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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  _____  to  _____

 

Commission File Number: 1-5005

 

INTRICON CORPORATION

(Exact name of registrant as specified in its charter)

 

Pennsylvania

 

23-1069060

(State or other jurisdiction of

 

(I.R.S. Employer Identification No.)

incorporation or organization)

  
   

1260 Red Fox Road

  

Arden Hills, Minnesota

 

55112

(Address of principal executive offices)

 

(Zip Code)

 

(651) 636-9770

(Registrant’s telephone number, including area code)

 

N/A

 


(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock, par value $1.00 per share

IIN

Nasdaq Global Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  ☒  Yes  ☐  No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  ☒  Yes  ☐  No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

 

Accelerated filer

Non-accelerated filer ☐

 

Smaller reporting company

  

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.   ☐

 

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act).     Yes  ☒  No

 

The number of outstanding shares of the registrant’s common stock, $1.00 par value, on October 31, 2021 was 9,143,140.

 

 

 

INTRICON CORPORATION

 

I N D E X

 

   

Page

Numbers

     

PART I: FINANCIAL INFORMATION

 
     

Item 1.

Condensed Consolidated Financial Statements (Unaudited) 

 

     
 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020

3

     
 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2021 and 2020

4

     
 

Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020

5

     
 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020

6

     
 

Condensed Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2021 and 2020

7

     
 

Notes to Condensed Consolidated Financial Statements

8

     

Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

19

     

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

26

     

Item 4.

Controls and Procedures

26

     

PART II: OTHER INFORMATION

27

     

Item 1.

Legal Proceedings

27

     

Item 1A.

Risk Factors

27

     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

     

Item 3.

Defaults Upon Senior Securities

27

     

Item 4.

Mine Safety Disclosures

27

     

Item 5.

Other Information

27

     

Item 6.

Exhibits

28

     

Signatures

 

29

 

 

 

PART I: FINANCIAL INFORMATION

 

ITEM 1. Financial Statements

 

INTRICON CORPORATION

Condensed Consolidated Statements of Operations

(In Thousands, Except Per Share Amounts)

 

   

Three Months Ended

   

Nine Months Ended

 

(unaudited)

 

September 30,

   

September 30,

   

September 30,

   

September 30,

 
   

2021

   

2020

   

2021

   

2020

 
                                 

Revenue, net

  $ 31,050     $ 27,367     $ 93,033     $ 72,472  

Cost of goods sold

    23,865       20,169       69,766       54,096  

Gross profit

    7,185       7,198       23,267       18,376  
                                 

Operating expenses:

                               

Sales and marketing

    2,048       1,365       6,051       5,038  

General and administrative

    3,943       3,654       11,992       11,673  

Research and development

    1,173       1,458       3,775       3,868  

Other operating (income) expenses (Note 11)

    (457 )     253       1,066       253  

Restructuring charges

    -       -       -       1,171  

Acquisition costs

    -       -       -       493  

Total operating expenses

    6,707       6,730       22,884       22,496  

Operating income (loss)

    478       468       383       (4,120 )
                                 

Interest (expense) income, net

    (9 )     41       (32 )     322  

Other (expense) income, net

    (93 )     192       (261 )     293  

Income (loss) before income taxes

    376       701       90       (3,505 )

Income tax expense

    8       47       178       94  

Net income (loss)

    368       654       (88 )     (3,599 )

Less: Income allocated to non-controlling interest

    31       10       40       17  

Net income (loss) attributable to Intricon shareholders

  $ 337     $ 644     $ (128 )   $ (3,616 )
                                 

Income (loss) per share attributable to Intricon shareholders:

                               

Basic

  $ 0.04     $ 0.07     $ (0.01 )   $ (0.41 )

Diluted

  $ 0.04     $ 0.07     $ (0.01 )   $ (0.41 )
                                 

Average shares outstanding:

                               

Basic

    9,104       8,936       9,059       8,877  

Diluted

    9,624       9,272       9,059       8,877  

 

(See accompanying notes to the condensed consolidated financial statements)

 

 

 

INTRICON CORPORATION

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In Thousands)

 

   

Three Months Ended

   

Nine Months Ended

 

(unaudited)

 

September 30,

   

September 30,

   

September 30,

   

