18. Subsequent Events

Amendment to Credit Facility

On May 13, 2020, the Company and its domestic subsidiaries entered into a Fourteenth Amendment to Loan and Security Agreement and Waiver (the “Fourteenth Amendment”) with CIBC Bank USA. The Fourteenth Amendment, among other things:

Increased the Company’s revolving loan borrowing capacity to $12.0 million from its then current capacity of $7.0 million;

Added provisions addressing interest rates following the unavailability of the London Interbank Offered Rate or LIBOR;

Waived a default in the fixed charge coverage ratio covenant as of March 31, 2020;

Eliminated the funded debt to EBITDA ratio and fixed charge coverage ratio for the quarter ending June 30, 2020;

Added a financial covenant requiring that at all times until September 30, 2020, the borrowers maintain at least $15.0 million of liquidity, calculated as the sum of (a) cash on hand, plus (b) cash equivalent investments, plus (c) available borrowing capacity under the revolving credit facility.

After giving effect to the waiver in the Fourteenth Amendment, the Company was in compliance with all applicable covenants under the credit facility as of March 31, 2020.

Strategic Restructuring Plan

On May 15, 2020, the management of the Company committed the Company to, and began executing on, a strategic restructuring plan designed to accelerate the Company’s future growth by focusing resources on the highest potential growth areas. The plan, which was supported by the Company’s Board of Directors, is expected to be completed by the end of the 2020 second quarter.

Following the Company’s decision last quarter to no longer pursue a direct-to-end-consumer approach to the hearing health market, we recently made the decision to transition our remaining direct-to-end-consumer operations at Hearing Help Express to solely support our partnership initiatives. In addition, while continued uncertainties remain from the COVID-19 pandemic, we are taking many significant steps to decrease our expenditure profile and current spending run-rate. The following are significant items included in our strategic restructuring plan:

We completed a global net workforce reduction of approximately 35 positions, including many of the previously furloughed positions, resulting in an annual cost savings of approximately $2.4 million

We changed our focus to seeking partners in the hearing health market, resulting in approximately $2.0 million reduction in Hearing Help Express consumer advertising expense in 2020 as compared to 2019

In connection with the strategic restructuring plan, we anticipate incurring a $1.2 million to $1.5 million restructuring charge during the second quarter ending June 30, 2020 related to one-time employee termination costs, asset impairment charges and other operations-related expenses.

Acquisition of Emerald Medical 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 (“Emerald”), pursuant to a Share Purchase Agreement dated the same date among Buyer, Emerald and the direct and indirect owners of Emerald. Emerald, based in Singapore, is a provider of joint development medical device manufacturing services for complex catheter applications. The Share Purchase Agreement provides for a purchase price consisting of:

a cash payment paid at closing of $7,128, subject to a post-closing working capital adjustment;

80 thousand shares of the Company’s common stock issued at closing, which shares will be held in an escrow account for a period of 18 months to resolve any post-closing claims by the Buyer;

a cash payment of $500 payable in the event that regulatory approval in Japan is obtained for a particular product within twelve months of closing;

an earn-out payment of between $333 and $1,000 if Emerald has net revenues ranging from $9,000 to $11,000 during the first year after closing; and

additional earn-out payments equal to 28% of net revenues arising from the sale of certain products or to certain customers for each of the first three years after closing.

The cash portion of the purchase was paid from Company internal funds.

COVID-19 Pandemic

There are many uncertainties regarding the COVID-19 pandemic, and the Company is closely monitoring the impact of the pandemic on all aspects of its business, including how it will impact its customers, employees, suppliers, vendors, and business partners. We are unable to predict the impact that COVID-19 will have on our financial position and operating results due to numerous uncertainties. The Company expects to continue to assess the evolving impact of COVID-19 and intends to make adjustments to its responses accordingly.