Intricon Corp
Annual Report 2018

Plain-text annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K (Mark one) ☒ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2018or☐TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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) Registrant’s telephone number, including area code (651) 636-9770 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registeredCommon Shares, $1 par value per share The NASDAQ Global Market Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒ Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒ 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 1934during 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 filingrequirements 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 ofRegulation 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 suchfiles). Yes ☒ No ☐ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, andwill not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒ Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or anemerging 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. (Check one): 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 orrevised 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 Act). Yes ☐ No ☒   The aggregate market value of the voting common shares held by non-affiliates of the registrant on June 30, 2018 was $247,437,648. Common shares held byeach officer and director and by each person who owns 10% or more of the outstanding common shares have been excluded in that such persons may bedeemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of outstanding shares of the registrant’s common shares on February 26, 2019 was 8,707,947. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company’s definitive proxy statement for the 2019 annual meeting of shareholders are incorporated by reference into Part III of this report;provided, however, that the Audit Committee Report and any other information in such Proxy Statement that is not required to be included in this AnnualReport on Form 10-K, shall not be deemed to be incorporated herein or filed for the purposes of the Securities Act of 1933, as amended or the SecuritiesExchange Act of 1934, as amended. 2 Table of Contents PageNo.PART I Item 1.Business4Item 1A.Risk Factors12Item 1B.Unresolved Staff Comments19Item 2.Properties19Item 3.Legal Proceedings19Item 4.Mine Safety Disclosures20Item 4A.Executive Officers of the Registrant20 PART II Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities21Item 6.Selected Financial Data22Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations24Item 7A.Quantitative and Qualitative Disclosures about Market Risk32Item 8.Financial Statements and Supplementary Data32Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure67Item 9AControls and Procedures67Item 9B.Other Information67 PART III Item 10.Directors, Executive Officers and Corporate Governance68Item 11.Executive Compensation68Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters68Item 13.Certain Relationships and Related Transactions, and Director Independence69Item 14.Principal Accounting Fees and Services69 PART IV Item 15.Exhibits, Financial Statement Schedules69Item 16.Form 10-K Summary71 SIGNATURES72 3 PART I ITEM 1. Business Company Overview IntriCon Corporation (together with its subsidiaries referred herein as the “Company”, or “IntriCon”, “we”, “us” or “our”) is an international companyengaged in designing, developing, engineering, manufacturing and distributing body-worn devices. The Company serves the body-worn device market bydesigning, developing, engineering, manufacturing and distributing micro-miniature products, microelectronics, micro-mechanical assemblies, completeassemblies and software solutions, primarily for the emerging value based hearing healthcare market, the medical biotelemetry market and the professionalaudio communication market. The Company, headquartered in Arden Hills, Minnesota, has facilities in Minnesota, Illinois, Singapore, Indonesia, the UnitedKingdom and Germany, and operates through subsidiaries. The Company is a Pennsylvania corporation formed in 1930, and has gone through severaltransformations since its formation. The Company’s core business of body-worn devices was established in 1993 through the acquisition of ResistanceTechnologies Inc., now known as IntriCon, Inc. The majority of IntriCon’s current management came to the Company with the Resistance Technologies Inc.acquisition, including IntriCon’s President and CEO, who was a co-founder of Resistance Technologies Inc. In December 2016, the Company’s board of directors approved plans to discontinue its cardiac diagnostic monitoring business. The Company sold thecardiac diagnostic monitoring business on February 17, 2017 to Datrix, LLC. For all periods presented, the Company classified this business as discontinuedoperations, and, accordingly, has reclassified historical financial data presented herein. Information contained in this Annual Report on Form 10-K and expressed in U.S. dollars or number of shares are presented in thousands (000s), except for pershare data and as otherwise noted. Business Highlights Major Events in 2018 In February 2018, the Company closed on an additional 33% ownership interest in Soundperience, bringing its total ownership to 49% and its totalinvestment to 1,500 Euros, as of December 31, 2018, consisting of an equity investment and license agreement. Subsequently, in January 2019, the Companypurchased the source code for the Sentibo Smart Brain self-fitting software from Soundperience for 1,829 Euros, positioning the Company to capitalize on thepending over-the-counter (OTC) hearing aid regulation. Sentibo Smart Brain self-fitting software is designed to improve both channel productivity and thequality of first-time fittings, resulting in lower prices, greater access and increased customer satisfaction. This software is being used in the German markettoday, most notably through Signison, the Company’s joint venture with the majority owner of Soundperience. In addition, the Company transferred its 49%ownership interest in Soundperience to the majority owner of Soundperience. As of December 31, 2018, Soundperience and Signison are accounted for in theCompany’s financial statements using the equity method. In March 2018, the Company entered into a new 5-year lease for an additional 37,000 square foot manufacturing and clean room facility near our CorporateHeadquarters in Arden Hills, Minnesota. In addition, during 2018 the Company added 13 new molding presses, as well as a high-speed printed circuit boardassembly line. In June 2018, the Company entered into an additional 10,000 square foot medical assembly space in Singapore. The added capacity andequipment will aid us in meeting the anticipated rising demand in our medical biotelemetry business. On August 20, 2018, the Company completed a public offering and sale of 1,725 shares of common stock at a price to the public of $55.00 per share less anunderwriting discount of $3.30 per share. The net proceeds from this offering, after deducting underwriting discounts and offering expenses, totaledapproximately $88,967 and were used to repay debt, fund capital expenditures, to repurchase 500 shares of common stock owned by directors and officersand for working capital and other general corporate purposes. The amount of domestic and foreign bank debt repaid from the offering was $16,381. Major Events in 2017 In December 2017, the Company acquired the remaining 80-percent stake in Hearing Help Express, Inc. (referred to as “Hearing Help Express” or “HHE”), adirect-to-end-consumer mail order hearing aid provider, for $650 in cash, repayment of $1,833 in debt to HHE’s 80% holder and an earn-out. The results ofHHE were consolidated into the Company’s financial statements beginning October 31, 2016. Prior to the acquisition of 100% ownership in December 2017,the Company allocated income and losses to the noncontrolling interest based on ownership percentage. The Company entered into an agreement to acquire a 49% stake in Soundperience for 1,500 Euros. As of December 31, 2017, the Company had aninvestment in Soundperience of $1,415, consisting of a 16% ownership interest, cash advances and a license agreement. 4 Major Events in 2016 In December 2016, the Company’s board of directors approved plans to discontinue its cardiac diagnostic monitoring business. The Company sold thecardiac diagnostic monitoring business on February 17, 2017 to Datrix, LLC. For all periods presented, the Company classified this business as discontinuedoperations, and, accordingly, has reclassified historical financial data presented herein. In October of 2016, the Company purchased 20 percent of Hearing Help Express and began implementing cost cutting measures and business improvements. On May 18, 2016, the Company completed a public offering and sale of 805 shares of common stock. The net proceeds from this offering, after deductingunderwriting discounts and offering expenses, totaled approximately $3,678 and were used for working capital and general corporate purposes. Market Overview: IntriCon serves the body-worn device market by designing, developing, engineering, manufacturing and distributing micro-miniature products,microelectronics, micro-mechanical assemblies, complete assemblies and software solutions, primarily for the medical biotelemetry market, the emergingvalue based hearing healthcare market, the hearing health direct-to-end-consumer market and the professional audio communication market. Revenue fromthese markets is reported on the respective medical biotelemetry, hearing health, hearing health direct-to-end-consumer and professional audio lines in thediscussion of our results of operations in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 23“Revenue by Market” to the Company’s consolidated condensed financial statements included herein. Hearing Healthcare Market In the United States alone, there are approximately 40 million adults that report some degree of hearing loss. In adults, the most common cause of hearing lossis aging and noise. In fact, by the age of 65, one out of three people have hearing loss. The hearing-impaired population is expected to grow significantlyover the next decade due to an aging population and more frequent exposure to loud sounds that can cause noise-induced hearing loss. It is estimated thathearing aids can help more than 90 percent of people with hearing loss, however the current market penetration into the U.S. hearing impaired population isapproximately 20 percent, a percentage that has remained essentially unchanged for the last four decades. The primary deterrents to greater penetration arecost and access. Along with this, the legacy hearing aid distribution channel is an oligopoly of six large hearing aid manufacturers who utilize bricks andmortar and licensed audiologists to sell devices while controlling the channel dynamics. As a result, the average cost of a hearing aid sold in the US markettoday is over $2,400 per device, more than double the cost from fifteen years ago. Approximately 70 percent of the hearing impaired have hearing loss inboth ears (referred to as a binaural loss), driving the total cost to almost $5,000 on average for a set of hearing aids. Today in the US market, the legacy channel pushes all hearing impaired through the same inefficient, costly channel. However, a very large portion of thehearing-impaired market – mostly notably those with mild to moderate losses – could be properly served with the proper combination of high quality,outcome-based devices, advanced fitting software and consumer services/care best practices – all at much lower cost. We believe fundamental change isneeded and are excited about the opportunity that we created through thoughtful hard work and planning: a chance to deliver superior outcomes-basedaffordable hearing healthcare, by combining state-of-the-art devices and software technology, along with best practices customer service and at a much lowercost directly to consumers across the country, many of whom have not been able to afford care previously. We believe a perfect vortex of factors has come together over the last few years to enable the emergence of a market disruptive, high-quality, low costdistribution model. These factors include the continued consolidation of retail (causing escalating hearing aid prices), consumer outcry, consumer education,advancements in technology (such as behind-the-ear devices, advanced digital signal processing, low-power wireless, and self-fitting software) as well asregulatory actions and pronouncements by the U.S. Food and Drug Administration (FDA), the President’s Council of Advisors on Science and Technologyand the National Academies of Science, Engineering and Medicine. In early January 2016, the FDA weighed in on low hearing aid penetration rates with an announcement that highlighted statistics from the National Instituteon Deafness and Other Communication Disorders. They found that 37.5 million U.S. adults aged 18 and older report some form of hearing loss. However,only 30 percent of adults over 70, and 16 percent of those aged 20 to 69, who could benefit from wearing hearing aids, have ever used them. Based on thesestatistics, the FDA reopened the public comment period on draft guidance related to the agency’s premarket requirements for hearing aids and personal soundamplifiers (PSAPs). In April 2016, the FDA hosted a public workshop to, among other things, gather stakeholder and public input