NOTE 3 – BUSINESS COMBINATION

Acquisition in Sweden

In July 2018, the Company acquired 100% of the outstanding shares of Detact Security Solution AB. The purpose of the acquisition was to penetrate the Swedish aviation and cargo markets. Consideration of the acquisition was 9.5 million SEK ($1,063 as of December 31, 2018), of which 6.5 million SEK ($727 as of December 31, 2018) was paid in cash upon the signing of the purchase contract and 3.0 million SEK ($336 as of December 31, 2018) was held in escrow for a period of three months or longer in case of disagreement between the parties. As of December 31, 2018 the funds in the escrow account were not released to the seller.

The acquisition was accounted for as a purchase and accordingly a purchase price was allocated to the assets acquired and liabilities assumed at their fair value.

The following represents the allocation of the purchase price as of the purchase date in SEK and the translation to United States Dollars as of the purchase date:

	SEK		U.S. Dollars
Cash		663		74
Accounts receivable		8,902		999
Other current assets		445		50
Fixed assets		1,189		133
Goodwill		9,005		1,010
Other assets		1,039		116
Total identifiable assets acquired		21,243		2,382

Notes Payables-banks		4,734		531
Accounts Payable		182		20
Other current liabilities		5,787		649
Non current liabilities		1,039		117
Total liabilities assumed		11,742		1,317

		9,501		1,065

Goodwill associated with the new acquisition of Detact Security Solution AB was 9,005 SEK ($1,007 as of December 31, 2018) and deductible for income tax purposes. The goodwill consist principally of the expectations of future earnings and profits from expanding this business. In December 2018, the Company evaluated the goodwill and concluded the goodwill should be fully impaired (see note 7).

Acquisition in Spain

In January 2018, the Company acquired 100% of the outstanding shares of Abydos Consultores de Sistemas S.L.U. The purpose of the acquisition was to increase the Company’s activities in Spain. Consideration of the acquisition was €183 ($209 as of December 31, 2018), in cash upon the signing of the purchase contract. The name of Abydos Consultores de Sistemas S.L.U. was changed into I-SEC Aviation Security S.L.

The acquisition was accounted for as a purchase and accordingly a purchase price was allocated to the assets acquired and liabilities assumed at their fair values.

The following represents the allocation of the purchase price as of the purchase date in Euros and the translation to United States Dollars as of the purchase date:

	EUR		U.S. Dollars
Cash		29		36
Accounts receivable		142		175
Fixed assets		88		108
Other assets		11		14
Goodwill		188		232
Total identifiable assets acquired		458		565

Notes payables-banks		11		14
Accounts payable		19		23
Accrued expenses and other current liabilities		126		155
Other liabilities		119		147
Total liabilities assumed		275		339
		183		226

Goodwill associated with the acquisition of Abydos Consultores de Sistemas S.L.U. was €188 ($232 as of December 31, 2018) and is deductible for income tax purposes. The goodwill arising from this acquisition consist principally of the expectations of future earnings and profits from expending this business. In December 2018 the Company evaluated the goodwill and concluded that the goodwill should be fully impaired (see note 7).

Acquisition in Denmark

On July 19, 2017, the Company acquired 100% of the outstanding shares of Harsec A/S (“Harsec”) in Denmark. Harsec provides cargo security services in the Danish airports and is serving international parcel companies. Consideration of the acquisition for the shares was 10 million Danish Krone (“DKK”) ($1,579 as of the purchase date) in cash of which 90% was paid upon the signing of the purchase contract and 10% paid three months after that. The acquisition was done in order to expand our services to the Danish market.

The acquisition was accounted for as a purchase and accordingly a purchase price was allocated to the assets acquired and liabilities assumed at their fair values.

The following represents the allocation of the purchase price as of the purchase rate in DKK and the translation to United States Dollars as of the purchase date:

	DKK		U.S. Dollars
Cash		3,161		499
Accounts receivable		3,219		508
Other receivables		124		20
Fixed assets		665		105
Goodwill		4,478		707
Total identifiable assets acquired		11,647		1,839

Accounts payable and accrued expenses		1,647		260
Total liabilities assumed		1,647		260

		10,000		1,579

Acquisition in Cyprus

On December 7, 2016, the Company acquired 51% of the outstanding shares of Easyserve Ltd (“New Subsidiary”) in Cyprus together with third party, which holds the additional 49% of the New Subsidiary. Consideration of the acquisition for the 100% shares included €300 ($343 as of December 31, 2018) in cash upon the signing of the purchase contract.

The Company with its New Subsidiary participated in a tender for services in Cyprus, according to the contract terms. Upon winning the tender, the Company had to pay additional €100 ($114 as of December 31, 2018). In addition, the purchase price will include a maximum of €300 ($343 as of December 31, 2018) out of the net profits of the New Subsidiary, which relate to the business of the New Subsidiary as it is presently carried out and which does not relate to the business resulting from the award of the tender or any other new business.

According to the agreement in the event that the New Subsidiary is not successful with the tender, then the seller will repay to the Company the payments made by the Company, in return the Company will transfer the shares back to the seller. As the Company was not successful with the tender, the Company committed to a plan in 2017 to cease its operations in Cyprus and in 2018 it reached an agreement with the seller to transfer the shares of the New Subsidiary back to the seller (see note 4).

The 2016 acquisition was accounted for as a purchase and, accordingly, the purchase price was allocated to the assets acquired and liabilities assumed at their fair values. The results of operations from the date of acquisition to December 31, 2016 were not significant.

The following is the allocation of the purchase price as of the purchase date:

	Euro		U.S. Dollars
Cash		300		317
Due at obtaining contract tender		100		106
Earn out liability		300		317
Total consideration given		700		740

Recognized amounts of identifiable assets acquired and liabilities assumed:

Accounts receivable		269		284
Prepaid expenses		53		56
Property and equipment		25		26
Goodwill		377		398
Other assets		84		89
Total identifiable assets acquired		808		853

Accounts payable		51		53
Accrued expenses and other liabilities		57		60
Total liabilities assumed		108		113

		700		740