying Accountant.
*21 Subsidiaries of the Registrant.
23.1 Consent of Grant Thornton LLP.
*23.2 Consent of Counsel to the Registrant (included in Exhibit 5).
24 Powers of Attorney (included on page II-5).
27 Financial Data Schedule.
99.1 Consent of Ivan J. Winfield.
99.2 Consent of Lee C. Howley, Jr.
99.3 Consent of Jerry V. Jarrett.
</TABLE>

II-3
<PAGE> 73

(b) Financial Statement Schedule:

<TABLE>
<CAPTION>
SCHEDULE
NUMBER DESCRIPTION OF DOCUMENT PAGE
-------- ----------------------------------------------------------------------- ----
<S> <C> <C>
Auditors Report on Financial Statement Schedule S-1
II Valuation and Qualifying Accounts S-2
</TABLE>

- ---------------

* To be filed by Amendment.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel that matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of that time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 74

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Cleveland, State of Ohio,
on the 18th day of June, 1997.

INTERNATIONAL TOTAL SERVICES, INC.

By: /s/ ROBERT A. WEITZEL

------------------------------------
Robert A. Weitzel, Chairman of the
Board and Chief Executive Officer

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Robert A. Weitzel, James O. Singer, Robert A.
Swartz and Scott E. Brewer, or any one of them, his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all pre- or post-effective amendments to this
Registration Statement, or a new registration statement pursuant to Rule 462(b)
and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agents, or any of them, or their or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- --------------------------------------- -------------
<C> <S> <C>

/s/ ROBERT A. WEITZEL Chairman of the Board, Chief Executive June 18, 1997
- ------------------------------------- Officer and Director (Principal
Robert A. Weitzel Executive Officer)
/s/ ROBERT A. SWARTZ Chief Financial Officer (Principal June 18, 1997
- ------------------------------------- Financial Officer and Principal
Robert A. Swartz Accounting Officer)

/s/ JEAN WEITZEL Director June 18, 1997
- -------------------------------------
Jean Weitzel

/s/ JAMES O. SINGER Director June 18, 1997
- -------------------------------------
James O. Singer
</TABLE>

II-5
<PAGE> 75

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULES

Shareholders and Board of Directors
International Total Services, Inc. and Subsidiaries

In connection with our audit of the financial statements of International Total
Services, Inc. referred to in our report dated May 9, 1997, we have also audited
Schedule II for each of the three years in the period ended March 31, 1997. In
our opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.

GRANT THORNTON LLP

Cleveland, Ohio
May 9, 1997

S-1
<PAGE> 76

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES

For the years ended March 31, 1995, 1996 and 1997

<TABLE>
<CAPTION>
COLUMN C
----------------------
ADDITIONS
COLUMN B ------------------------
BALANCE COLUMN E
AT (1) (2) BALANCE
BEGINNING CHARGED TO CHARGED TO AT END
COLUMN A OF COSTS AND OTHER COLUMN D OF
YEAR DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----- -------------------------------- -------- ---------- ---------- -------- --------
<C> <S> <C> <C> <C> <C> <C>
1995 Allowance for doubtful accounts $100,000 $ 89,000 $ 89,000 $100,000
1996 Allowance for doubtful accounts $100,000 $111,000 $111,000 $100,000
1997 Allowance for doubtful accounts $100,000 $ 57,000 $ 57,000 $100,000
</TABLE>