on draft guidance related tothe agency’s premarket requirements for hearing aids and PSAPs. The FDA’s intent was to consider ways in which it can most effectively regulate hearing aidsto promote accessibility and affordability while encouraging innovation. In December 2016, the FDA announced important steps to better support consumeraccess to hearing aids. The agency issued a guidance document explaining that it does not intend to enforce the requirement that individuals age 18 andolder receive a medical evaluation or sign a waiver prior to purchasing most hearing aids, effective immediately. It also announced its commitment toconsider creating a category of over-the-counter (OTC) hearing aids. 5 Furthermore, there have been significant public policy developments during 2017. On August 18, 2017, President Donald Trump signed into law H.R. 2430,the FDA Reauthorization Act of 2017, which includes a section concerning the regulation of OTC hearing aids. The law is designed to enable adults withmild to moderate hearing loss to access OTC hearing aids without being seen by a hearing care professional. The law requires the FDA to create and regulate acategory of OTC hearing aids to ensure they meet the same high standards for safety, consumer labeling, and manufacturing protection that all other medicaldevices must meet. Additionally, the law mandates that the FDA establish an OTC hearing aid category for adults with “perceived” mild to moderate hearingloss within three years of passage of the legislation. The FDA also must finalize a rule within 180 days after the close of the comment period, detailing whatlevel of safety, labeling and consumer protections will be included. We believe this law has the potential to remove the significant barriers existing todaythat prevent innovative hearing health solutions. We believe that this law will invigorate competition, spur innovation and facilitate the development of anecosystem of hearing health care that provides affordable and accessible solutions to millions of unserved or underserved Americans. Today, IntriCon servesboth the value-based hearing healthcare channel and the legacy hearing health channel. Value-Based Hearing Healthcare The Company believes the value-based hearing healthcare (VBHH) market offers significant growth opportunities. In contrast to the legacy channeldynamics, the VBHH market channel is flexible and able to serve the end consumer through a variety of modalities which may include self-fitting, remoteprograming and adjustments, customer support call centers and bricks and mortar stores. The average price of a hearing aid sold through this channel is lessthan twenty-five percent of the average $2,400 device price typically sold through the legacy channel. The Company recently commissioned anethnographic research study, which identified a $3+ billion annual VBHH market opportunity. In addition, this study assisted us in identifying our customer,various customer segmentations and personas. To best approach this market opportunity, we have focused our efforts to serve both the value-based Direct-to-End-Consumer (DTEC) and value-based Indirect-to-End-Consumer (ITEC) channels. Over the past decade we have invested in the manufacturing footprint,product technology and fitting software to provide individuals access to affordable, quality outcomes-based hearing healthcare. Our DTEC represents a channel that sells products and services directly to the end consumer, which today consists of our HHE business. In December of 2017,we purchased the remaining 80% of HHE, a direct-to-end-consumer mail order hearing aid provider. However, the Company had been preparing to addressthis market long before the acquisition of HHE and has spent the last decade investing in the technology and low-cost manufacturing to design and buildsuperior devices and fitting solutions. With this acquisition, we believe we now have the channel infrastructure to directly reach consumers and—importantlyfor millions—the ability to offer high-quality hearing healthcare at a fraction of the cost. The Company’s devices and technologies coupled with HHE’s high-touch care, outcomes based, and hassle free telemedicine model has created a complete eco-system of hearing healthcare in which the Company intends toserve the $3+ billion market. Through our other VBHH initiatives and tests, we have formed alliances with other key partners, which have given usexperience and vital insight as we move aggressively into a more consumer-facing role. HHE provides an efficient, direct-to-end-consumer channel to reachconsumers who likely do not have insurance covering hearing devices. This is a channel that we can build on and expand via technology—and one that iscomplementary with many of our existing relationships. The Company is also focused on serving its value-based ITEC customers, who also sell products and services directly to the end consumer. We haveestablished ourselves as a leader in supplying this portion of the market with advanced, outcome-based products and accessories. The Company has formedstrong relationships with various customers in the channel, including insurance providers, and geriatric product retailers and other indirect-to-end-consumerhearing aid providers. In January 2019, the Company purchased the source code for the Sentibo Smart Brain self-fitting software from Soundperience, positioning the Company tocapitalize on the pending over-the-counter (OTC) hearing aid regulation. Sentibo Smart Brain self-fitting software is designed to improve both channelproductivity and the quality of first-time fittings, resulting in lower prices, greater access and increased customer satisfaction. This software is being used inthe German market today, most notably through Signison, the Company’s joint venture with the majority owner of Soundperience. 6 We strongly believe that incorporating self-fitting technology is a critical step in creating our high-quality, low-cost hearing healthcare ecosystem. TheSentibo Smart Brain self-fitting software technology has the potential to drastically reduce the price of hearing aids, drive greater access and increasecustomer satisfaction. Legacy Hearing Health Channel We also believe there are niches in the legacy hearing health channel that will embrace our outcomes-based products and technologies in the United Statesand Europe. High costs of legacy devices and retail consolidation have constrained the growth potential of the independent audiologist and dispenser. Webelieve our software and product offering can provide independent audiologists and dispensers the ability to compete with larger retailers, such as Costco,and manufacturer owned retail distributors. Medical Biotelemetry In the medical biotelemetry market, the Company is focused on sales of biotelemetry devices for life-critical diagnostic monitoring. The Companymanufactures microelectronics, micro-mechanical assemblies, high-precision injection-molded plastic components and complete biotelemetry devices forleading and emerging medical device manufacturers. The medical industry is faced with pressures to reduce the cost of healthcare. Driven by its coretechnologies, IntriCon helps shift the point of care from expensive traditional settings, such as hospitals, to less expensive non-traditional settings like thehome. IntriCon currently serves this market by offering medical manufacturers the capabilities to design, develop, manufacture and distribute medicaldevices that are easier to use, are more miniature, use less power, and are lighter. Increasingly, the medical industry is looking for wireless, low-powercapabilities in their devices. IntriCon currently has a presence in the diabetes, cardiac and catheter positioning markets. For diabetes, IntriCon works with Medtronic to manufacture theirwireless continuous glucose monitors (CGM), sensor assemblies, and accessories associated with Medtronic’s insulin pump and CGM system. In August2016, the FDA approved the MiniMed 630G system which is intended to replace Medtronic’s MiniMed 530G system. In September 2016, the FDA approvedthe next generation MiniMed 670G insulin pump system, into which IntriCon components are also designed. The MiniMed 670G is the world’s first hybridclosed loop insulin delivery system and we are excited that our components are designed into and support such a revolutionary diabetes management system.In June 2017, the 670G was launched in the U.S. and Medtronic began fulfilling orders from patients enrolled in their Priority Access Program. In parallel,Medtronic began taking new orders from interested customers who want to be next in line to receive the system after the Priority Access orders are filled. InMarch 2018, the FDA approved the Guardian Connect, Medtronic’s standalone CGM system that allows patients to stay ahead of high and low glucoseevents. Looking ahead, we believe there are opportunities to expand our diabetes product offering with Medtronic, as well as move into new markets outsideof the diabetes market. IntriCon has a suite of medical coils and micro coils that it offers to various original equipment manufacturing (OEM) customers. These products are currentlyused in pacemaker programming and interventional catheter positioning applications. IntriCon manufactures bubble sensors and flow restrictors that monitor and control the flow of fluid in an intravenous infusion system as well as a family ofsafety needle products for an OEM customer that utilizes IntriCon’s insert and straight molding capabilities. These products are assembled using fullautomation, including built-in quality checks within the production lines. During the first half of 2018, we expanded our infrastructure to support anticipated growth from current medical biotelemetry customers and future growthfrom increased business development. Expansion efforts in 2018 included a newly leased 37,000-square-foot medical biotelemetry manufacturing and cleanroom facility in Minnesota, an additional 10,000-square-foot medical assembly space in Singapore, 13 new molding presses and a high-speed printed circuitboard assembly line. In addition to these investments, our current customers invested several million dollars in tooling and automation within our facilities.While we have begun limited production on certain products in our new facilities, we are still working with current medical biotelemetry customers tocomplete required validation and qualification of several key production lines. The company is committed to increasing investments to support its medical biotelemetry business development efforts. In early 2019, the company hired avice president of medical business development, to leverage our core competencies and diversify our medical revenue base. The company believes it has asignificant opportunities to serve the emerging biotelemetry and home care markets through its already developed core competencies and capabilities todevelop devices that are more technologically advanced, smaller and lightweight. To provide greater financial and operational focus, IntriCon made the strategic decision to divest its non-core cardiac diagnostic monitoring business in2016. The Company sold this business on February 17, 2017 to Datrix, LLC. 7 Professional Audio Communications IntriCon entered the high-quality audio communication device market in 2001, and now has a line of miniature, professional audio headset products used bycustomers focusing on emergency response needs. The line includes several communication devices that are extremely portable and perform well in noisy orhazardous environments. These products are well suited for applications in the fire, law enforcement, safety, aviation and military markets. In addition, theCompany has a line of miniature ear- and head-worn devices used by performers and support staff in the music and stage performance markets. We believeperformance in difficult listening environments and wireless operations will continue to improve as these products increasingly include our proprietarynanoDSP, wireless nanoLink and PhysioLink technologies. Core Technologies Overview: Our core technologies expertise is focused on four main markets: medical biotelemetry, hearing health, hearing health direct-to-end-consumer andprofessional audio communications. Over the past several years, the Company has increased investments in the continued development of five critical coretechnologies: Ultra-Low-Power (ULP) Digital Signal Processing (DSP), ULP Wireless, Fitting Software, Microminiaturization, and Miniature Transducers.These five core technologies serve as the foundation of current and future product platform development, designed to meet the rising demand for smaller,portable, more advanced devices and the need for greater efficiencies in the delivery models. The continued advancements in this area have allowed theCompany to further enhance the mobility and effectiveness of miniature body-worn devices. ULP DSP DSP converts real-world analog signals into a digital format. Through our nanoDSP™ technology, IntriCon offers an extensive range of ULP DSP amplifiersfor hearing, medical and professional audio applications. Our proprietary nanoDSP incorporates advanced ultra-miniature hardware with sophisticated signalprocessing algorithms to produce devices that are smaller and more effective. The Company further expanded its DSP portfolio including improvements to itsReliant CLEAR™ feedback canceller, offering increased added stable gain and faster reaction time. Additionally, the DSP technologies are utilized in