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, 2017

March 31, 2022

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)

(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:

Common stock, par value $1.00 per share

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”filer,” “smaller reporting company,” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.

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, 2017April 30, 2022 was 6,869,013.9,302,316.

PART I: FINANCIAL INFORMATION

ITEM 1.Financial Statements

(See accompanying notes to the consolidated condensed financial statements)

 (See accompanying notes to the consolidated condensed financial statements)

INTRICON

INTRI

CON CORPORATION

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

ta)

InIntricon Corporation (together with its subsidiaries referred herein as the “Company”, or “Intricon”, “we”, “us” or “our”) is an international company and 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 medical 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, the accompanying consolidated condensed financial statements contain all adjustments (consisting of normal recurring adjustments) necessary to present fairly IntriCon Corporation’s (“IntriCon” or the “Company”) consolidated financial position as of September 30, 2017 and December 31, 2016, the consolidated results of its operations for the three and nine months ended September 30, 2017 and 2016 and for the cash flows for the nine months ended September 30, 2017 and 2016. Results of operations for the interim periods are not necessarily indicativea fair presentation of the results of operations expected for the full year or any other interim period.

In December 2016, the Company’s board of directors approved plans to discontinue its cardiac diagnostic monitoring business. The Company sold the cardiac diagnostic monitoring business on February 17, 2017 to Datrix, LLC. For all periods presented, the Company classified this business as discontinued operations, and, accordingly, has reclassified historical financial data presented herein. See Note 3.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.

On January 19, 2017,During the three months ended March 31, 2022, the Company announced that it had exercised its option to acquire the remaining 80 percent stake in HHE. The transactionoperated and managed our business under one segment. This is expected to closeconsistent with disclosures in the fourth quarter of 2017. The results of HHE were consolidated intoCompany's Annual Report on Form 10-K for the Company’syear ended December 31, 2021. 

Certain information and footnote disclosures normally included in financial statements beginning Octoberprepared 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, 2016. The Company allocates income and losses to2021, included in the noncontrolling interest basedCompany's Annual Report on current ownership percentage, however, as partForm 10-K. 

Use of the closing, IntriCon will likely absorb a portion of the losses previously allocated to the majority owner. The amount of losses previously allocated to the majority owner that we may have to absorb could range $500,000 and $700,000. Losses incurred by HHE to date include non-cash amortization, acquisition related costs and operating results, all of which are related to prior periods and have no future cash impactEstimates

The Company notesmakes 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 HHE’s pro formamay affect them. The Company uses historical financial results were not included for 2016 as the company wasinformation, internal plans and projections and industry information in bankruptcy for the majority of 2016 and asmaking such was not reflective of the normal operations of HHE.estimates.

In April 2017, the Company entered into an agreement to acquire a 49% stake in Soundperience for 1,200 Euros. As

Summary of September 30, 2017, the Company holds a 16% stake in Soundperience, which will increase to 49% upon the completion of certain milestones and payment of the purchase price for that equity. As of September 30, 2017, the Company has an equity investment and advance in Soundperience of $1,255. Soundperience has designed self-fitting hearing aid technology. The Company’s self-fitting hearing aid technology is being used in the German market today, most notably through our Signison joint venture with the owner of Soundperience. Both Soundperience and Signison will be accounted for in the Company’s financial statements using the equity method.Significant Accounting Policies

The Company has evaluated subsequent events occurring after the date of the consolidated financial statements for events requiring recording or disclosure in the consolidated financial statements.

In March 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-07, Retirement Benefits – Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, guidance that requires entities to present the service cost component of net periodic pension cost and net periodic postretirement benefit cost in the income statement line items where they report compensation cost. Entities will present all other components of net benefit cost outside operating income, if this subtotal is presented. The rules related to the timing of when costs are recognized or how they are measured have not changed. This amendment only impacts where those costs are reflected within the income statement. In addition, only the service cost component will be eligible for capitalization in inventory and other assets. This guidance becomes effective January 1, 2018. Early adoption is permitted. The Company does not anticipate that the adoption of this new standard will have a material impact on its consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-04 “Intangibles — Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.” This new standard simplifies the accounting for goodwill impairments by eliminating step 2 from the goodwill impairment test. The amendments in this update are effective for annual impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for goodwill impairment tests performed on or after January 1, 2017. The Company does not anticipate that the adoption of this new standard will have a material impact on its consolidated financial statements.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, a consensus of the FASB’s Emerging Issues Task Force (the “Task Force”). The new standard requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Entities will also be required to reconcile such total to amounts on the balance sheet and disclose the nature of the restrictions. This update is effective for years beginning after December 31, 2018. The Company has restricted cash balances and anticipates that the adoption of this new standard will change the cash amounts and financing activities on its statement of cash flows on its consolidated financial statements.