S-2
<PAGE> 77

EXHIBIT LIST

<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------
<S> <C>
*1 Form of Underwriting Agreement.
3.1(i) Amended and Restated Articles of Incorporation of the Registrant.
*3.1(ii) Code of Regulations of the Registrant.
*3.2 Form of Amended and Restated Code of Regulations of the Registrant.
*4 Specimen Certificate representing Common Shares.
*5 Opinion of Counsel to the Registrant.
*10.1 Asset Purchase Agreement dated as of March 7, 1997, between the Company and Intex
Aviation Services, Inc.
*10.2 Third Amended And Restated Consolidated Replacement Credit Facility And Security
Agreement, dated as of March 31, 1997, by and between Bank One, Cleveland, N.A.,
and the Company.
*10.3 Term Promissory Note, dated March 31, 1997, by the Company to Bank One, Cleveland,
N.A.
*10.4 Revolving Promissory Note, dated March 31, 1997 by the Company to Bank One,
Cleveland, N.A.
*10.5 Note Purchase Agreement, dated as of November 25, 1996, by and among Seidler
Capital Partners L.P. and the Company.
*10.6 First Amendment to Note Purchase Agreement, dated as of March 31, 1997, by and
among the Company and Seidler Capital Partners L.P.
*10.7 Promissory Note, dated November 25, 1996, by the Company to Seidler Capital
Partners L.P.
*10.8 Employment Agreement between the Company and Robert A. Weitzel.
*10.9 Employment Agreement between the Company and James D. Singer.
*10.10 Employment Agreement between the Company and Robert A. Swartz.
*10.11 Employment Agreement between the Company and Scott E. Brewer.
*10.12 Buy/Sell Agreement dated as of March 1, 1995 between the Company and Gene Empey.
*10.13 Buy/Sell Agreement dated as of January 26, 1996 between the Company and Scott
Brewer.
*10.14 Buy/Sell Agreement dated as of January 26, 1996 between the Company and Bob
Swartz.
*10.15 Buy/Sell Agreement dated as of November 27, 1996 between the Company and Bob
Swartz.
*10.16 Buy/Sell Agreement dated as of February 27, 1997 between the Company and Scott
Brewer.
*10.17 Buy/Sell Agreement dated as of February 27, 1997 between the Company and Bob
Swartz.
*10.18 International Total Services, Inc. Directors' Deferred Compensation Plan.
*10.19 International Total Services, Inc. Long Term Incentive Plan.
11 Statement Regarding Computation of Per Share Earnings.
*16 Letter from Ernst & Young LLP Regarding Change in Certifying Accountant.
*21 Subsidiaries of the Registrant.
23.1 Consent of Grant Thornton LLP.
*23.2 Consent of Counsel to the Registrant (included in Exhibit 5).
24 Powers of Attorney (included on page II-5).
27 Financial Data Schedule.
99.1 Consent of Ivan J. Winfield.
99.2 Consent of Lee C. Howley, Jr.
99.3 Consent of Jerry V. Jarrett.
</TABLE>

- ---------------

* To be filed by Amendment.

<PAGE> 1
EXHIBIT 3.1(i)

AMENDED AND RESTATED
--------------------

ARTICLES OF INCORPORATION
-------------------------

OF
--

INTERNATIONAL TOTAL SERVICES, INC.
----------------------------------

FIRST: The name of the Corporation shall be "International Total
Services, Inc."

SECOND: The place in the State of Ohio where the principal
office of the Corporation is to be located is in the city of Independence,
Cuyahoga County.

THIRD: The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be formed under Sections 1701.01 to
1701.98, inclusive, of the Ohio Revised Code and any amendments heretofore or
hereafter made thereto.

FOURTH: The authorized number of shares of the Corporation is
25,000,000, consisting of 20,000,000 Common Shares, without par value
(hereinafter referred to as "Common Shares"), and 5,000,000 Serial Preferred
Shares, without par value (hereinafter referred to as "Serial Preferred
Shares").

DIVISION A

The Serial Preferred Shares shall have the following express terms:

SECTION 1. SERIES. The Serial Preferred Shares may be issued
from time to time in one or more series. All Serial Preferred Shares
shall be of equal rank and shall be identical, except in respect of the
matters that may be fixed by the Board of Directors as hereinafter
provided, and each share of a series shall be identical with all other
shares of such series, except as to the dates from which dividends
shall accrue and be cumulative. Subject to the provisions of Sections 2
through 6, both inclusive, of this Division, which provisions shall
apply to all Serial Preferred Shares, the Board of Directors hereby is
authorized to cause such shares to be issued in one or more series and
with respect to each such series to determine and fix prior to the
issuance thereof (and thereafter, to the extent provided in clause (b)
of this Section) the following:

(a) The designation of the series, which may be by
distinguishing number, letter or title;

<PAGE> 2

(b) The authorized number of shares of the series,
which number the Board of Directors may (except when
otherwise provided in the creation of the series) increase or
decrease from time to time before or after the issuance
thereof (but not below the number of shares thereof then
outstanding);