theAudion8™, our eight-channel hearing aid amplifier, and the Audion16™, our wide dynamic range compression sixteen-channel hearing aid amplifier. Theamplifiers are feature-rich and are designed to fit a wide array of applications. In addition to multiple compression channels, the amplifiers have a completeset of proven adaptive features which greatly improve the user experience. ULP Wireless Wireless connectivity is fast becoming a required technology, and wireless capabilities are especially critical in new body-worn devices. IntriCon’sBodyNet™ ULP technology, including the nanoLink™ and PhysioLink™ wireless systems, offers solutions for transmitting the body’s activities tocaregivers and wireless audio links for professional communications and surveillance products, including diabetes monitoring and audio streaming forhearing devices. IntriCon is in the final stages of commercializing its Physiolink3 wireless technology, which will be incorporated into product platforms serving the medicalbiotelemetry, hearing health, hearing health direct-to-end-consumer and professional audio communication markets. This system is based on 2.4GHzproprietary digital radio protocol in the industrial-scientific-medical (ISM) frequency band and enables audio and data streaming and command and controlto ear-worn and body-worn applications over distances of up to ten meters. The Physiolink3 technology can be used to increase productivity in the emergingVBHH channels through in office wireless programming, remote cloud based fitting and consumer directed self-fitting of hearing aids. This will provide bothgreater access and lower costs for patients. In addition, remote control functions will improve the patient experience while using the device especially forthose with diminished dexterity. The Physiolink3 technology builds on the Physiolink2 capabilities by adding wireless streaming at, what we believe, aremuch lower power levels than any technology currently on the market. This will allow for accessories to enhance the user experience in noisy environmentsby allowing audio streaming directly to the hearing aid. Fitting Software The ability to efficiently and effectively fit hearing aids is critical to building a value based eco-system of hearing healthcare. By developing more advancedfitting software systems, individuals can benefit from fittings that conform to their specific loss, while eliminating the need for an in-person appointment. Inaddition to the traditional fitting software, IntriFit, used in the conventional channel, IntriCon has made significant investments in various advanced fittingsoftware solutions, including its purchase of the source code for the Sentibo Smart Brain self-fitting software, that can enable remote and self-fitting solutions.IntriCon believes these advanced fitting solutions, along with the other components of the eco-system, will drive access, affordability and superior customersatisfaction to the millions of individuals that cannot receive care today, primarily due to high cost and low access. 8 In January 2019, the Company purchased the source code for the Sentibo Smart Brain self-fitting software from Soundperience. The Sentibo Smart BrainSystem is the first psycho-acoustic way of analyzing peripheral hearing and central hearing processing. It was developed by an international research teambased on the latest scientific findings from the fields of audiology and brain research. The software is a sophisticated self-fitting hearing aid and braintraining software technology that is being used in the German market today, most notably through our Signison joint venture. We view this softwaretechnology as a critical component to our domestic value-based hearing healthcare model. Sentibo, as well as our other proprietary fitting systems, aredesigned to improve both channel productivity and the quality of first-time fittings, resulting in lower prices, greater access and increased customersatisfaction. IntriCon expects to introduce our advanced fitting solutions through our various VBHH channels in 2019. Microminiaturization IntriCon excels at miniaturizing body-worn devices. We began honing our microminiaturization skills over 30 years ago, supplying components to thehearing health industry. Our core miniaturization technology allows us to make devices for our markets that are one cubic inch and smaller. We also arespecialists in devices that run on very low power, as evidenced by our ULP wireless and DSP. Less power means a smaller battery, which enables us to reducesize even further, and develop devices that fit into the palm of one’s hand. Miniature Transducers IntriCon’s advanced transducer technology has been pushing the limits of size and performance for over a decade. Included in our transducer line are ourminiature medical coils and micro coils used in pacemaker programming and interventional catheter positioning applications. We believe that with theincrease of greater interventional care, our coil technology harbors significant value. Marketing and Competition: IntriCon intends to focus more capital and resources in marketing and sales to expand its reach into the emerging value based hearing healthcare market andlarge medical device and healthcare companies in the medical biotelemetry market outlined above. The Company believes this will allow us to advance ourtechnology portfolio, advance new product platforms, strengthen customer relationships and expand our market knowledge. Currently, IntriCon sells some of its hearing device products directly to domestic hearing instrument manufacturers, and distributors and partnerships throughan internal sales force. As a result of the investments in Hearing Help Express in 2016 and 2017, the Company began marketing and selling hearing aiddevices directly to consumers through direct mail advertising, internet and a call center. Sales of medical and professional audio communications productsare also made primarily through an internal sales force. Internationally, sales representatives employed by IntriCon GmbH (“GmbH”), a wholly owned German subsidiary, solicit sales from European hearinginstrument, medical device and professional audio communications manufacturers and suppliers. In recent years, a small number of customers have accounted for a substantial portion of the Company’s sales. In 2018, one customer in our medical marketaccounted for approximately 56 percent of the Company’s net revenue. During 2018, the top five customers accounted for approximately $81,886, or 70percent, of the Company’s net revenue. See Note 7 to the consolidated financial statements for a discussion of net revenue and long-lived assets bygeographic area. IntriCon markets its high performance microphone products to the radio communication and professional audio industries and has several larger competitorswho have greater financial resources. IntriCon holds a small market share in the global market for microphone capsules and other related products. Employees. As of December 31, 2018, the Company had a total of 810 full time equivalent employees, of whom 74 are executive and administrativepersonnel, 53 are sales personnel, 41 are engineering personnel and 642 are operations personnel. The Company considers its relations with its employees tobe satisfactory. None of the Company’s employees are represented by a union. As a supplier of consumer and medical products and parts, IntriCon is subject to claims for personal injuries allegedly caused by its products. The Companymaintains what it believes to be adequate insurance coverage. Research and Development. IntriCon conducts research and development activities primarily to improve its existing products and proprietary technology.The Company is committed to investing in the research and development of proprietary technologies, such as the ULP DSP and ULP wireless technologies.The Company believes the continued development of key proprietary technologies will be the catalyst for long-term revenues and margin growth. Researchand development expenditures were $4,671, $4,458, and $4,688 in 2018, 2017 and 2016, respectively. These amounts are net of any customer and grantreimbursed research and development. IntriCon owns numerous United States patents which cover various product designs and processes. Although the Company believes that these patentscollectively add value to the Company, the costs associated with the submission of patent applications are expensed as incurred given the uncertainty of thepatents providing future economic benefit to the Company. 9 Regulation. A large portion of our business operates in a marketplace subject to extensive and rigorous regulation by the FDA and by comparable agenciesin foreign countries. In the United States, the FDA regulates the design control, development, manufacturing, labeling, record keeping, and surveillanceprocedures for medical devices. United States Food and Drug AdministrationFDA regulations classify medical devices based on perceived risk to public health as either Class I, II or III devices. Class I devices are subject to generalcontrols, Class II devices are subject to special controls and Class III devices are subject to pre-market approval (“PMA”) requirements. While most Class Idevices are exempt from pre-market submission, it is necessary for most Class II devices to be cleared by a 510(k) pre-market notification prior to marketing.A “cleared” 510(k) establishes that the device is “substantially equivalent” to a predicate device which was legally marketed prior to May 28, 1976 or whichitself has been found to be substantially equivalent, through the 510(k) process, after May 28, 1976. It is “substantially equivalent” if it has the sameintended use and the same technological characteristics as the predicate. The 510(k) pre-market notification must be supported by data establishing the claimof substantial equivalence to the satisfaction of the FDA. The process of obtaining a 510(k) clearance typically can take several months to a year or longer. Ifthe product is notably new or different and substantial equivalence cannot be established, the FDA will require the manufacturer to submit a PMA applicationfor a Class III device that must be reviewed and approved by the FDA prior to sale and marketing of the device in the United States. The process of obtainingPMA approval can be expensive, uncertain, lengthy and frequently requires anywhere from one to several years from the date of FDA submission, if approvalis obtained at all. A “De Novo” application may be submitted for a new type of Class II device for which there is no predicate. The FDA controls theindicated uses for which a product may be marketed and strictly prohibits the marketing of medical devices for unapproved uses. The FDA can require themanufacturer to withdraw products from the market for failure to comply with laws or the occurrence of safety risks. Our wireless and non-wireless hearing aids are air-conduction devices and, as such, are Class I and Class II medical devices. Air-conduction hearing aids areexempt from the 510(k) pre-market notification process. These hearing aids may be marketed either through distribution channels owned, in whole or in part,by IntriCon or through non-affiliated distribution channels. In the latter sense, IntriCon acts as the contract manufacturer to the distributing organization,assisting in design, development and manufacturing. Our manufacturing operations are subject to periodic inspections by the FDA, whose primary purpose isto audit the Company’s compliance with the Quality System Regulations published by the FDA (21 CFR Part 820) and other applicable governmentstandards. Strict regulatory action may be initiated in response to audit deficiencies or to product performance problems. We believe that our manufacturingand quality control procedures are in compliance with the requirements of the FDA regulations. Our most recent FDA audits were conducted in December of2017. No issues (observations) arising from those audits were noted. International RegulationInternational regulatory bodies have established varying regulations governing product standards, packaging and labeling requirements, import restrictions,tariff regulations, duties and tax. Many of these regulations are similar to those of the FDA. We believe we are in compliance with the regulatory requirementsin the foreign countries in which our medical devices are marketed. Medical device law in the EU requires that our quality system conforms to international quality standards and that our medical devices conform to “essentialrequirements” set forth by the Medical Device Directive (“MDD”). In order to keep pace with accelerating technical reality and manufacturing risks, medicaldevice law in Europe is changing rapidly. Effective May 5, 2017, the MDD has been replaced with a broader, more reaching Medical Device Regulation(“MDR”) with a three-year transition period. IntriCon intends to comply with the MDR prior to the end of the transition period. IntriCon manufacturing facilities are audited annually by an International Organization for Standardization (“ISO”) registrar to verify conformity of productsand quality systems to the relevant standards and regulations. The ISO registrar for our US facilities is British Standards Institute (“BSI”) while the registrarfor our Asian facilities is SGS United Kingdom Ltd. Technical documentation, including the essential requirements matrix, for each product placed on the market in the EU is audited by our European NotifiedBody (also BSI). Successful audits verify conformance to the essential requirements set forth by the MDD for the class of medical devices we produce andresult in a CE Certificate. This entitles us to place the “CE” mark on our devices distributed in Europe. In 2014, IntriCon obtained “CE” certification for ourown hearing aid devices and we are supplying these devices into the European market. Our hearing aids may also bear the CE mark of our customers whothen assume regulatory responsibilities for those devices they place on the EU market under their own name. Our European Authorized Representative, CE Partner 4U, reviews and retains our technical documentation and registers our products as required withapplicable authorities in all EU member states. Third Party ReimbursementThe availability and level of reimbursement from third-party payers for procedures utilizing our products is significant to our business. Our products arepurchased primarily by OEM customers who sell into clinics, hospitals and other end-users, who in turn bill various third party payers for the servicesprovided to the patients. These payers, which include Medicare, Medicaid, private health insurance plans and managed care organizations, reimburse all orpart of the costs and fees associated with the procedures utilizing our products. 