September 30,

 
   

2021

   

2020

   

2021

   

2020

 

Net income (loss)

  $ 368     $ 654     $ (88 )   $ (3,599 )

Unrealized foreign currency translation adjustment

    (4 )     5       22       31  

Realized pension and postretirement obligations

    12       5       36       15  

Other

    19       -       202       -  

Comprehensive income (loss)

  $ 395     $ 664     $ 172     $ (3,553 )

 

(See accompanying notes to the condensed consolidated financial statements)

 

 

 

INTRICON CORPORATION

Condensed Consolidated Balance Sheets

(In Thousands, Except Per Share Amounts)

 

(unaudited)

 

September 30,

  

December 31,

 
  

2021

  

2020

 

Current assets:

        

Cash and cash equivalents

 $13,020  $8,608 

Restricted cash

  647   672 

Short-term investment securities

  20,044   19,793 

Accounts receivable, net of $71 and $210 of reserves, respectively

  9,676   10,115 

Inventories

  22,231   19,513 

Contract assets

  11,464   9,107 

Other current assets

  2,175   1,466 

Total current assets

  79,257   69,274 
         

Property, plant and equipment

  47,722   45,661 

Less: Accumulated depreciation

  33,838   31,484 

Net property, plant and equipment

  13,884   14,177 
         

Goodwill

  13,873   13,714 

Intangible assets, net

  9,515   10,785 

Operating lease right-of-use assets, net

  5,236   6,701 

Investment in partnerships

  538   570 

Long-term investment securities

  -   5,085 

Other assets, net

  1,110   990 

Total assets

 $123,413  $121,296 
         

Current liabilities:

        

Current financing leases

 $5  $21 

Current operating leases

  1,910   2,156 

Accounts payable

  10,321   8,670 

Accrued salaries, wages and commissions

  5,054   3,581 

Other accrued liabilities

  4,230   4,235 

Total current liabilities

  21,520   18,663 
         

Noncurrent operating leases

  3,446   4,726 

Other postretirement benefit obligations

  352   385 

Accrued pension liabilities

  776   907 

Deferred tax liabilities, net

  1,028   1,018 

Other long-term liabilities

  3,414   4,398 

Total liabilities

  30,536   30,097 
         

Commitments and contingencies (Note 11)

          
         

Shareholders’ equity:

        

Common stock, $1.00 par value per share; 20,000 shares authorized; 9,114 and 8,951 shares issued and outstanding, respectively

  9,114   8,951 

Additional paid-in capital

  91,027   89,702 

Accumulated deficit

  (6,938)  (6,810)

Accumulated other comprehensive loss

  (419)  (679)

Total shareholders' equity

  92,784   91,164 

Non-controlling interest

  93   35 

Total equity

  92,877   91,199 

Total liabilities and equity

 $123,413  $121,296 

 

(See accompanying notes to the condensed consolidated financial statements)

 

 

 

INTRICON CORPORATION

Condensed Consolidated Statements of Cash Flows

(In Thousands)

 

   

Nine Months Ended

 

(unaudited)

 

September 30,

   

September 30,

 
   

2021

   

2020

 

Cash flows from operating activities:

               

Net loss

  $ (88 )   $ (3,599 )

Adjustments to reconcile net loss to net cash provided by operating activities:

               

Depreciation and amortization

    4,092       3,311  

Equity in loss of partnerships

    157       90  

Stock-based compensation

    1,489       2,044  

Change in fair value of contingent consideration

    (389 )     253  

Change in allowance for doubtful accounts

    (139 )     40  

Loss on disposal of assets

    4       174  

Changes in operating assets and liabilities:

               

Accounts receivable

    607       1,223  

Inventories

    (2,684 )     (2,139 )

Contract assets

    (2,357 )     (355 )

Other assets

    (933 )     593  

Accounts payable

    1,538       (2,354 )

Accrued expenses

    2,681       1,878  

Other liabilities

    (777 )     (1,114 )

Net cash provided by operating activities of continuing operations

    3,201       45  

Net cash provided by operating activities of discontinued operation

    -       3  

Net cash provided by operating activities

    3,201       48  
                 

Cash flows from investing activities:

               

Purchases of property, plant and equipment

    (1,760 )     (2,562 )