(d) The date or dates from which dividends shall
accrue and be cumulative and the dates on which and the
period or periods for which dividends, if declared, shall be
payable, including the means by which any such date or period
may be established;

(e) The redemption rights and redemption price or
prices, if any, for shares of the series;

(f) The terms and amount of the sinking fund, if
any, for the purchase or redemption of shares of the series;

(g) The amounts payable on shares of the series in
the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation;

(h) Whether the shares of the series shall be
convertible into Common Shares or shares of any other class
and, if so, the conversion rate or rates or price or prices,
any adjustments thereof and all other terms and conditions
upon which such conversion may be made; and

(i) Restrictions (in addition to those set forth in
Subsection 5(c) of this Division) on the issuance of
shares of the same series or of any other class or series.

The Board of Directors is authorized to adopt from time to time
amendments to the Amended and Restated Articles of Incorporation fixing, with
respect to each such series, the matters described in clauses (a) through (i),
both inclusive, of this Section and is authorized to take such actions with
respect thereto as may be required by law in order to effect such amendments.

SECTION 2. DIVIDENDS.

(a) The holders of Serial Preferred Shares of each
series, in preference to the holders of Common Shares and of
any other class of shares ranking junior to

<PAGE> 3

the Serial Preferred Shares, shall be entitled to receive out
of any funds legally available for the payment of dividends on
Serial Preferred Shares, when and as declared by the Board of
Directors, dividends in cash at the rate or rates for such
series fixed in accordance with the provisions of Section 1 of
this Division and no more, payable on the dates fixed for such
series. Such dividends shall accrue and be cumulative, in the
case of shares of each particular series, from and after the
date or dates fixed with respect to such series. No dividends
shall be paid upon or declared or set apart for any series of
Serial Preferred Shares for any dividend period unless at the
same time a like proportionate dividend payable for the
dividend periods terminating on the same or any earlier date,
ratably in proportion to the respective annual dividend rates
fixed therefor, shall have been paid upon or declared or set
apart for all Serial Preferred Shares of all series then
issued and outstanding and entitled to receive such dividend.

(b) So long as any Serial Preferred Shares shall be
outstanding no dividend, except a dividend payable in Common
Shares or other shares ranking junior to Serial Preferred
Shares, shall be paid or declared or any distribution be made,
except as aforesaid, in respect of the Common Shares or any
other shares ranking junior to Serial Preferred Shares, nor
shall any Common Shares or any other shares ranking junior to
Serial Preferred Shares be purchased, retired or otherwise
acquired by the Corporation, except out of the proceeds of the
sale of Common Shares or other shares of the Corporation
ranking junior to Serial Preferred Shares received by the
Corporation subsequent to the date of first issuance of Serial
Preferred Shares of any series, unless:

(1) All accrued and unpaid dividends on
Serial Preferred Shares, including the full dividends
for all current dividend periods, shall have been
declared and paid or a sum sufficient for payment
thereof set apart; and

(2) There shall be no arrearage with respect
to the redemption of Serial Preferred Shares of any
series from any sinking fund provided for shares of
such series in accordance with Section 1 of this
Division.

SECTION 3. REDEMPTION.

(a) Subject to the express terms of each series and
the provisions of Subsection 5(c)(3) of this Division, the
Corporation:

(1) May, from time to time at the option of
the Board of Directors, redeem all or any part of any
redeemable series of Serial Preferred Shares at the
time outstanding at the applicable redemption price
for such series fixed in accordance with Section 1 of
this Division; and

<PAGE> 4

(2) Shall, from time to time, make such
redemptions of each series of Serial Preferred Shares
as may be required to fulfill the requirements of any
sinking fund provided for shares of such series at
the applicable sinking fund redemption prices fixed
in accordance with Section 1 of this Division;

and shall in the case of any such redemption pay all accrued
and unpaid dividends to the redemption date.