10 In response to the national focus on rising health care costs, numerous changes to reduce costs have been proposed or have begun to emerge. There havebeen, and may continue to be, proposals by legislators, regulators and third party payers to curb these costs. The development or increased use of more costeffective treatments for diseases could cause such payers to decrease or deny reimbursement for surgeries or devices to favor alternatives that do not utilizeour products. A significant number of Americans enroll in some form of managed care plan. Higher managed care utilization typically drives down thepayments for health care procedures, which in turn places pressure on medical supply prices. This causes hospitals to implement tighter vendor selection andcertification processes, by reducing the number of vendors used, purchasing more products from fewer vendors and trading discounts on price for guaranteedhigher volumes to vendors. Hospitals have also sought to control and reduce costs over the last decade by joining group purchasing organizations orpurchasing alliances. OEM customers also seek to reduce their costs by attempting to reduce the prices they pay for our products. We cannot predict whatcontinuing or future impact these practices, the existing or proposed legislation, or such third-party payer measures within a constantly changing healthcarelandscape may have on our future business, financial condition or results of operations. Forward-Looking Statements Certain statements included or incorporated by reference in this Annual Report on Form 10-K or the Company’s other public filings and releases, which arenot historical facts, or that include forward-looking terminology such as “may”, “will”, “believe”, “anticipate”, “expect”, “should”, “optimistic”, “continue”,“estimate”, “intend”, “plan”, “would”, “could”, “guidance”, “potential”, “opportunity”, “project”, “forecast”, “confident”, “projections”, “scheduled”,“designed”, “future”, “discussion”, “if” or the negative thereof or other variations thereof, are forward-looking statements (as such term is defined in Section21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933, and the regulations thereunder), which are intended to be coveredby the safe harbors created thereby. These statements may include, but are not limited to statements in “Business,” “Legal Proceedings”, “Risk Factors,”“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Notes to the Consolidated Financial Statements”, such asthe Company’s ability to compete, strategic alliances and their benefits, the adequacy of insurance coverage, government regulation, potential increases indemand for the Company’s products, net operating loss carryforwards, the ability to meet cash requirements for operating needs, the ability to meet liquidityneeds, assumptions used to calculate future levels of funding of employee benefit plans, the adequacy of insurance coverage, the impacts of new accountingpronouncements and litigation. Forward-looking statements also include, without limitation, statements as to the Company’s expected future results of operations and growth, theCompany’s ability to meet working capital requirements, the Company’s business strategy, the expected increases in operating efficiencies, anticipatedtrends in the Company’s body-worn device markets, the effect of compliance with environmental protection laws and other government regulations,estimates of goodwill impairments and amortization expense of other intangible assets, estimates of asset impairment, the effects of changes in accountingpronouncements, the effects of litigation and the amount of insurance coverage, and statements as to trends or the Company’s or management’s beliefs,expectations and opinions. Forward-looking statements are subject to risks and uncertainties and may be affected by various risks, uncertainties and otherfactors that can cause actual results and developments to be materially different from those expressed or implied by such forward-looking statements,including, without limitation, the risk factors discussed in Item 1A of this Annual Report on Form 10-K. The Company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the Company. Available Information The Company files or furnishes its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and otherinformation with the Securities and Exchange Commission (“SEC”). The Company’s reports, proxy and information statements and other SEC filings are alsoavailable on the SEC’s website as part of the EDGAR database (http://www.sec.gov). The Company maintains an internet website at www.IntriCon.com. The information on the website is not and should not be considered part of this annualreport on Form 10-K and is not incorporated by reference in this document. This website is, and is only intended to be, for reference purposes only. The Company makes available free of charge on or through its website its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports onForm 8-K, and amendments to those reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soonas reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC. In addition, we will provide, at no cost (other than for exhibits), paper or electronic copies of our reports and other filings made with the SEC. Requestsshould be directed to: Corporate Secretary IntriCon Corporation 1260 Red Fox Road Arden Hills, Minnesota 55112 11 ITEM 1A. Risk Factors You should carefully consider the risks described below. If any of the risks events actually occur, our business, financial condition or results of futureoperations could be materially adversely affected. This Annual Report on Form 10-K contains forward-looking statements that involve risk and uncertainties.Our actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors, including the risks faced by usdescribed below and elsewhere in this Annual Report on Form 10-K. We have experienced and expect to continue to experience fluctuations in our results of operations, which could adversely affect us. Factors that affect our results of operations include, but are not limited to, the volume and timing of orders received, changes in the global economy andfinancial markets, changes in the mix of products sold, market acceptance of our products and our customer’s products, competitive pricing pressures, globalcurrency valuations, the availability of electronic components that we purchase from suppliers, our ability to meet demand, our ability to introduce newproducts on a timely basis, the timing of new product announcements and introductions by us or our competitors, changing customer requirements, delays innew product qualifications, the timing and extent of research and development expenses and regulatory changes and/or delays. These factors have causedand may continue to cause us to experience fluctuations in operating results on a quarterly and/or annual basis. These fluctuations could materially adverselyaffect our business, financial condition and results of operations, which in turn, could adversely affect the price of our common stock. The loss of one or more of our major customers could adversely affect our results of operations. We are dependent on a small number of customers for a majority of our revenues. In fiscal year 2018, our largest customer accounted for approximately 56percent of our net revenue and our five largest customers accounted for approximately 70 percent of our net revenue. A significant decrease or delay in thesales to or loss of any of our major customers could have a material adverse effect on our business and results of operations. Our revenues are largelydependent upon the ability of customers to develop and sell products that incorporate our products. No assurance can be given that our major customers willnot experience financial, technical, regulatory or other difficulties or delays that could adversely affect their operations and, in turn, our results of operations. We may not be able to collect outstanding accounts receivable from our customers. Some of our customers purchase our products on credit, which may cause a concentration of accounts receivable. As of December 31, 2018, we had accountsreceivable, less allowance for doubtful accounts, of $11,479, which represented approximately 12 percent of our shareholders’ equity as of that date. As ofthat date, two customers accounted for a combined total of approximately 52 percent of our accounts receivable. Our financial condition and profitabilitymay be harmed if one or more of our customers are unable or unwilling to pay these accounts receivable when due. We recently acquired Hearing Help Express and we may explore other acquisitions that complement or expand our business. Acquisitions posesignificant risks and may materially adversely affect our business, financial condition and operating results. In 2016, we acquired 20% of the equity of Hearing Help Express and, in late 2017, we completed the acquisition of the remaining 80% equity interest.Hearing Help Express represents a new and exciting business opportunity; however, we do not have any prior experience in the direct-to-end-consumer mailorder hearing aid business, and we may not be able to successfully integrate or profitably operate this business, which may result in our not realizing thevalue paid for the acquisition. We recorded goodwill and intangible assets of $4,177 in connection with the acquisition, and if we are not able to realize thevalue paid, it could lead to impairment of the assets acquired, for which we would need to recognize an expense charge. Our success will be largelyinfluenced by management’s ability to hire and retain skilled direct-to-end-consumer personnel and determine the proper customer base and marketingchannels to achieve our planned profitability levels. We may explore opportunities to buy other businesses or technologies that could complement, enhance or expand our current business or product lines orthat might otherwise offer us growth opportunities. We may have difficulty finding these opportunities or, if we do identify these opportunities, we may notbe able to complete the transactions for various reasons, including a failure to secure financing. The Hearing Help Express acquisition, and any other transactions that we are able to identify and complete, involve a number of risks, including: thediversion of our management’s attention from our existing business to integrate the operations and personnel of the acquired or combined business or jointventure; possible adverse effects on our operating results during the integration process; unanticipated liabilities and litigation; and our possible inability toachieve the intended objectives of the transaction. In addition, we may not be able to successfully or profitably integrate, operate, maintain and manage ournewly acquired operations or employees. Future acquisitions also may result in dilutive issuances of equity securities or the incurrence of additional debt. 12 Despite improvement in economic conditions, downturns in the domestic economic environment could cause a severe disruption in our operations. Our business has been negatively impacted by the domestic economic environment in past years. If the economy does not continue to improve, or worsens,there could be several severely negative implications to our business that may exacerbate many of the risk factors we identified including, but not limited to,the following: Liquidity: ●The domestic economic environment, including credit markets, could worsen and reduce liquidity and this could have a negative impacton financial institutions and the country’s financial system, which could, in turn, have a negative impact on the business of our customersand on our business. ●Investments held by the Company are subject to market conditions which could decline in value and reduce liquidity. ●Interest rates have begun to rise and are expected to continue to rise, which could disrupt domestic and world markets and could adverselyaffect the economy as a whole and our liquidity, costs of borrowing and results of operations. Demand: ●Any downturn in the economy or a return to recession could result in lower sales to our customers. Additionally, our customers may nothave access to sufficient cash