Payments for acquisition of a business

    -       (7,128 )

Purchase of investment securities

    (13,213 )     (6,110 )

Purchases of intangible assets

    (221 )     (489 )

Proceeds from maturities of investment securities

    17,844       23,998  

Investment in partnerships

    (158 )     -  

Net cash provided by investing activities

    2,492       7,709  
                 

Cash flows from financing activities:

               

Payment of financing leases

    (21 )     (79 )

Payments on liabilities for acquisition of intangible assets

    (155 )     -  

Exercise of stock options and employee stock purchase plan shares

    313       173  

Withholding of common stock upon vesting of restricted stock units

    (314 )     (246 )

Payment of contingent consideration liabilities

    (1,052 )     -  

Net cash used in financing activities

    (1,229 )     (152 )
                 

Effect of exchange rate changes on cash

    (77 )     (39 )
                 

Net increase in cash

    4,387       7,566  

Cash, cash equivalents and restricted cash, beginning of period

    9,280       9,162  
                 

Cash, cash equivalents and restricted cash, end of period

  $ 13,667     $ 16,728  
                 
                 

Non-cash investing and financing:

               

Acquisition of property, plant and equipment in accounts payable

  $ 42     $ 75  

Acquisition of a business through liabilities incurred

    -       3,705  

Acquisition of a business through issuance of common stock

    -       982  

Investment in partnerships

    -       442  

 

(See accompanying notes to the condensed consolidated financial statements)

 

 

 

INTRICON CORPORATION

Condensed Consolidated Statements of Equity

(In Thousands)

 

   

Shareholders' Equity, Three and Nine Months Ended September 30, 2021 (unaudited)

 
    Common Stock Number of Shares     Common Stock Amount     Additional Paid-in Capital     Accumulated Deficit     Accumulated Other Comprehensive Loss    

Non-Controlling Interest

    Total Equity  

Balances December 31, 2020

    8,951     $ 8,951     $ 89,702     $ (6,810 )   $ (679 )   $ 35     $ 91,199  

Exercise of stock options, net

    22       22       (15 )     -       -       -       7  

Withholding of common stock upon vesting of restricted stock units

    24       24       (265 )     -       -       -       (241 )

Shares issued under the employee stock purchase plan

    2       2       51       -       -       -       53  

Stock-based compensation

    -       -       453       -       -       -       453  

Net income (loss)

    -       -       -       714       -       (42 )     672  

Other

    -       -       -       -       152       (50 )     102  

Balances March 31, 2021

    8,999     $ 8,999     $ 89,926     $ (6,096 )   $ (527 )   $ (57 )   $ 92,245  

Exercise of stock options, net

    41       41       91       -       -       -       132  

Withholding of common stock upon vesting of restricted stock units

    39       39       (106 )     -       -       -       (67 )

Shares issued under the employee stock purchase plan

    3       3       55       -       -       -       58  

Stock-based compensation

    -       -       566       -       -       -       566  

Net (loss) income

    -       -       -       (1,179 )     -       51       (1,128 )

Other

    -       -       -       -       81       68       149  

Balances June 30, 2021

    9,082     $ 9,082     $ 90,532     $ (7,275 )   $ (446 )   $ 62     $ 91,955  

Exercise of stock options, net

    27       27       (28 )     -       -       -       (1 )

Withholding of common stock upon vesting of restricted stock units

    1       1       (7 )     -       -       -       (6 )

Shares issued under the employee stock purchase plan

    4       4       60       -       -       -       64  

Stock-based compensation

    -       -       470       -       -       -       470  

Net income

    -       -       -       337       -       31       368  

Other

    -       -       -       -       27       -       27  

Balances September 30, 2021

    9,114     $ 9,114     $ 91,027     $ (6,938 )   $ (419 )   $ 93     $ 92,877  

 

   

Shareholders' Equity, Three and Nine Months Ended September 30, 2020 (unaudited)

 
    Common Stock Number of Shares     Common Stock Amount     Additional Paid-in Capital     Accumulated Deficit     Accumulated Other Comprehensive Loss    