In February 2016, the FASB issued its final standard on accounting for leases. This standard, issued as ASU 2016-02, requires that an entity that is a lessee recognize lease assets and lease liabilities on the balance sheet for all leases and disclose key information about leasing arrangements. This update is effective for financial statement periods beginning after December 15, 2018, with earlier application permitted. The Company has not yet determined the impact of this pronouncement on its consolidated financial statements and related disclosures.

In May 2014, the FASB issued new accounting guidance related to revenue recognition, ASC 606. This new standard will replace all current U.S. GAAP guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. This guidance will be effective for the Company beginning January 1, 2018 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company has established a timeline related to the implementation of the standard and believes the timeline is sufficient to implement the new standard. We are currently assessing the impact on the Company’s consolidated financial statements.

The FASB has issued ASU 2016-10 and ASU 2016-12, which are also related to the revenue recognition standard ASC 606. The Company will adopt the new provisions of this accounting standard at the beginning of fiscal year 2018. The Company is currently evaluating the effect that this guidance will have on its consolidated financial statements.

The following table shows the discontinued cardiac diagnostic monitoring business balance sheet as of December 31, 2016:

The following table shows the results of the cardiac diagnostic monitoring discontinued operations:

The Company sold the cardiac diagnostic monitoring business on February 17, 2017 to Datrix, LLC for a future revenue earn-out that was valued by the Company at $0. The Company recorded a loss on the sale of $164. The net loss was computed as follows:

The Company currently operates in two reportable segments: body-worn devices and hearing health direct-to-consumer. The nature of distribution and services has been deemed separately identifiable. Therefore, segment reporting has been applied.

Income (loss) from operations is total net revenues less cost of sales and operating expenses. Identifiable assets by industry segment include assets directly identifiable with those operations. The accounting policies applied to determine segment information are the same as those described in the summary of significant accounting policies describedare detailed in Note 1 to the financial statements contained in“Note 1: Summary of Significant Accounting Policies” of the Company’s Annual Report on Form 10-K10-K for the year ended December 31, 2016.2021. The Company evaluatesfollows these policies in preparation of the performancecondensed consolidated financial statements.

On February 27, 2022, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") by and among the Company, IIN Holding Company LLC, a Delaware limited liability company ("Parent"), and IC Merger Sub Inc., a Pennsylvania corporation and wholly owned subsidiary of Parent ("Merger Sub"). Parent and Merger Sub are owned by funds affiliated with Altaris Capital Partners, LLC. The Merger Agreement provides, subject to its terms and conditions, for the acquisition of the Company by Parent through the merger of Merger Sub with and into the Company, with the Company surviving the Merger as a wholly owned subsidiary of Parent (the "Merger").

As a result of the Merger, each share of common stock of the Company ("Common Stock") issued and outstanding immediately prior to the effective time of the Merger (the “Effective Time”) (other than Rollover Shares (as defined below) or shares of Common Stock (a) held in treasury of the Company, (b) owned by any subsidiary of the Company, or owned by Parent, Merger Sub or any other subsidiary of Parent or (c) held by a holder who is entitled to, and who has perfected, appraisal rights for such shares under Pennsylvania law) automatically will be converted into the right to receive cash in an amount of $24.25 per share, without interest, subject to any required withholding of taxes.

As permitted by the Merger Agreement, Intricon and certain members of Intricon’s management, or “Rollover Shareholders”, entered into a rollover agreement with IIN Holdings LLC, an affiliate of Parent (“IIN Holdings”), providing for the contribution, immediately prior to the effective time of the Merger, of an aggregate of 127,836 shares of Intricon common stock held by the Rollover Shareholders to IIN Holdings, in exchange for equity interests of IIN Holdings.

The completion of the Merger is subject to customary closing conditions, including: (i) the approval of the Merger Agreement by the Company’s shareholders; (ii) the expiration or early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the approval of the Merger under the antitrust laws of other jurisdictions, as applicable; (iii) the absence of any laws or court orders making the Merger illegal or otherwise prohibiting the Merger; and (iv) other customary closing conditions, including the accuracy of the representations and warranties of each segmentparty (subject to certain materiality exceptions) and material compliance by each party with its covenants under the Merger Agreement. The parties expect the transaction to close in the second quarter of 2022, subject to the satisfaction or waiver of the closing conditions.

In connection with the negotiation and execution of the Merger Agreement, the Company has incurred legal, consulting and accounting fees of $1,032 through the quarter ended March 31, 2022.

A special meeting of shareholders of the Company will be held at 8:00 a.m. Central Daylight Time on May 24, 2022, to approve and adopt the Merger Agreement and approve the Merger, among other matters.

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 incomeall relevant information including historical information, current conditions, and lossreasonable 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 did not have a material impact on our financial position, results of operations and cash flows.