(b) (1) Notice of every such redemption shall be
mailed, postage prepaid, to the holders of record of
Serial Preferred Shares to be redeemed at their
respective addresses then appearing on the books of
the Corporation, not less than 30 days nor more than
60 days prior to the date fixed for such redemption,
or such other time prior thereto as the Board of
Directors shall fix for any series pursuant to
Section 1 of this Division prior to the issuance
thereof. At any time after notice as provided above
has been deposited in the mail, the Corporation may
deposit the aggregate redemption price of Serial
Preferred Shares to be redeemed, together with
accrued and unpaid dividends thereon to the
redemption date, with any bank or trust company in
Cleveland, Ohio, or New York, New York, having
capital and surplus of not less than $50,000,000,
named in such notice and direct that there be paid to
the respective holders of Serial Preferred Shares so
to be redeemed amounts equal to the redemption price
of Serial Preferred Shares so to be redeemed,
together with such accrued and unpaid dividends
thereon, on surrender of the share certificate or
certificates held by such holders; and upon the
deposit of such notice in the mail and the making of
such deposit of money with such bank or trust
company, such holders shall cease to be shareholders
with respect to such shares; and from and after the
time such notice shall have been so deposited and
such deposit of money shall have been so made, such
holders shall have no rights or claim against the
Corporation with respect to such shares, except only
the right to receive such money from such bank or
trust company without interest or to exercise before
the redemption date any unexpired privileges of
conversion. If less than all of the outstanding
Serial Preferred Shares are to be redeemed, the
Corporation shall select by lot the shares so to be
redeemed in such manner as shall be prescribed by the
Board of Directors.

(2) If the holders of Serial Preferred
Shares which have been called for redemption shall
not within five years after such deposit claim the
amount deposited for the redemption thereof, any such
bank or trust company shall, upon demand, pay over to
the Corporation such unclaimed amounts and thereupon
such bank or trust company and the Corporation shall
be relieved of all responsibility in respect thereof
and to such holders.

<PAGE> 5

(c) Any Serial Preferred Shares which are (1)
redeemed by the Corporation pursuant to the provisions of this
Section, (2) purchased and delivered in satisfaction of any
sinking fund requirements provided for shares of such series,
(3) converted in accordance with the express terms thereof, or
(4) otherwise acquired by the Corporation, shall resume the
status of authorized but unissued Serial Preferred Shares
without serial designation.

SECTION 4. LIQUIDATION.

(a) (1) In any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the
Corporation, the holders of Serial Preferred Shares
of any series shall be entitled to receive in full
out of the assets of the Corporation, including its
capital, before any amount shall be paid or
distributed among the holders of Common Shares or any
other shares ranking junior to Serial Preferred
Shares, the amounts fixed with respect to shares of
such series in accordance with Section 1 of this
Division, plus an amount equal to all dividends
accrued and unpaid thereon to the date of payment of
the amount due pursuant to such liquidation,
dissolution or winding up of the affairs of the
Corporation. If the net assets of the Corporation
legally available therefor are insufficient to permit
the payment upon all outstanding Serial Preferred
Shares of the full preferential amount to which they
are entitled, then such net assets shall be
distributed ratably upon all outstanding Serial
Preferred Shares in proportion to the full
preferential amount to which each such share is
entitled.

(2) After payment to the holders of Serial
Preferred Shares of the full preferential amounts as
aforesaid, the holders of Serial Preferred Shares, as
such, shall have no right or claim to any of the
remaining assets of the Corporation.

(b) The merger or consolidation of the Corporation
into or with any other corporation or entity, the merger of
any other corporation or entity into the Corporation, or the
sale, lease or conveyance of all or substantially all the
assets of the Corporation, shall not be deemed to be a
dissolution, liquidation or winding up for the purposes of
this Section.

SECTION 5. VOTING.

(a) The holders of Serial Preferred Shares shall have
no voting rights, except as provided in this Section or
required by law.

(b) (1) If, and so often as, the Corporation shall
be in default in the payment of the equivalent of
the full dividends on any series of Serial

<PAGE> 6

Preferred Shares at the time outstanding, whether or
not earned or declared, for a number of dividend
payment periods (whether or not consecutive) which in
the aggregate contain at least 540 days, the holders
of Serial Preferred Shares of all series, voting
together as one separate class, shall be entitled to
elect, as herein provided, two members of the Board
of Directors of the Corporation; provided, however,
that the holders of Serial Preferred Shares shall not
have or exercise such special class voting rights
except at meetings of such shareholders for the
election of directors at which the holders of not
less than 50% of the outstanding Serial Preferred
Shares of all series then outstanding are present in
person or by proxy; and provided further that the
special class voting rights provided for in this
paragraph when the same shall have become vested
shall remain so vested until all accrued and unpaid
dividends on Serial Preferred Shares of all series
then outstanding shall have been paid, whereupon the
holders of Serial Preferred Shares shall be divested
of their special class voting rights in respect of
subsequent elections of directors, subject to the
revesting of such special class voting rights on
another default of the type specified in this
paragraph.