or short-term credit to obtain our products or services. Prices: ●In the event of a downturn, certain markets could experience deflation, which would negatively impact our average prices and reduce ourmargins. Health care policy changes, including U.S. health care reform legislation signed in 2010, may have a material adverse effect on us. In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act and the Health Care and Education AffordabilityReconciliation Act of 2010, collectively referred to as the Affordable Care Act. The legislation imposed significant new taxes on medical device makers inthe form of a 2.3% excise tax on all U.S. medical device sales beginning in January 2013. Under the legislation, the total cost to the medical device industrywas estimated to be approximately $30 billion over ten years. Congress suspended the excise tax for 2016 and 2017. Further legislation was adopted inJanuary 2018 to continue the suspension for two years. If the excise tax is not repealed or further suspended, the tax would go back into effect on December31, 2019. If re-imposed, this tax could have a material, negative impact on our results of operations and our cash flows either directly, through taxes on us, orindirectly through others in our value chain being subject to the tax. Although the direct impact of the excise tax is expected to be immaterial on us, if factsor circumstances change in our business relationships, we could be subject to customer pricing pressures or required to pay additional taxes under the rules. Other elements of this legislation, such as comparative effectiveness research, an independent payment advisory board, payment system reforms, includingshared savings pilots, and other provisions, could meaningfully change the way health care is developed and delivered, and may materially impact numerousaspects of our business. The Trump Administration and members of Congress have expressed their intentions to repeal and replace the Affordable Care Act. We cannot predict if theAffordable Care Act will be modified, repealed or replaced or the effect that any such actions will have on our business. If we are unable to continue to develop new products that are inexpensive to manufacture, our results of operations could be adversely affected. We may not be able to continue to achieve our historical profit margins due to advancements in technology. The ability to continue our profit margins isdependent upon our ability to stay competitive by developing products that are technologically advanced and inexpensive to manufacture. Our need for continued investment in research and development may increase expenses and reduce our profitability. Our industry is characterized by the need for continued investment in research and development. If we fail to invest sufficiently in research and development,our products could become less attractive to existing and potential customers and our business and financial condition could be materially and adverselyaffected. As a result of the need to maintain or increase spending levels in this area and the difficulty in reducing costs associated with research anddevelopment, our operating results could be materially harmed if our research and development efforts fail to result in new products or if revenues fall belowexpectations. In addition, as a result of our commitment to invest in research and development, management believes that research and developmentexpenses as a percentage of revenues could increase in the future. 13 We operate in a highly competitive business and if we are unable to be competitive, our financial condition could be adversely affected. Several of our competitors have been able to offer more standardized and less technologically advanced hearing and professional audio communicationproducts at lower prices. Price competition has had an adverse effect on our sales and margins. Many of our competitors are larger than us and have greaterresearch and development resources, marketing and financial resources, manufacturing capability and customer support organizations than we have. Therecan be no assurance that we will be able to maintain or enhance our technical capabilities or compete successfully with our existing and future competitors. Merger and acquisition activity in our hearing health market has resulted in a smaller customer base. Reliance on fewer customers may have anadverse effect on us. Several of our customers in the hearing health market have undergone mergers or acquisitions, resulting in a smaller customer base with larger customers. Ifwe are unable to maintain satisfactory relationships with the reduced customer base, it may adversely affect our operating profits and revenue. Our failure, or the failure of our customers, to obtain required governmental approvals and maintain regulatory compliance for regulated productswould adversely affect our ability to generate revenue from those products. The markets in which we and our customers operate are subject to extensive and rigorous regulation by the FDA and by comparable agencies in foreigncountries. In the United States, the FDA regulates the design control, development, manufacturing, labeling, record keeping, and surveillance procedures forour medical devices and those of our customers. The process of obtaining marketing clearance or approvals from the FDA for new products and new applications for existing products can be time-consumingand expensive, and there is no assurance that such clearance/approvals will be granted, or that the FDA review will not involve delays that would adverselyaffect our ability to commercialize additional products or additional applications for existing products. Some of our products in the research anddevelopment stage may be subject to a lengthy and expensive pre-market approval process with the FDA. The FDA has the authority to control the indicateduses of a device. Products can also be withdrawn from the market due to failure to comply with regulatory standards or the occurrence of unforeseen problems.The FDA regulations depend heavily on administrative interpretation, and there can be no assurance that future interpretations made by the FDA or otherregulatory bodies, with possible retroactive effect, will not adversely affect us. The registration system for our medical devices in the EU requires that our quality system conform to international quality standards. Manufacturing facilitiesand processes under which our hearing aid devices are produced, are inspected and audited by various certifying bodies. These audits verify our compliancewith applicable requirements and standards. Further, the FDA, various state agencies and foreign regulatory agencies inspect our facilities to determinewhether we are in compliance with various regulations relating to quality systems, such as manufacturing practices, validation, testing, quality control,product labeling and product surveillance. A determination that we are in violation of such regulations could lead to imposition of civil penalties, includingfines, product recalls or product seizures, suspensions or shutdown of production and, in extreme cases, criminal sanctions, depending on the nature of theviolation. Further, to the extent that any of our customers to whom we supply products become subject to regulatory actions or delays, our sales to those customerscould be reduced, delayed or suspended, which could have a material adverse effect on our sales and earnings. Implementation of our growth strategy may not be successful, which could affect our ability to increase revenues. Our growth strategy includes developing new products and entering new markets, as well as identifying and integrating acquisitions. Our ability to competein new markets will depend upon a number of factors including, among others: ●our ability to create demand for products in new markets; ●our ability to manage growth effectively; ●our ability to strengthen our sales and marketing presence; ●our ability to successfully identify, complete and integrate acquisitions; ●our ability to respond to changes in our customers’ businesses by updating existing products and introducing, in a timely fashion, new productswhich meet the needs of our customers; ●our ability to fund growth; ●the quality of our new products; and ●our ability to respond rapidly to technological change. The failure to do any of the foregoing could have a material adverse effect on our business, financial condition and results of operations. In addition, we mayface competition in these new markets from various companies that may have substantially greater research and development resources, marketing andfinancial resources, manufacturing capability and customer support organizations. 14 We have foreign operations in Singapore, Indonesia, the United Kingdom and Germany, and various factors relating to our international operationscould affect our results of operations. In 2018, we operated in Singapore, Indonesia, the United Kingdom and Germany. Approximately 17 percent of our revenues were derived from our facilitiesin these countries in 2018. As of December 31, 2018, approximately 14 percent of our long-lived assets are located in these countries. Political or economicinstability in these countries could have an adverse impact on our results of operations due to disruption of production or diminished revenues in thesecountries. Our future revenues, costs of operations and profit results could be affected by a number of factors related to our international operations, includingchanges in foreign currency exchange rates, changes in economic conditions from country to country, changes in a country’s political condition, tradeprotection measures, licensing and other legal requirements and local tax issues. Unanticipated currency fluctuations in the British pound, euro, Singaporedollar and other currencies could lead to lower reported consolidated revenues due to the translation of this currency into U.S. dollars when we consolidateour revenues and results from operations. Events in Europe could negatively affect our ability to conduct business in those countries. Following a referendum in June 2016 in which voters in the United Kingdom approved an exit from the European Union, the United Kingdom governmenthas initiated a process to leave the European Union (often referred to as Brexit), which is currently scheduled to take place on March 29, 2019. In 2018, wederived 17 percent of our revenues from sales outside the U.S., including 7 percent from Europe. The consequences of Brexit, together with what may beprotracted negotiations around the terms of Brexit or the exit of the United Kingdom without an agreement, could introduce significant uncertainties intoglobal financial markets and adversely impact the markets in which we and our customers operate. While we are not experiencing any immediate adverseimpact on our financial condition as a result of Brexit, adverse consequences such as deterioration in economic conditions, volatility in currency exchangerates, including the British pound and the euro, or adverse changes in regulation could have a negative impact on our future operations, operating results andfinancial condition. All of these potential consequences could be further magnified if additional countries were to exit the European Union. The recent debt crisis in certain European countries could cause the value of the euro to deteriorate, reducing the purchasing power of our Europeancustomers. Financial difficulties experienced by our suppliers and customers, including distributors, could result in product delays and inventory issues; risksto accounts receivable could also include delays in collection and greater bad debt expense. Also, the effect of the debt crisis in certain European countriescould have an adverse effect on the capital markets generally, specifically impacting our ability and the ability of our customers to finance our and theirrespective businesses on acceptable terms, if at all, the availability of materials and supplies and demand for our products. We are subject to tax legislation in numerous countries; changes in tax laws or challenges to our tax positions could adversely affect our business,results of operations and financial condition. We are a global corporation with a presence in the United States, Singapore, Indonesia, the United Kingdom and Germany. As such, we are subject to taxlaws, regulations and policies of the U.S. federal, state and local governments and of comparable taxing authorities in other country jurisdictions. Changes intax laws, including the recently enacted U.S. federal tax legislation commonly referred to as the Tax Cuts and Jobs Act of 2017 (“Tax Act”), as well as otherfactors, could cause us to experience fluctuations in our tax obligations and effective tax rates in 2019 and thereafter and otherwise adversely affect our taxpositions and/or our tax liabilities. There can be no assurance that our effective tax rates, tax payments, tax credits or incentives will not be adversely affectedby these or other initiatives. If we fail to meet our financial and other covenants under our loan agreements with our lenders, absent a waiver, we will be in default of the loanagreements and our lenders can take actions that would adversely affect our business. There can be no assurances that we will be able to maintain compliance with the financial and other covenants in our loan agreements. In the event we areunable to comply with these covenants during future periods, it is uncertain whether our lenders