Revenue is measured based on consideration specified in the contract with a customer. Revenue from continuing operations before income taxes. 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, 2021.

During the 2021second quarter, the Company reclassified first quarter revenue of $682 from certain customers in Legacy OEM to Value Based ITEC for the three months ended March 31, 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 March 31, 2022:

Timing of revenue recognition for the three months ended March 31, 2021:

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

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 months ended March 31, 2022, and 2021, one customer accounted for 68% of the Company’s consolidated net revenue.

Two customers combined accounted for 56% and 44% of the Company’s consolidated accounts receivable at March 31, 2022 and December 31, 2021, respectively.

Two customers accounted for 100% of the Company’s consolidated contract assets at March 31, 2022 and December 31, 2021.

The following table summarizes data by industry segment:presents a reconciliation between basic and diluted net (loss) income per share:

Net (loss) income 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. The Company excluded all stock awards outstanding in 2022 from the computation of the diluted loss per share because their effect would be anti-dilutive.

Income tax expense for the three months ended March 31, 2022 was $15 compared to $90 for the same period in 2021. 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 March 31, 2022.

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

Inventories:

Inventories consisted of the following at:

Property, Plant and Equipment Geographic Information:

The geographical distribution of long-lived assets to geographical areas consistednet of the following at:accumulated depreciation, consisting of machinery and equipment is set forth below:

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

The geographical distribution of net sales to geographical areas for the three and nine months ended September 30, 2017 and 2016 were as follows:

Geographic net sales are allocated based on the location of the customer.Intangible Assets:

For the three and nine months ended September 30, 2017, one customer accounted for 51% and 49%, respectively, of the Company’s consolidated net sales. For both the three and nine months ended September 30, 2016, one customer accounted for 38% and 39%, respectively, of the Company’s consolidated net sales.

At September 30, 2017, two customers combined accounted for 23% of the Company’s consolidated accounts receivable. At December 31, 2016, two customers combined accounted for 31% of the Company’s consolidated accounts receivable.

InventoriesDefinite-lived intangible assets consisted of the following at:

The customer list was established as a part of purchase accounting related to our EMS acquisition in 2020. 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:

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.

Contingent Consideration Liabilities:

Contingent consideration for the Emerald Medical Services earnout liability consisted of the following:

The total earnout liability is included in other accrued liabilities and other long-term liabilities proportionately to when the liability is due.

Other Accrued Liabilities:

Other accrued liabilities consisted of the following at:

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.

Other Long-Term Liabilities:

Other long-term liabilities consisted of the following at:

As of March 31, 2022, the Company had no debt under its existing credit facilities and was in compliance with all applicable covenants.

ShortThe Company invests in commercial paper, corporate notes and long-term debt is summarizedbonds with original maturities of less than two years. The Company classifies these investments as held to maturity based on our intent and ability to hold these investments until maturity. As a result, these investments are recorded at amortized cost, which approximates fair value, using level 2 inputs.

The maturity dates of our investments as of March 31, 2022 are as follows:

Domestic Credit FacilitiesThe maturity dates of our investments as of December 31, 2021 are as follows:

The Company also maintains excess funds within level 1 money market accounts included within cash and its domestic subsidiaries are parties to a credit facility with The PrivateBankcash equivalents. Cash available in our money market accounts at March 31, 2022 and Trust Company. The credit facility, as amended through September 30, 2017, provides for:December 31, 2021 was $1,882 and $2,943, respectively.

Leases

On March 9, 2017,The Company’s leases pertain primarily to engineering, manufacturing, sales and administrative facilities, with an initial term of one year or more. The Company has three leased facilities in Minnesota, one that expires in 2022,one that expires in 2023,one that expires in 2027,one leased facility in California that expires in 2024,one leased facility in Singapore that expires in 2025,one leased facility in Indonesia that expires in 2027, and one leased facility in Germany that expires in 2022. Additionally, the Company has two short term leases with initial terms of less than one year. One short term leased facility is located in Illinois and its domestic subsidiary, IntriCon, Inc., entered into a Tenth Amendment to the Loan and Security Agreement and Waiver (the “Tenth Amendment”) with The PrivateBank and Trust Company. The Tenth Amendment, among other things:

All of the borrowings under this agreement have been characterized as either a current or long-term liability on our balance sheetsecond facility is in accordance with the repayment terms described more fully below.California. 

Weighted average interestCertain foreign leases allow for variable lease payments that depend on the revolving credit facility was 7.11%an index or a market rate adjustment for the nine months ended September 30, 2017respective country and are adjusted on an annual basis. The adjustment is recognized as incurred in the condensed consolidated statement of operations. The facility leases include options to extend for terms ranging from one year to five years. Lease options that the Company is reasonably certain to execute are included in the determination of the ROU asset and lease liability. The Company also leases equipment that include bargain purchase options at termination. These leases have been classified as finance leases.