Non-Controlling Interest

    Total Equity  

Balances December 31, 2019

    8,781     $ 8,781     $ 86,770     $ (4,286 )   $ (520 )   $ (253 )   $ 90,492  

Exercise of stock options, net

    11       11       4       -       -       -       15  

Withholding of common stock upon vesting of restricted stock units

    22       22       (220 )     -       -       -       (198 )

Shares issued under the employee stock purchase plan

    5       5       48       -       -       -       53  

Stock-based compensation

    -       -       376       -       -       -       376  

Net loss

    -       -       -       (1,979 )     -       -       (1,979 )

Comprehensive income

    -       -       -       -       18       -       18  

Balances March 31, 2020

    8,819     $ 8,819     $ 86,978     $ (6,265 )   $ (502 )   $ (253 )   $ 88,777  

Exercise of stock options, net

    18       18       (18 )     -       -       -       -  

Withholding of common stock upon vesting of restricted stock units

    14       14       (62 )     -       -       -       (48 )

Shares issued under the employee stock purchase plan

    3       3       36       -       -       -       39  

Acquisition of Emerald Medical Services

    80       80       902       -       -       -       982  

Stock-based compensation

    -       -       936       -       -       -       936  

Net (loss) income

    -       -       -       (2,281 )     -       7       (2,274 )

Comprehensive income

    -       -       -       -       18       -       18  

Balances June 30, 2020

    8,934     $ 8,934     $ 88,772     $ (8,546 )   $ (484 )   $ (246 )   $ 88,430  

Exercise of stock options, net

    4       4       11       -       -       -       15  

Withholding of common stock upon vesting of restricted stock units

    1       1       (1 )     -       -       -       -  

Shares issued under the employee stock purchase plan

    4       4       47       -       -       -       51  

Controlling interest acquired in subsidiary

    -       -       (253 )     -       -       253       -  

Stock-based compensation

    -       -       332       -       -       -       332  

Net income

    -       -       -       644       -       10       654  

Comprehensive income

    -       -       -       -       10       -       10  

Balances September 30, 2020

    8,943     $ 8,943     $ 88,908     $ (7,902 )   $ (474 )   $ 17     $ 89,492  

 

(See accompanying notes to the condensed consolidated financial statements)

 

 

 

INTRICON CORPORATION

 

Notes to Condensed Consolidated Financial Statements (Unaudited) (In Thousands, Except Per Share Data)

 

1.

Managements Statement

 

Intricon Corporation (together with its subsidiaries referred herein as the “Company”, or “Intricon”, “we”, “us” or “our”) is an international joint development manufacturer (“JDM”) of micromedical components, sub-assemblies and final devices. The Company serves as a JDM partner to leading medical device original equipment manufacturers (“OEMs”) by designing, developing, engineering, manufacturing, packaging and distributing micromedical products for high growth markets, such as diabetes, peripheral vascular, interventional pulmonology, electrophysiology and hearing healthcare. Our mission is to improve, extend and save lives by advancing innovative micromedical technologies through joint development and manufacturing partnerships with industry leading medical device companies.

 

Basis of Presentation

 

The interim condensed consolidated financial statements of the Company presented herein have been prepared by the Company and are unaudited. They have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and with instructions to Form 10-Q and Article 10 of Regulation S-X. They reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods presented.

 

The interim condensed consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All material intercompany transactions and balances have been eliminated in consolidation. The Company evaluates its voting and variable interests in entities on a qualitative and quantitative basis. The Company consolidates entities in which it concludes it has the power to direct the activities that most significantly impact an entity’s economic success and has the obligation to absorb losses or the right to receive benefits that could be significant to the entity.

 

During the nine months ended September 30, 2021, the Company operated and managed our business under one segment. This is consistent with disclosures in the Company's Annual Report on Form 10-K for the year ended December 31, 2020

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto for the fiscal year ended  December 31, 2020, included in the Company's Annual Report on Form 10-K. 

 

Use of Estimates

 

The Company makes estimates and assumptions relating to the reporting of assets and liabilities, the recording of reported amounts of revenues and expenses and the disclosure of contingent assets and liabilities to prepare these condensed consolidated financial statements. Actual results could differ from those estimates. Considerable management judgment is necessary in estimating future cash flows and other factors affecting the valuation of goodwill and intangible assets, including the operating and macroeconomic factors that may affect them. The Company uses historical financial information, internal plans and projections and industry information in making such estimates.