will grant waivers for our non-compliance. If there is anevent of default by us under our loan agreements, our lenders have the option to, among other things, accelerate any and all of our obligations under the loanagreements which would have a material adverse effect on our business, financial condition and results of operations. Our success depends on our senior management team and if we are not able to retain them, it could have a materially adverse effect on us. We are highly dependent upon the continued services and experience of our senior management team, including Mark S. Gorder, our President, ChiefExecutive Officer and a member of the Board of Directors. We depend on the services of Mr. Gorder and the other members of our senior management team to,among other things, continue the development and implementation of our business strategies and maintain and develop our client relationships. Certainmembers of our management team are approaching retirement and the Company must locate and employ suitable replacements from within or without theCompany. We do not maintain key-man life insurance for any members of our senior management team. 15 Cybersecurity incidents could disrupt business operations, result in the loss of critical and confidential information, and adversely impact ourreputation and results of operations. Global cybersecurity threats can range from uncoordinated individual attempts to gain unauthorized access to our information technology (IT) systems tosophisticated and targeted measures known as advanced persistent threats. While we employ comprehensive measures to prevent, detect, address and mitigatethese threats (including access controls, insurance, vulnerability assessments, continuous monitoring of our IT networks and systems, maintenance of backupand protective systems and user training and education), cybersecurity incidents, depending on their nature and scope, could potentially result in themisappropriation, destruction, corruption or unavailability of critical data and confidential or proprietary information (our own or that of third parties) andthe disruption of business operations. The potential consequences of a material cybersecurity incident include reputational damage, loss of customers,litigation with customers and other parties, loss of trade secrets and other proprietary business data, diminution in the value of our investment in research,development and engineering, and increased cybersecurity protection and remediation costs, which in turn could adversely affect our competitiveness andresults of operations. Our future success depends in part on the continued service of our engineering and technical personnel and our ability to identify, hire and retainadditional personnel. There is intense competition for qualified personnel in our markets. We may not be able to continue to attract and retain engineers or other qualifiedpersonnel necessary for the development and growth of our business or to replace engineers or other qualified personnel who may leave our employ in thefuture. The failure to retain and recruit key technical personnel could cause additional expense, potentially reduce the efficiency of our operations and couldharm our business. We and/or our customers may be unable to protect our and their proprietary technology and intellectual property rights or keep up with that ofcompetitors. Our ability to compete effectively against other companies in our markets depends, in part, on our ability and the ability of our customers to protect our andtheir current and future proprietary technology under patent, copyright, trademark, trade secret and unfair competition laws. We cannot assure that our meansof protecting our proprietary rights in the United States or abroad will be adequate, or that others will not develop technologies similar or superior to ourtechnology or design around the proprietary rights we own or license. In addition, we may incur substantial costs in attempting to protect our proprietaryrights. Also, despite the steps taken by us to protect our proprietary rights, it may be possible for unauthorized third parties to copy or reverse-engineer aspects of ourand our customers’ products, develop similar technology independently or otherwise obtain and use information that we or our customers regard asproprietary. We and our customers may be unable to successfully identify or prosecute unauthorized uses of our or our customers’ technology. If we become subject to material intellectual property infringement claims, we could incur significant expenses and could be prevented from sellingspecific products. We may become subject to material claims that we infringe the intellectual property rights of others in the future. We cannot assure that, if made, these claimswill not be successful. Any claim of infringement could cause us to incur substantial costs defending against the claim even if the claim is invalid, and coulddistract management from other business. Any judgment against us could require substantial payment in damages and could also include an injunction orother court order that could prevent us from offering certain products. Environmental liability and compliance obligations may affect our operations and results. Our manufacturing operations are subject to a variety of environmental laws and regulations as well as internal programs and policies governing: ●air emissions; ●wastewater discharges; ●the storage, use, handling, disposal and remediation of hazardous substances, wastes and chemicals; and ●employee health and safety. If violations of environmental laws occur, we could be held liable for damages, penalties, fines and remedial actions. Our operations and results could beadversely affected by any material obligations arising from existing laws, as well as any required material modifications arising from new regulations thatmay be enacted in the future. We may also be held liable for past disposal of hazardous substances generated by our business or former businesses orbusinesses we acquire. In addition, it is possible that we may be held liable for contamination discovered at our present or former facilities. 16 We are subject to numerous asbestos-related lawsuits, which could adversely affect our financial position, results of operations or liquidity. We are a defendant along with a number of other parties in lawsuits alleging that plaintiffs have or may have contracted asbestos-related diseases as a result ofexposure to asbestos products or equipment containing asbestos sold by one or more named defendants. These lawsuits relate to the discontinued heattechnologies segment which we sold in March 2005. Due to the non-informative nature of the complaints, we do not know whether any of the complaintsstate valid claims against us. Certain insurance carriers have informed us that the primary policies for the period August 1, 1970-1978 have been exhaustedand that the carriers will no longer provide defense and insurance coverage under those policies. However, we have other primary and excess insurancepolicies that we believe afford coverage for later years. Some of these other primary insurers have accepted defense and insurance coverage for these suits, andsome of them have either ignored our tender of defense of these cases, or have denied coverage, or have accepted the tenders but asserted a reservation ofrights and/or advised us that they need to investigate further. Because settlement payments are applied to all years a litigant was deemed to have beenexposed to asbestos, we believe we will have funds available for defense and insurance coverage under the non-exhausted primary and excess insurancepolicies. However, unlike the older policies, the more recent policies have deductible amounts for defense and settlements costs that we will be required topay; accordingly, we expect that our litigation costs will increase in the future as the older policies are exhausted. Further, many of the policies covering lateryears (approximately 1984 and thereafter) have exclusions for any asbestos products or operations, and thus do not provide insurance coverage for asbestos-related lawsuits. If our insurance policies do not cover the costs and any awards for the asbestos-related lawsuits, we will have to use our cash or obtainadditional financing to pay the asbestos-related obligations and settlement costs. There is no assurance that we will have the cash or be able to obtainadditional financings on favorable terms to pay asbestos related obligations or settlements should they occur. The ultimate outcome of any legal mattercannot be predicted with certainty. In light of the significant uncertainty associated with asbestos lawsuits, there is no guarantee that these lawsuits will notmaterially adversely affect our financial position, results of operations or liquidity. The market price of our common stock has been and is likely to continue to be volatile and there has been limited trading volume in our stock, whichmay make it difficult for shareholders to resell common stock when they want to and at prices they find attractive. The market price of our common stock has been and is likely to be highly volatile, and there has been limited trading volume in our common stock. Forexample, our stock traded between a low sale price of $16.70 and a high sale price of $76.80 in 2018. The common stock market price could be subject towide fluctuations in response to a variety of factors, including the following: ●announcements of fluctuations in our or our competitors’ operating results; ●regulatory or other delays affecting our or our customers’ products; ●the timing and announcement of sales or acquisitions of assets by us or our competitors; ●changes in estimates or recommendations by securities analysts; ●adverse or unfavorable publicity about our products, technologies or us; ●the commencement of material litigation, or an unfavorable verdict, against us; ●terrorist attacks, war and threats of attacks and war; ●additions or departures of key personnel; and ●sales of common stock by us or our shareholders. In addition, the stock market in recent years has experienced significant price and volume fluctuations. Such volatility has affected many companiesirrespective of, or disproportionately to, the operating performance of these companies. These broad fluctuations and limited trading volume may materiallyadversely affect the market price of our common stock, and your ability to sell our common stock. Most of our outstanding shares are available for resale in the public market without restriction. The sale of a large number of these shares could adverselyaffect the share price and could impair our ability to raise capital through the sale of equity securities or make acquisitions for common stock. 17 “Anti-takeover” provisions may make it more difficult for a third party to acquire control of us, even if the change in control would be beneficial toshareholders. We are a Pennsylvania corporation. Anti-takeover provisions in Pennsylvania law and our charter and bylaws could make it more difficult for a third party toacquire control of us. These provisions could adversely affect the market price of the common stock and could reduce the amount that shareholders mightreceive if we are sold. For example, our charter provides that the board of directors may issue preferred stock without shareholder approval. In addition, ourbylaws provide for a classified board, with each board member serving a staggered three-year term. Directors may be removed by shareholders only with theapproval of the holders of at least two-thirds of all of the shares outstanding and entitled to vote. If we fail to maintain an effective system of internal controls, we may not be able to accurately report our financial results or prevent fraud. As a result,current and potential shareholders and customers could lose confidence in our financial reporting, which could harm our business, the trading price ofour stock and our ability to retain our current customers or obtain new customers. Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, referred to as Section 404, we are required to include in our Annual Reports on Form 10-K,reports of our management and our independent registered public accounting firm on our internal control over financial reporting. While we have reportedno “material weaknesses” in the Form 10-K for the fiscal year ended December 31, 2018, we cannot guarantee that we will not have material weaknesses inthe future. Compliance with the requirements of Section 404 is expensive and time-consuming. If in the future we fail to complete this evaluation in a timelymanner, or if we determine that we have a material weakness, we could be subject to regulatory scrutiny and a loss of public confidence in our internal controlover financial reporting. In addition, any failure to establish an effective system of disclosure controls and procedures could cause our current and potentialinvestors and customers to lose confidence in our financial reporting and disclosure required under the Securities Exchange Act of 1934, which couldadversely affect our business and the market price of our common stock. 18 ITEM 1B.Unresolved Staff Comments Not applicable. ITEM 2. Properties The Company leases eight facilities, four domestically and four internationally, as follows: ●a 47,000 square foot manufacturing facility in Arden Hills, Minnesota, which also serves as the Company’s headquarters. At this facility, theCompany manufactures body-worn devices, other than plastic component parts. Annual base rent expense, including real estate taxes and othercharges, is approximately $534. This lease expires in January 2022.