(2) In the event of default entitling the
holders of Serial Preferred Shares to elect two
directors as specified in paragraph (1) of this
Subsection, a special meeting of such holders for the
purpose of electing such directors shall be called by
the Secretary of the Corporation upon written request
of, or may be called by, the holders of record of at
least 10% of Serial Preferred Shares of all series at
the time outstanding, and notice thereof shall be
given in the same manner as that required for the
annual meeting of shareholders; provided, however,
that the Corporation shall not be required to call
such special meeting if the annual meeting of
shareholders shall be called to be held within 120
days after the date of receipt of the foregoing
written request from the holders of Serial Preferred
Shares; provided further, however, that if that
annual meeting is not so held within such 120 day
period, a special meeting shall be called as soon as
is practicable after the Corporation becomes aware
that such annual meeting will not be so held. At any
meeting at which the holders of Serial Preferred
Shares shall be entitled to elect directors, the
holders of 50% of Serial Preferred Shares of all
series at the time outstanding, present in person or
by proxy, shall be sufficient to constitute a quorum,
and the vote of the holders of a majority of such
shares so present at any such meeting at which there
shall be such a quorum shall be sufficient to elect
the members of the Board of Directors which the
holders of Serial Preferred Shares are entitled to
elect as herein provided. Notwithstanding any
provision of these Amended and Restated Articles of
Incorporation or the Code of Regulations of the
Corporation or any action taken by the holders

<PAGE> 7

of any class of shares fixing the number of directors
of the Corporation, the two directors who may be
elected by the holders of Serial Preferred Shares
pursuant to this Subsection shall serve in addition
to any other directors then in office or proposed to
be elected otherwise than pursuant to this
Subsection. Nothing in this Subsection shall prevent
any change otherwise permitted in the total number of
or classifications of directors of the Corporation
nor require the resignation of any director elected
otherwise than pursuant to this Subsection.
Notwithstanding any classification of the other
directors of the Corporation, the two directors
elected by the holders of Serial Preferred Shares
shall be elected annually for terms expiring at the
next succeeding annual meeting of shareholders.

(3) The terms of office of all directors
then in office elected by holders of Serial Preferred
Shares as provided in this Subsection shall terminate
immediately upon the expiration of the term of office
during which there occurs any divesting of the
special class voting rights of these holders. If the
office of any director elected by such holders
becomes vacant by reason of death, resignation,
removal from office or otherwise, the holders of a
majority of Serial Preferred Shares of all series at
the time outstanding, present in person or by proxy
at a special meeting of shareholders called and held
in accordance with Subsection (2) above, shall elect
a successor who shall hold office for the unexpired
term in respect of which such vacancy occurred.

(c) The affirmative vote of the holders of at least
two-thirds of Serial Preferred Shares at the time outstanding,
voting together as one separate class, shall be necessary to
effect any one or more of the following (but so far as the
holders of Serial Preferred Shares are concerned, such action
may be effected with such vote):

(1) Any amendment, alteration or repeal,
whether by merger, consolidation or otherwise, of any
of the provisions of the Amended and Restated
Articles of Incorporation or of the Code of
Regulations of the Corporation which affects
adversely the preferences or voting or other rights
of the holders of Serial Preferred Shares; provided,
however, neither the amendment of the Amended and
Restated Articles of Incorporation so as to
authorize, create or change the authorized or
outstanding number of Serial Preferred Shares or of
any shares ranking on a parity with or junior to
Serial Preferred Shares nor the amendment of the
provisions of the Code of Regulations so as to change
the number or classification of directors of the
Corporation shall be deemed to affect adversely the
preferences or voting or other rights of the holders
of Serial Preferred Shares; and provided further,
that if any amendment, alteration or repeal affects