 

Summary of Significant Accounting Policies

 

The Company’s significant accounting policies are detailed in “Note 1: Summary of Significant Accounting Policies” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The Company follows these policies in preparation of the condensed consolidated financial statements.

 

Reclassification

 

Certain prior year amounts have been reclassified for consistency with the current year presentation. The adjustments include 1) the additional revenue market of Interventional Catheters which was reclassified from Other Medical in Footnote 3 Revenue Recognition and 2) the addition of Acquisition costs as a separate line item from Other operating (income) expenses within Operating Expenses on the condensed consolidated statement of operations. These reclassifications had no impact on the reported results of operations.

 

 

 

2.

New Accounting Pronouncements

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses Topic 326, which requires certain financial assets to be measured at amortized cost net of an allowance for estimated credit losses, such that the net receivable represents the present value of expected cash collection. In addition, this standard update requires that certain financial assets be measured at amortized cost reflecting an allowance for estimated credit losses expected to occur over the life of the assets. The estimate of credit losses must be based on all relevant information including historical information, current conditions, and reasonable and supportable forecasts that affect the collectability of the amounts. Topic 326 is effective for interim and annual periods beginning January 1, 2022 for smaller reporting companies. This standard update is not expected to have a material impact on our financial position, results of operations and cash flows. There are no recently adopted accounting pronouncements that had a material impact on our financial statements.

 

 

3.

Revenue Recognition

 

Revenue is measured based on consideration specified in the contract with a customer. Revenue from all customers is recognized when a performance obligation is satisfied by transferring control of a distinct good or service to a customer. For contractual arrangements in which an enforceable right to payment exists, control of these units is deemed to transfer to the customer over time during the manufacturing process. Consequently, the transaction price is recognized as revenue over time. The transaction price for contractual arrangements without an enforceable right to payment including a reasonable margin is recognized as revenue at a point in time. 

 

The Company’s revenue recognition policy is further detailed in “Note 1: Summary of Significant Accounting Policies” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

 

During the 2021 second quarter, the Company reclassified first quarter revenue of $682 from certain customers in Legacy OEM to Value Based ITEC for the nine months ended September 30, 2021. The following tables set forth, for the periods indicated, timing of revenue recognition by market:

 

Timing of revenue recognition for the three months ended September 30, 2021:

 

  Products and services transferred at point in time  Products and services transferred over time  

Total

 

Diabetes

 $-  $18,025  $18,025 

Interventional Catheters

  3,439   -   3,439 

Other Medical

  2,409   1,437   3,846 

Value Based DTEC

  800   -   800 

Value Based ITEC

  1,298   -   1,298 

Legacy OEM

  2,610   -   2,610 

Professional Audio Communications

  1,032   -   1,032 

Total Revenue, net

 $11,588  $19,462  $31,050 

 

Timing of revenue recognition for the nine months ended September 30, 2021:

 

  

Products and services transferred at point in time

  

Products and services transferred over time

  

Total

 

Diabetes

 $-  $51,636  $51,636 

Interventional Catheters

  11,439   -   11,439 

Other Medical

  6,058   4,256   10,314 

Value Based DTEC

  2,687   -   2,687 

Value Based ITEC

  5,853   -   5,853 

Legacy OEM

  8,235   -   8,235 

Professional Audio Communications

  2,869   -   2,869 

Total Revenue, net

 $37,141  $55,892  $93,033 

 

Timing of revenue recognition for the three months ended September 30, 2020:

 

  

Products and services transferred at point in time

  

Products and services transferred over time

  

Total

 

Diabetes

 $-  $14,518  $14,518 

Interventional Catheters

  2,815   -   2,815 

Other Medical

  2,158   1,158   3,316 

Value Based DTEC

  953   -   953 

Value Based ITEC

  1,779   -   1,779 

Legacy OEM

  2,759   -   2,759 

Professional Audio Communications

  1,227   -   1,227 

Total Revenue, net

 $11,691  $15,676  $27,367 

 

Timing of revenue recognition for the nine months ended September 30, 2020:

 

  

Products and services transferred at point in time

  

Products and services transferred over time

  

Total

 