●a 37,000 square foot manufacturing facility in Arden Hills, Minnesota at which the Company manufactures body-worn devices, and plasticcomponent parts. Annual base rent expense is approximately $334. This lease expires in July 2023.●a 46,000 square foot building in Vadnais Heights, Minnesota at which IntriCon produces plastic component parts for body-worn devices. Annualbase rent expense, including real estate taxes and other charges, is approximately $390. This lease expires in December 2022. ●a 22,000 square foot facility in DeKalb, Illinois which houses Hearing Help Express’s sales and administrative offices and warehouse. Annual baserent expense is approximately $203. We are also responsible for our pro rata share of common area costs, real estate taxes and insurance costs. Thislease expires in December 2021. ●a 35,000 square foot facility in Singapore which houses production facilities, warehouse and administrative offices. Annual base rent expense,including real estate taxes and other charges, is approximately $637. This lease expires in October 2020. ●a 33,000 square foot facility in Indonesia which houses production facilities, warehouse and administrative offices. Annual base rent expense,including real estate taxes and other charges is approximately $85. This lease expires in September 2021. ●a 2,000 square foot facility in Germany which houses sales and administrative offices. Annual base rent expense, including real estate taxes andother charges, is approximately $32. This lease expires in June 2022. ●a 11,900 square foot facility in United Kingdom which houses sales and administrative offices. Annual base rent expense, including real estate taxesand other charges, is approximately $138. This lease expires in March 2021. ●See Note 20 to the Company’s consolidated financial statements in Item 8 of the Annual Report on Form 10-K. ITEM 3. Legal Proceedings The Company is a defendant along with a number of other parties in lawsuits alleging that plaintiffs have or may have contracted asbestos-related diseases asa result of exposure to asbestos products or equipment containing asbestos sold by one or more named defendants. These lawsuits relate to the discontinuedheat technologies segment which was sold in March 2005. Due to the non-informative nature of the complaints, the Company does not know whether any ofthe complaints state valid claims against the Company. Certain insurance carriers have informed the Company that the primary policies for the period August1, 1970-1978 have been exhausted and that the carriers will no longer provide defense and insurance coverage under those policies. However, the Companyhas other primary and excess insurance policies that the Company believes afford coverage for later years. Some of these other primary insurers haveaccepted defense and insurance coverage for these suits, and some of them have either ignored the Company’s tender of defense of these cases, or have deniedcoverage, or have accepted the tenders but asserted a reservation of rights and/or advised the Company that they need to investigate further. Becausesettlement payments are applied to all years a litigant was deemed to have been exposed to asbestos, the Company believes that it will have funds availablefor defense and insurance coverage under the non-exhausted primary and excess insurance policies. However, unlike the older policies, the more recentpolicies have deductible amounts for defense and settlements costs that the Company will be required to pay; accordingly, the Company expects that itslitigation costs will increase in the future. Further, many of the policies covering later years (approximately 1984 and thereafter) have exclusions for anyasbestos products or operations, and thus do not provide insurance coverage for asbestos-related lawsuits. The Company does not believe that the assertedexhaustion of some of the primary insurance coverage for the 1970-1978 period will have a material adverse effect on its financial condition, liquidity, orresults of operations. Management believes that the number of insurance carriers involved in the defense of the suits, and the significant number of policyyears and policy limits under which these insurance carriers are insuring the Company, make the ultimate disposition of these lawsuits not material to theCompany’s consolidated financial position or results of operations. The Company’s former wholly owned French subsidiary, Selas SAS, filed for insolvency in France. The Company may be subject to additional litigation orliabilities as a result of the completion of the French insolvency proceeding, including liabilities under guarantees aggregating approximately $448. The Company is also involved from time to time in other lawsuits arising in the normal course of business. While it is not possible to predict with certaintythe outcome of these matters, management is of the opinion that the disposition of these lawsuits and claims will not materially affect the Company’sconsolidated financial position, liquidity, or results of operations. 19 ITEM 4. Mine Safety Disclosures Not applicable. ITEM 4A. Executive Officers of the Registrant The names, ages and offices (as of February 26, 2019) of the Company’s executive officers were as follows: Name Age PositionMark S. Gorder 72 President, Chief Executive Officer and Director of the CompanyScott Longval 42 Executive Vice President, Chief Financial Officer and TreasurerMichael P. Geraci 60 Senior Vice President, Sales and MarketingDennis L. Gonsior 60 Senior Vice President, Global OperationsGreg Gruenhagen 65 Vice President, Corporate Quality and Regulatory Affairs Mr. Gorder joined the Company in October 1993 when Resistance Technology, Inc. (RTI) (now known as IntriCon, Inc.) was acquired by the Company. Mr.Gorder received a Bachelor of Arts degree in Mathematics from the St. Olaf College, a Bachelor of Science degree in Electrical Engineering from theUniversity of Minnesota and a Master of Business Administration from the University of Minnesota. Prior to the acquisition, Mr. Gorder was President andone of the founders of RTI, which began operations in 1977. Mr. Gorder was promoted to Vice President of the Company and elected to the Board ofDirectors in April 1996. In December 2000, he was elected President and Chief Operating Officer and in April 2001, Mr. Gorder assumed the role of ChiefExecutive Officer. Mr. Longval has served as the Company’s Chief Financial Officer since July 2006 and was promoted to Executive Vice President in January 2019. Mr.Longval received a Bachelor of Science degree in Accounting from the University of St. Thomas. Prior to being appointed as CFO, Mr. Longval served as theCompany’s Corporate Controller since September 2005. Prior to joining the Company, Mr. Longval was Principal Project Analyst at ADCTelecommunications, Inc., a provider of innovative network infrastructure products and services, from March 2005 until September 2005. From May 2002until March 2005 he was employed by Accellent, Inc., formerly MedSource Technologies, a provider of outsourcing solutions to the medical device industry,most recently as Manager of Financial Planning and Analysis. From September 1998 until April 2002, he was employed by Arthur Andersen, most recently asexperienced audit senior. Mr. Geraci joined the Company in October 1983. Mr. Geraci received a Bachelor of Science degree in Electrical Engineering from Bradley University and aMaster of Business Administration from the University of Minnesota – Carlson School of Business. He has served as the Company’s Vice President of Salesand Marketing since January 1995. Mr. Gonsior joined the Company in February 1982. Mr. Gonsior received a Bachelor of Science degree from Saint Cloud State University. He has served asthe Company’s Vice President of Operations since January 1996. Mr. Gruenhagen joined the Company in November 1984. Mr. Gruenhagen received a Bachelor of Science degree from Iowa State University. He has served asthe Company’s Vice President of Corporate Quality and Regulatory Affairs since December 2007. Prior to that, Mr. Gruenhagen served as Director ofCorporate Quality since 2004 and Director of Project Management since 2000. 20 PART II ITEM 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The Company’s common shares are listed on the NASDAQ Global Market under the ticker symbol “IIN”. Market and Dividend Information The high and low sale prices of the Company’s common stock during each quarterly period during the past two years were as follows: 2018 Market Price Range 2017 Market Price Range Quarter High Low High Low First $ 24.00 16.70 $ 9.15 6.50 Second 46.20 18.85 9.65 6.05 Third 76.80 39.15 12.95 6.90 Fourth 56.47 21.96 21.75 10.40 The closing sale price of the Company’s common stock on February 26, 2019, was $27.08 per share. At February 26, 2019 the Company had 257 shareholders of record of common stock. Such number does not reflect shareholders who beneficially owncommon stock in nominee or street name. The Company currently intends to retain any future earnings to support operations and to finance the growth and development of its business and does notintend to pay cash dividends on its common stock for the foreseeable future. Any payment of future dividends will be at the discretion of the Board ofDirectors and will depend upon, among other things, the Company’s earnings, financial condition, capital requirements, level of indebtedness, contractualrestrictions with respect to the payment of dividends, and other factors that the Board of Directors deems relevant. Terms of the Company’s bankingagreements prohibit the payment of cash dividends without prior bank approval. See “Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters — Equity Compensation Plans” of thisAnnual Report on Form 10-K for disclosure regarding our equity compensation plans. On August 20, 2018, the Company completed a public offering and sale of 1,725 shares of common stock at a price to the public of $55.00 per share less anunderwriting discount of $3.30 per share. The net proceeds from this offering, after deducting underwriting discounts and offering expenses, totaledapproximately $88,967 and were used to repay debt, fund capital expenditures, to repurchase 500 shares of common stock owned by directors and officersand for working capital and other general corporate purposes. The Company did not repurchase any shares of common stock in the quarter ended December 31, 2018. 21 ITEM 6.Selected Financial Data Year Ended December 31 2018 2017 (a) 2016 (a)(b) 2015 (b) 2014 Revenue, net $ 116,462 $ 90,637 $ 68,980 $ 68,527 $ 67,094 Gross profit 37,163 26,747 16,716 18,756 18,115 Operating expenses 30,049 24,244 18,674 15,025 13,836 Interest expense, net (314) (716) (553) (369) (461)Other expense, net (769) (367) (602) (261) (1) Income (loss) from continuing operations before income taxes, non-controlling interest and discontinued operations 6,031 1,420 (3,113) 3,101 3,817 Income tax expense (484) (8) (217) (19) (428) Income (loss) from continuing operations before non-controllinginterest and discontinued operations 5,547 1,412 (3,330) 3,082 3,389 Loss on sale of discontinued operations, net of income taxes — (164) — — (120) Loss from discontinued operations, net of income taxes — (128) (1,770) (965) (1,021)Net income (loss) 5,547 1,120 (5,100) 2,117 2,248 Less: Loss allocated to non-controlling interest — (938) (157) (111) — Net income (loss) attributable to shareholders $ 5,547 $ 2,058 $ (4,943) $ 2,228 $ 2,248 Basic income (loss) per share attributable to shareholders: Continuing operations $ 0.73 $ 0.34 $ (0.49) $ 0.54 $ 0.59 Discontinued operations — (0.04) (0.27) (0.16) (0.20) Net income (loss) $ 0.73 $ 0.30 $ (0.76) $ 0.38 $ 0.39 Diluted income (loss) per share attributable to shareholders: Continuing operations $ 0.64 $ 0.32 $ (0.49) $ 0.51 $ 0.56 Discontinued operations — (0.04) (0.27) (0.15) (0.19) Net income (loss) $ 0.64 $ 0.28 $ (0.76) $ 0.36 $ 0.37 Weighted average number of shares outstanding during year: Basic 7,599 6,852 6,497 5,907 5,791 Diluted 8,630 7,307 6,497 6,241 6,038 22 Other Financial Highlights Year Ended December 31 2018 2017 (a) 2016 (a)(b) 2015 (b) 2014 Working capital (c) $ 62,897 $ 8,985 $ 8,456 $ 11,302 $ 7,804 Total assets 115,248 54,474 43,758 41,886 33,961 Long-term debt — 9,321 9,284 7,929 4,627 Equity 91,974 21,439 19,011 18,897 16,107 Depreciation and amortization 2,943 2,194 2,041 1,755 2,182 (a)Certain historical balances have been adjusted due to the adoption of ASC 606 “Revenue from Contracts with Customers”, with the exception of years2015 and 2014. Please refer to Notes 5 and 6 for further information.(b)In 2016, the Company classified its cardiac diagnostic monitoring operations as discontinued operations. The Company revised its financial statementsfor 2016 and 2015 to reflect the discontinued operations.(c)Working capital is equal to current assets less current liabilities. 