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”), pursuant to a Share Purchase Agreement dated the same date among Buyer, EMS and the direct and indirect owners of EMS. EMS, based in Singapore, is a provider of joint development medical device manufacturing services for complex catheter applications.

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

The total purchase price of $11,815 consisted of a cash payment paid at closing of $7,128, including 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 EMS 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 EMS 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 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 December 31, 2020, we recorded $660 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 increased revenue forecasts and the passage of time. The regulatory approval resulted in a cash payment of $500 to the sellers under the EMS purchase agreement during the fourth quarter of 2020.

The following table provides quantitative information about Level 3 inputs for fair value measurement of the contingent consideration liability as of the acquisition date and December 31, 2020. Significant increases or decreases in these inputs in isolation could result in a significant impact on our fair value measurement:


Simulation input	At acquisition ‎May 18, 2020		As of ‎December 31, 2020
Revenue volatility	20.0	%	20.0	%
Weighted average cost of capital	25.0	%	25.0	%
Discount rate	3.5	%	3.5	%

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, 2019	$	-
Addition for acquisition of Emerald Medical Services		3,414
Change in fair value		660
Less payments		(500)
Carrying amount at December 31, 2020	$	3,574

In connection with the acquisition, the Company recorded acquisition costs of $493 for the year ended December 31, 2020 related to legal, professional fees and other miscellaneous costs. These costs are recorded within other operating expenses within the Consolidated Statements of Operations.

Our Consolidated Statements of Operations for the year ended December 31, 2020 include revenues of $7,361 and a net loss of ($30) attributable to EMS and EES for the period from May 19 through December 31, 2020. Included in our consolidated net loss is $660 of additional expense related to fair value changes of contingent consideration.

We recorded 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. This intangible is 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 December 31, 2020, we recorded $122 in purchase accounting adjustments related to accrued salaries, increasing goodwill and accrued salaries, wages and commissions, respectively, within our Consolidated Balance Sheets.



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