<PAGE> 8

adversely the preferences or voting or other rights
of one or more but not all series of Serial Preferred
Shares at the time outstanding, only the affirmative
vote of the holders of at least two-thirds of the
number of shares at the time outstanding of the
series so affected shall be required;

(2) The authorization, creation or increase
in the authorized number of shares, or of any
security convertible into shares, in either case
ranking prior to the Serial Preferred Shares; or

(3) The purchase or redemption (for sinking
fund purposes or otherwise) of less than all Serial
Preferred Shares then outstanding except in
accordance with a stock purchase offer made to all
holders of record of Serial Preferred Shares, unless
all dividends on all Serial Preferred Shares then
outstanding for all previous dividend periods shall
have been declared and paid or funds therefor set
apart and all accrued sinking fund obligations
applicable thereto shall have been complied with.

SECTION 6. DEFINITIONS. For the purposes of this Division:

(a) Whenever reference is made to shares "ranking
prior to Serial Preferred Shares," such reference shall mean
all shares of the Corporation in respect of which the rights
of the holders thereof as to the payment of dividends or as to
distributions in the event of a voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Corporation are given preference over the rights of the
holders of Serial Preferred Shares;

(b) Whenever reference is made to shares "on a parity
with Serial Preferred Shares," such reference shall mean all
shares of the Corporation in respect of which the rights of
the holders thereof as to the payment of dividends and as to
distributions in the event of a voluntary or involuntary
liquidation, dissolution or winding up of the affairs of a
Corporation rank equally (except as to the amounts fixed
therefor) with the rights of the holders of Serial Preferred
Shares, and

(c) Whenever reference is made to shares "ranking
junior to Serial Preferred Shares," such reference shall mean
all shares of the Corporation other than those defined under
Subsections (a) and (b) of this Section as shares "ranking
prior to" or "on a parity with" Serial Preferred Shares.

DIVISION B

The Common Shares shall have the following express terms:

<PAGE> 9

The Common Shares shall be subject to the express terms of
Serial Preferred Shares and any series thereof. Each Common Share shall
be equal to each other Common Share and the holders thereof shall be
entitled to one vote for each Common Share on all matters presented to
the shareholders of the Corporation.

Each Common Share issued and outstanding immediately prior to
the filing of these Amended and Restated Articles of Incorporation is
changed, effective on that filing, into 12,892.62 Common Shares, with
any fractional Common Share to which a holder would otherwise be
entitled being rounded to the nearest one-hundredth of a share.

FIFTH: No holder of shares of the Corporation of any class
shall be entitled as such, as a matter of right, to subscribe for or purchase
shares of the Corporation of any class, now or hereafter authorized, or to
subscribe for or purchase securities convertible into or exchangeable for shares
of the Corporation of any class or to which shall be attached or appertain any
warrants or rights entitling the holder thereof to subscribe for or purchase
shares of the Corporation of any class, except such rights of subscription or
purchase, if any, for such considerations and upon such terms and conditions as
its Board of Directors from time to time may determine.

SIXTH: To the extent permitted by law, the Corporation, by
action of its Board of Directors and without action by its shareholders, may
purchase or otherwise acquire shares of any class issued by it at such times,
for such consideration and upon such terms and conditions as its Board of
Directors may determine.

SEVENTH: Except as otherwise provided in these Amended and
Restated Articles of Incorporation or the Code of Regulations of the
Corporation, notwithstanding any provision of Sections 1701.01 to 1701.98,
inclusive, of the Ohio Revised Code and any amendments heretofore or hereafter
made thereto, requiring for any purpose the vote, consent, waiver, or release of
the holders of shares entitling them to exercise two-thirds or any other
proportion of the voting power of the Corporation or of any class or classes of
shares thereof, any action may be taken by the vote of the holders of shares
entitling them to exercise a majority of the voting power of the Corporation, or
of such class or classes, unless the proportion designated by such statute
cannot be altered by these Amended and Restated Articles of Incorporation.

EIGHTH: No shareholder may cumulate such shareholder's voting
power in the election of directors.