Diabetes

 $-  $41,569  $41,569 

Interventional Catheters

  3,961   -   3,961 

Other Medical

  5,193   4,402   9,595 

Value Based DTEC

  3,513   -   3,513 

Value Based ITEC

  3,888   -   3,888 

Legacy OEM

  6,444   -   6,444 

Professional Audio Communications

  3,502   -   3,502 

Total Revenue, net

 $26,501  $45,971  $72,472 

 

 

Net revenue by geography is allocated based on shipment and set forth below:

 

  

Three Months Ended

  

Nine Months Ended

 

Net Revenue by Geography

 

September 30, 2021

  

September 30, 2020

  

September 30, 2021

  

September 30, 2020

 

United States

 $23,534  $18,136  $69,036  $53,153 

Europe

  1,638   1,926   4,578   4,070 

Asia

  2,584   3,595   10,069   8,586 

All other countries

  3,294   3,710   9,350   6,663 

Consolidated

 $31,050  $27,367  $93,033  $72,472 

 

Geographic net revenue is allocated based on the shipment location of the Company’s direct OEM customer. These customers then distribute products globally. 

 

    For the three and nine months ended September 30, 2021, and 2020, one customer accounted for 66% and 65%, and 61% and 61%, respectively, of the Company’s consolidated net revenue.

 

Two customers combined accounted for 50% and 69% of the Company’s consolidated accounts receivable at September 30, 2021 and December 31, 2020, respectively.

 

Two customers accounted for 100% of the Company’s consolidated contract assets at September 30, 2021 and December 31, 2020, respectively.

 

 
4.

Income (Loss) Per Share

 

The following table presents a reconciliation between basic and diluted net income (loss) per share:

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30, 2021

  

September 30, 2020

  

September 30, 2021

  

September 30, 2020

 

Numerator:

                

Net income (loss)

 $368  $654  $(88) $(3,599)

Less: Income allocated to non-controlling interest

  31   10   40   17 

Net income (loss) attributable to Intricon shareholders

 $337  $644  $(128) $(3,616)
                 

Denominator:

                

Basic – weighted shares outstanding

  9,104   8,936   9,059   8,877 

Weighted shares assumed upon exercise of stock awards

  520   336   -   - 

Diluted – weighted shares outstanding

  9,624   9,272   9,059   8,877 
                 

Basic income (loss) per share attributable to Intricon shareholders:

 $0.04  $0.07  $(0.01) $(0.41)

Diluted income (loss) per share attributable to Intricon shareholders:

 $0.04  $0.07  $(0.01) $(0.41)

 

Net income (loss) per common share was based on the weighted average number of common shares outstanding during the periods when computing basic net income per share. Stock options are dilutive when the average market price of Company stock exceeds the exercise price of the potentially dilutive options. When dilutive, stock options are included as equivalents using the treasury stock method when computing diluted net income per share. Unvested shares represented by RSUs are also included in the dilution calculation, net of assumed proceeds and equivalent share repurchases.

 

No options or RSUs were excluded from the dilutive calculation for the three months ended September 30, 2021 and 2020.

 

For the nine months ended September 30, 2021, weighted average options and RSUs outstanding of 565 were excluded from the dilutive calculation as their effect would have been antidilutive based on losses in the period. For the nine months ended September 30, 2020, weighted average options and RSUs outstanding of 389, were excluded from the dilutive calculation as their effect would have been antidilutive based on losses in the period.

 

 

5.

Income Taxes

 

Income tax expense for the three and nine months ended September 30, 2021 was $8 and $178 compared to $47 and $94 for the same period in 2020. The expense was largely due to our foreign operations. The Company has net operating loss carryforwards for U.S. federal income tax purposes. The Company has recorded a full valuation allowance against US deferred tax assets as of September 30, 2021.

 

The following was the income (loss) before income taxes for each jurisdiction in which the Company has operations for the period:

 

  

Three Months Ended

  

Nine Months Ended

 
  

September 30, 2021

  

September 30, 2020

  

September 30, 2021

  

September 30, 2020

 

United States

 $(202) $521  $(779) $(3,315)

Singapore

  556   140   771   (291)

Indonesia

  23   16   67   51 

Germany

  (1)  24   31   50 

Income (loss) before income taxes

 $376  $701  $90  $(3,505)

 

CARES Act

 

On March 27, 2020, in response to the impact of the COVID-19 pandemic in the U.S. and across the globe, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted, which contained certain tax benefits that were not material to the Company.

