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.

In addition, Emerald has a 54% ownership interest in Emerald Extrusion Services LLC. (“EES), based in California. The 54% ownership interest of EES was transferred from Intricon Pte. Ltd. to Intricon during the third quarter of 2020 with no impact to our consolidated condensed financial statements. Based on this controlling financial interest, the Company has consolidated this entity based on our voting interest.

On May 21, 2020, the Securities and Exchange Commission announced that it has adopted amendments to the financial disclosure requirements in Regulation S-X for acquisitions and dispositions of businesses. This guidance reduces the burden on companies by making more meaningful determinations on the significance of an acquired or disposed business by updating the significance test, among other things. As permitted, Intricon has early adopted this guidance and applied the updates in performing the significance test for the Emerald acquisition. Based on the updated guidance, Emerald is not deemed significant to our consolidated condensed financial statements and therefore, historic and pro forma financial statements are not required to be disclosed.

The total purchase price of $11,815 consisted of a cash payment paid at closing of $7,128, subject to a post-closing working capital adjustment of $291, the issuance of 80 thousand shares of the Company’s common stock valued at $982 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, as well as a liability for contingent consideration of $3,414. The liability for contingent consideration consists of 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 $9.0 million to $11.0 million during the first year after closing, and additional earn-out payments equal to 28% of all Emerald net revenues arising from the sale of certain products or to certain customers for each of the first three years after closing. The liability for contingent consideration is a fair value measurement based on various level 3 inputs using a scenario-based method. The key assumptions included forecasts of future revenues and cash flows of certain products, and the selection of the discount rate for the contingent consideration liability. The liability for contingent consideration is subject to fair value adjustments each reporting period that will be recognized through the statement of operations. For the period ended September 30, 2020, we recorded $253 of change in fair value of contingent consideration within other operating expenses primarily due to the Company obtaining regulatory approval in Japan for a particular product as well as increases in the fair value of future estimated payments due to the passage of time. The regulatory approval will result in a cash payment of $500 to the sellers under the Emerald purchase agreement which will be paid out during the fourth quarter of 2020.

In connection with the acquisition, the Company recorded acquisition costs of $493 for the nine months ended September 30, 2020 related to legal, professional fees and other miscellaneous costs. These costs are recorded within other operating expenses within the consolidated condensed statements of operations.

Our consolidated condensed statements of operations for the three and nine months ended September 30, 2020 include revenues of $2,816 and $3,962, respectively, and net income of ($48) and $0, respectively, attributable to the acquiree for the period from May 19 through September 30, 2020.

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. We have up to one year from the acquisition date to finalize the purchase price allocation. As such, these estimates may change which would likely result in an increase or decrease in goodwill. A preliminary purchase price allocation of the fair value of the assets acquired and liabilities assumed is included in the table below. A preliminary intangible asset of $6,400 was recorded as a part of purchase accounting related to the value of identifiable customer relationships acquired. These intangibles are being amortized over an 8 year useful life. The fair value assigned to the identifiable intangible asset was determined primarily by using the excess earnings method. The key assumptions included in the excess earnings method include forecasts of future revenues and cash flows of certain products, and the selection of the discount rates. A preliminary net deferred tax liability of $1,055 was established on the acquisition date related to book-tax differences from the amortization of the intangibles as well as certain other purchasing accounting adjustments. Preliminary goodwill of $4,041 was recorded, representing the benefits of increased operating scale and growth opportunities through currently unidentifiable customers. The goodwill balance is not amortizable for tax purposes. As of September 30, 2020, we recorded $122 in purchase accounting adjustments related to accrued salaries, increasing goodwill and accrued salaries, wages and commissions, respectively, within our consolidated condensed balance sheet.



Current assets	$	3,104
Machinery and equipment		172
Intangible assets		6,400
Goodwill		4,163
Noncurrent assets		169
Current liabilities		(1,105)
Noncurrent liabilities		(1,088)
Total consideration paid	$	11,815