NINTH: At all times following the consummation of the Initial
Public Offering, at least a majority of the members of the Board of Directors
shall, except as may result from a vacancy or vacancies therein, be Independent
Directors. "Initial Public Offering" shall mean the sale of Common Shares
pursuant to the Corporation's first effective registration

<PAGE> 10

statement for Common Shares filed under the Securities Act of 1933, as amended.
An "Independent Director" shall mean a person who is (I) independent of
management of the Corporation, (ii) not employed by or an officer of the
Corporation, (iii) not an "affiliate" (as defined in Rule 405 under the
Securities Act of 1933, as amended) of the Corporation or any subsidiary of the
Corporation, and (iv) not a person who acts on a regular basis as an individual
or representative of an organization serving as a professional advisor, legal
counsel or consultant to management if, in the opinion of the Board of
Directors, the relationship is material to the Corporation, that person, or the
organization represented. Any determination to be made by the Board of Directors
in connection with any matter presenting a conflict of interest for any officer
of the Corporation or any director of the Corporation who is not an Independent
Director shall be made by the Independent Directors.

TENTH: These Amended and Restated Articles of Incorporation
supersede and take the place of the heretofore existing Amended and Restated
Articles of Incorporation and all amendments thereto.

<PAGE> 1
EXHIBIT 11

CALCULATION OF EARNINGS PER SHARE

EARNINGS PER SHARE

COMPUTATION FOR STATEMENT OF EARNINGS
- -------------------------------------

<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Reconciliation of net earnings (loss)
per statement of earnings to amount
used in earnings per share
computation:

Net earnings (loss).................... $ 1,695,790 $ 1,037,583 $ (717,632)

Less: Preferred dividend requirements.. 16,000 16,000 16,000
----------- ----------- -----------
NET EARNINGS (LOSS), AS ADJUSTED....... $ 1,679,790 $ 1,021,583 $ (733,632)
=========== =========== ===========

Weighted average number of shares
outstanding.......................... 5,014,847 5,877,999 6,376,728
=========== =========== ===========

Earnings (loss) per share.............. $ 0.34 $ 0.17 $ (0.12)
=========== =========== ===========
</TABLE>

<PAGE> 1
EXHIBIT 23.1

We have issued our reports dated May 9, 1997, accompanying the financial
statements and schedules of International Total Services, Inc. and Subsidiaries
contained in the Registration Statement and Prospectus. We consent to the use
of the aforementioned reports in the Registration Statement and Prospectus, and
to the use of our name as it appears under the caption "Experts".

GRANT THORNTON LLP

Cleveland, Ohio
June 18, 1997

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
INTERNATIONAL TOTAL SERVICES, INC. AND SUBSIDIARIES MARCH 31, 1997 CONSOLIDATED
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,452,028
<SECURITIES> 0
<RECEIVABLES> 11,884,252
<ALLOWANCES> 100,000
<INVENTORY> 0
<CURRENT-ASSETS> 16,285,789
<PP&E> 7,590,331
<DEPRECIATION> 4,335,864
<TOTAL-ASSETS> 27,001,137
<CURRENT-LIABILITIES> 15,961,695
<BONDS> 7,555,649
<COMMON> 36,604
0
0
<OTHER-SE> 3,158,362
<TOTAL-LIABILITY-AND-EQUITY> 3,194,966
<SALES> 0
<TOTAL-REVENUES> 115,241,516
<CGS> 0
<TOTAL-COSTS> 98,337,729
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 764,845
<INCOME-PRETAX> 2,932,907
<INCOME-TAX> 1,237,117
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,695,790
<EPS-PRIMARY> .34
<EPS-DILUTED> 0

</TABLE>

<PAGE> 1
EXHIBIT 99.1

CONSENT OF PROPOSED DIRECTOR

I hereby consent to being named in this Registration Statement on
Form S-1 as a proposed director of International Total Services, Inc.
(the "Company") and have agreed to serve as a director of the Company if
elected.

June 17, 1997

/s/ Ivan J. Winfield

<PAGE> 1
EXHIBIT 99.2

CONSENT OF PROPOSED DIRECTOR

June 17, 1997

/s/ Lee C. Howley, Jr.

<PAGE> 1
Exhibit 99.3

CONSENT OF PROPOSED DIRECTOR

I hereby consent to being named in this Registration Statement on Form
S-1 as a proposed director of International Total Services, Inc. (the
"Company") and have agreed to serve as a director of the Company if elected.

/s/ Jerry V. Jarrett

June 17, 1997