 

 

6.

Business Combination

 

Emerald Medical Services and Emerald Extrusion Services

 

On May 18, 2020, Intricon Pte. Ltd. (“Buyer”), a wholly-owned subsidiary of the Company, acquired all of the outstanding shares of Emerald Medical Services Pte., Ltd., a Singapore company (“EMS”) for a total purchase price of $11,815. EMS, based in Singapore, is a provider of joint development medical device manufacturing services for complex catheter applications.

 

In addition, the Company has a 54% ownership interest in Emerald Extrusion Services LLC. (“EES), based in California. Based on this controlling financial interest, the Company has consolidated this entity. The remaining ownership is accounted for as a non-controlling interest and reported as part of equity in the condensed consolidated balance sheets.

 

We accounted for the acquisition in accordance with ASC 805, Business Combinations, with identifiable assets acquired and liabilities assumed recorded at their estimated fair value on the acquisition date. During the one year window since the purchase date, the Company recorded certain adjustments related to changes in valuation estimates of accounts receivable, inventory, equipment, and deferred taxes as well as changes to the non-controlling interest balance. These purchase accounting adjustments resulted in a $159 increase to Goodwill during 2021. The purchase price allocation of the fair value of the assets acquired and liabilities assumed was finalized as of June 30, 2021 as shown in the table below.

 

Current assets

 $3,161 

Property, plant and equipment

  360 

Intangible assets

  6,400 

Goodwill

  4,321 

Noncurrent assets

  169 

Current liabilities

  (1,105)

Noncurrent liabilities

  (1,491)

Total consideration paid

 $11,815 

 

 

A portion of the purchase price is in the form of a contingent consideration liability calculated using a scenario-based method utilizing various level 3 inputs including revenue volatility, weighted average cost of capital and discount rate percentages. Level 3 is a fair value measure in which there are no observable inputs used to value an asset or liability and the fair value is determined based on modeling and the use of management estimates and assumptions. The key valuation assumptions included forecasts of future revenues and the selection of the discount rate. The liability for contingent consideration is subject to fair value adjustments each reporting period that will be recognized through the condensed consolidated statement of operations within other operating expenses. During the three and nine months ended September 30, 2021 changes to forecast estimates of future revenues resulted in a $479 adjustment to reduce the contingent consideration liability resulting in income recorded within other operating (income) expenses in the Company's condensed consolidated statement of operations. 

 

Quantitative information about Level 3 inputs for fair value measurement of the contingent consideration liability are detailed in “Note 2: Business Combination” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. Significant increases or decreases in these inputs in isolation could result in a significant impact on the fair value measurement.

 

The reconciliation of the contingent consideration liability measured and carried at fair value on a recurring basis is as follows:

 

Carrying amount at December 31, 2020

 $3,574 

Change in fair value

  (389)

Less payments

  (1,052)

Carrying amount at September 30, 2021

 $2,133 

 

Since the acquisition, the Company has paid $1,552 of the original contingent consideration liabilities. As of September 30, 2021, approximately $2,133 remains contingent on future performance.

 

Our condensed consolidated statements of operations for the three and nine months ended September 30, 2021 include revenues of $3,439 and $11,439, respectively, and net income of $662 and $1,293, respectively, attributable to EMS.  Our condensed consolidated statements of operations for the three and nine months ended September 30, 2020 include revenues of $2,816 and $3,961, respectively and net income of ($48) and $0, respectively, attributable to EMS for the period from May 19 through September 30, 2020.

 

See Note 2 of our Notes to the Consolidated Financial Statements in our 2020 Annual Report on Form 10-K for more details.

 

 

7.

Selected Balance Sheet Data

 

Inventories:

 

Inventories consisted of the following at:

 

  

Raw materials

  

Work-in process

  Finished products and components  

Total

 

September 30, 2021

                

Domestic

 $14,400  $690  $1,490  $16,580 

Foreign

  4,562   956   133   5,651 

Total

 $18,962  $1,646  $1,623  $22,231 
                 

December 31, 2020

             

Domestic

 $11,371  $1,499  $2,149  $15,019 

Foreign

  3,393   968   133   4,494 

Total

 $14,764  $2,467  $2,282  $19,513 

 

 

Property, Plant and Equipment Geographic Information:

 

The geographical distribution of long-lived assets, consisting of property, plant and equipment is set forth below:

 

  

September 30,

  

December 31,

 
  

2021

  

2020

 

United States

 $12,480  $12,539 

Singapore

  1,247   1,460 

Other

  157   178 

Consolidated

 $13,884  $14,177 

 

Long-lived assets consist of property, plant and equipment. Excluded from long-lived assets are investments in partnerships, patents, goodwill, intangible assets, operating lease right-of-use (ROU) assets and certain other assets. The Company capitalizes long-lived assets pertaining to the production of specialized parts. These assets are periodically reviewed to ensure the net realizable value from the estimated future production based on forecasted cash flows exceeds the carrying value of the assets.

 

Goodwill:

 

During the first half of 2021, the Company recorded certain purchase accounting adjustments for the EMS business combination resulting in an adjustment to goodwill. The changes to the carrying amount of goodwill for the periods presented are as follows:

 

Carrying amount at December 31, 2020

 $13,714 

Purchase accounting adjustment

  159 

Carrying amount at September 30, 2021

 $13,873 

 

Intangible Assets:

 

Definite-lived intangible assets consisted of the following at:

 

  

September 30, 2021

 
  

Gross Carrying Amount

  

Accumulated Amortization

  

Net Carrying Amount

 

Customer list

 $6,400  $(1,067) $5,333 

Technology intangibles

  6,946   (2,764)  4,182 

Total

 $13,346  $(3,831) $9,515 

 

  

December 31, 2020

 
  

Gross Carrying Amount

  

Accumulated Amortization

  

Net Carrying Amount

 

Customer list

 $6,400  $(467) $5,933 

Technology intangibles

  6,725   (1,873)  4,852 

Total

 $13,125  $(2,340) $10,785 

 

The customer list was established as a part of purchase accounting related to our EMS acquisition; see Note 6. The estimated useful life is eight years.

 

The technology intangibles provide the Company with wireless and self-fitting hearing aid technology and are being amortized based on estimated useful lives between five and seven years.

 

 

Investment in Partnerships:

 

Investment in partnerships consisted of the following:

 

  

September 30,

  

December 31,

 
  

2021

  

2020

 

Investment in Signison

 $279  $418 

Other

  259   152 

Total

 $538  $570 

 

The Company has a 50% ownership interest in Signison, a German based Company specializing in hearing health services. This is accounted for in the Company’s condensed consolidated financial statements using the equity method for all periods presented.

 

Other Accrued Liabilities:

 

Other accrued liabilities consisted of the following at:

 

  

September 30, 2021

  

December 31, 2020

 

Pension and postretirement benefit obligations

 $188  $188 

Deferred revenue

  163   184 

Current technology intangible liability

  497   1,006 

Current earn-out contingent consideration liability

  219   1,090 

Customer funded projects

  775   759 

TCPA litigation accrual (Note 11)

  1,300   - 

Other

  1,088   1,008 

Total

 $4,230  $4,235 

 

The technology intangible liability, reflected above, relates to amounts owed in relation to the Company’s wireless and self-fitting hearing aid technologies.

 

The earn-out liability is contingent on certain future events and is measured at fair value based on various level 3 inputs and assumptions including forecasts, probabilities of payment and discount rates. Amounts are classified as current if expected to be paid within the next twelve months. The liability for contingent consideration is subject to fair value adjustments each reporting period that will be recognized through the condensed consolidated statement of operations. See Note 6.

 

Other Long-Term Liabilities:

 

Other long-term liabilities consisted of the following at:

 

  

September 30,

  

December 31,

 
  

2021

  

2020

 

Noncurrent technology intangible liability

 $600  $1,039 

Noncurrent earn-out contingent consideration liability

  1,914   2,484 

Other

  900   875 

Total

 $3,414  $4,398 

 

As of September 30, 2021, the Company had no debt under its existing credit facilities and was in compliance with all applicable covenants.