23 ITEM 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations Company Overview IntriCon Corporation (together with its subsidiaries, the “Company” or “IntriCon”, “we”, “us” or “our”) is an international company engaged in designing,developing, engineering, manufacturing and distributing body-worn devices. The Company serves the body-worn device market by designing, developing,engineering, manufacturing and distributing micro-miniature products, microelectronics, micro-mechanical assemblies and complete assemblies, primarilyfor biotelemetry devices, hearing instruments and professional audio communication devices. As discussed below, the Company has two operating segments - its body-worn device segment and its hearing health direct-to-end-consumer segment. Ourexpertise in these segments is focused on four main markets: medical biotelemetry, hearing health, hearing health direct-to-end-consumer and professionalaudio communications. Within these chosen markets, we combine ultra-miniature mechanical and electronics capabilities with proprietary technology –including ultra low power (ULP) wireless and digital signal processing (DSP) capabilities – that enhances the performance of body-worn devices. Business Highlights In January 2019, the Company purchased the source code for the Sentibo Smart Brain self-fitting software from Soundperience for 1,829 Euros, positioningthe Company to capitalize on the pending over-the-counter (OTC) hearing aid regulation. Sentibo Smart Brain self-fitting software is designed to improveboth channel productivity and the quality of first-time fittings, resulting in lower prices, greater access and increased customer satisfaction. This software isbeing used in the German market today, most notably through Signison, the Company’s joint venture with the majority owner of Soundperience. In addition,the Company transferred its 49% ownership interest in Soundperience to the majority owner of Soundperience. On August 20, 2018, the Company completed a public offering and sale of 1,725 shares of common stock at a price to the public of $55.00 per share less anunderwriting discount of $3.30 per share. The net proceeds from this offering, after deducting underwriting discounts and offering expenses, totaledapproximately $88,967 and were used to repay debt, fund capital expenditures, to repurchase 500 shares of common stock owned by directors and officersand for working capital and other general corporate purposes. The amount of domestic and foreign bank debt repaid from the offering was $16,381. In March 2018, the Company entered into a new 5-year lease for an additional 37,000 square foot manufacturing and clean room facility near our CorporateHeadquarters in Arden Hills, Minnesota. In addition, during 2018 the Company added 13 new molding presses, as well as a high-speed printed circuit boardassembly line in Minnesota. In June 2018, the Company entered into an additional 10,000 square foot medical assembly space in Singapore. The addedcapacity and equipment will aid us in meeting the anticipated rising demand in our medical biotelemetry business. Forward–Looking Statements The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and therelated notes appearing in Item 8 of this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties andassumptions. Our actual results may differ materially from those anticipated in these forward- looking statements as a result of many factors, including but notlimited to those under the heading “Risk Factors” in Item 1A of this Annual Report on Form 10-K. See also Item 1. “Business—Forward-Looking Statements”for more information. 24 Results of Operations: 2018 Compared with 2017 Consolidated Net Revenue Our net revenue is comprised of two segments: our body-worn device segment (consisting of three markets: medical biotelemetry, hearing health, andprofessional audio) and our hearing health direct-to-end-consumer segment. Below is a recap of our revenue by main markets for the years ended December31, 2018 and 2017: Change 2018 2017 (a) Dollars Percent Medical Biotelemetry $ 75,645 $ 53,452 $ 22,193 41.5%Hearing Health 26,720 24,527 2,193 8.9%Hearing Health Direct-to-End-Consumer 6,858 6,492 366 5.6%Professional Audio Communications 7,239 6,166 1,073 17.4%Consolidated Net Revenue $ 116,462 $ 90,637 $ 25,825 28.5% (a)Certain historical balances have been adjusted due to the adoption of ASC 606 “Revenue from Contracts with Customers”. Please refer to Notes 5 and 6for further information. In 2018, we experienced a 41.5 percent increase in medical biotelemetry revenue primarily driven by higher sales to Medtronic while the rest of the medicalbiotelemetry market remained relatively stable. IntriCon currently serves this market by offering medical manufacturers the capabilities to design, developand manufacture medical devices that are easier to use, are more miniature, use less power, and are lighter. IntriCon has a strong presence in the diabetesmarket with its Medtronic partnership. The Company believes there are growth opportunities in this market as well other emerging biotelemetry and homecare markets that could benefit from its capabilities to develop devices that are more technologically advanced, smaller and lightweight. Net revenue in our hearing health business for the year ended December 31, 2018 increased 8.9 percent over the same period in 2017. The increase wasprimarily due to gains in our value-based hearing healthcare markets, partially offset by the anticipated continued decline in conventional channel sales. TheCompany is optimistic about the progress that has been made and the long-term prospects of the value-based hearing healthcare market. Market dynamics,such as low penetration rates, an aging population, regulatory scrutiny, and the need for reduced cost and convenience, have resulted in the emergence ofalternative care models, including the direct-to-the-consumer channel and pending over-the-counter channel. IntriCon believes it is very well positioned toserve these value-based hearing healthcare market channels. The Company is aggressively pursuing larger customers who can benefit from our valueproposition. Over the past several years, the Company has invested heavily in core technologies, product platforms and its global manufacturing capabilitiesgeared to provide high-tech, lower-cost hearing devices. Net revenue in our hearing health direct-to-end-consumer business for the year ended December 31, 2018 increased 5.6 percent over the same period in 2017,primarily due to an increase in advertising, which drove sales. Net revenue to the professional audio device sector increased 17.4 percent in 2018 compared to the same period in 2017. IntriCon will continue to leverageits core technology in professional audio to support existing customers. Gross Profit Gross profit, both in dollars and as a percent of revenue, for the years ended December 31, 2018 and 2017, were as follows: 2018 2017 Change Percent Percent Dollars of Revenue Dollars of Revenue Dollars Percent Gross Profit $ 37,163 31.9% $ 26,747 29.5% $ 10,416 38.9% The 2018 gross profit increase as a percentage of revenue over the prior year was primarily due to higher overall sales volumes slightly offset by ramp-upcosts associated with the new manufacturing facility. 25 Sales and Marketing, General and Administrative and Research and Development Expenses Sales and marketing, general and administrative and research and development expenses for the years ended December 31, 2018 and 2017 were: 2018 2017 Change Percent Percent Dollars of Revenue Dollars of Revenue Dollars Percent Sales and Marketing $ 12,369 10.6% $ 9,447 10.4% $ 2,922 30.9%General and Administrative 13,009 11.2% 10,339 11.4% 2,670 25.8%Research and Development 4,671 4.0% 4,458 4.9% 213 4.8% Sales and marketing expenses increased over the prior year due to increased hearing health direct-to-end-consumer advertising spending, bad debt expense,other outsider services and support costs. General and administrative and research and development expenses were greater than the prior year period primarilydue to increased other external services and support costs to drive business growth. Interest Expense Interest expense for 2018 was $314, a decrease of $402 from $716 in 2017. The decrease in interest expense was primarily due to lower average outstandingdebt balances during the year due to the full debt repayment during the second half of 2018 with the proceeds from our August 2018 public offering. Other Expense, net In 2018, other expense, net was $769 compared to $367 in 2017. The change in other expense primarily related to additional losses incurred in ourpartnerships accounted for under the equity method during the current period. Income Tax Expense Income taxes were as follows: 2018 2017 Income tax expense $ 484 $ 8 Percentage of income tax expense of income (loss) fromcontinuing operations before income taxes, non-controllinginterest and discontinued operations 8.03% 0.56% The expense in 2018 and 2017 was primarily due to foreign taxes on international operations. The Company is in a net operating loss (“NOL”) position forUS federal and state income tax purposes, but our deferred tax asset related to the NOL carry forwards have been largely offset by a full valuation allowance.We incur minimal income tax expense for the current period domestic operations. We have approximately $38,432 of NOL carry forwards available to offsetfuture U.S. federal income taxes that begin to expire in 2023. Loss from Discontinued Operations Loss from discontinued operations, net of income taxes, was $0 and $128 for the years ended December 31, 2018 and December 31, 2017. Loss on Sale of Discontinued Operations Loss on sale of discontinued operations, net of income taxes, was $0 and $164 for the years ended December 31, 2018 and December 31, 2017 due to our saleof Datrix, LLC. Please refer to Note 2 for additional information. 26 Loss Allocated to Non-Controlling Interest Loss allocated to non-controlling interest of $0 and $938 for the years ended December 31, 2018 and December 31, 2017 was primarily due to losses withinHHE. In December 2017, we obtained 100% ownership of HHE, therefore a non-controlling interest no longer existed in 2018. Results of Operations: 2017 Compared with 2016Consolidated Net Revenue Our net revenue is comprised of two segments: our body-worn device segment (consisting of three markets: medical biotelemetry, hearing health, andprofessional audio) and our hearing health direct-to-end-consumer segment. Below is a recap of our revenue by main markets for the years ended December31, 2017 and 2016: Change Year Ended December 31 2017 (a) 2016 (a) Dollars Percent Medical Biotelemetry $ 53,452 $ 36,618 $ 16,834 46.0%Hearing Health 24,527 23,837 690 2.9%Hearing Health Direct-to-End-Consumer 6,492 1,025 5,467 533.4%Professional Audio Communications 6,166 7,500 (1,334) -17.8%Consolidated Net Revenue $ 90,637 $ 68,980 $ 21,657 31.4% (a)Certain historical balances have been adjusted due to the adoption of ASC 606 “Revenue from Contracts with Customers”. Please refer to Notes 5 and6 for further information. In 2017, we experienced a 46.0 percent increase in medical biotelemetry sales primarily driven by higher sales to Medtronic while the rest of the medicalbiotelemetry business remained relatively stable. Net revenue in our hearing health business for the year ended December 31, 2017 increased 2.9 percent over the same period in 2016. The increase wasprimarily due to gains in our value-based hearing healthcare markets, partially offset by the anticipated continued decline in conventional channel sales. Net revenue in our hearing health direct-to-end consumer business for the year ended December 31, 2017 increased due to a full year of results compared to2016. We acquired 20% of the equity of HHE during the fourth quarter of 2016 and began consolidating its results at that time. Please refer to Note 4 of thefinancial statements for more information about this acquisition. Net revenue to the professional audio device sector decreased 17.8 percent in 2017 compared to the same period in 2016. IntriCon will continue to leverageits core technology in professional audio to support existing customers. Gross Profit Gross profit, both in dollars and as a percent of revenue, for the years ended December 31, 2017 and 2016 were as follows: 2017 2016 Change Percent Percent Year Ended December 31 Dollars of Revenue Dollars of Revenue Dollars Percent Gross Profit $ 26,747 29.5% $ 16,716 24.2% $ 10,031 60.0% The 2017 gross profit increase as a percentage of revenue over the prior year was primarily due to higher sales volume, sales from HHE, our direct-to-end-consumer business, for a full year and favorable sales mix. 27 Sales and Marketing, General and Administrative and Research and Development Expenses Sales and marketing, general and administrative and research and development expenses for the years ended December 31, 2017 and 2016 were: 2017 2016 Change Percent Percent Year Ended December 31 Dollars of Revenue Dollars of Revenue Dollars Percent Sales and Marketing $ 9,447 10.4% $ 4,700 6.8% $ 4,747 101.0%General and Administrative 10,339 11.4% 9,154 13.3% 1,185 12.9%Research and Development 4,458 4.9% 4,688 6.8% (230) -4.9% Sales and marketing expenses increased over the prior year due to the addition of HHE in late 2016. General and administrative expenses were greater thanthe prior year primarily due to support costs as revenue levels increased, along with costs at HHE. Research and development decreased over the prior yeardue to decreased outside service costs. Restructuring charges During 2016, the Company incurred restructuring charges of $132, related to IntriCon UK’s facility moving costs. Interest Expense Interest expense for 2017 was $716, an increase of $163 from $553 in 2016. The increase in interest expense was primarily due to higher average interest ratesalong with interest expenses generated from HHE that were not incurred for the full year in 2016. Other Expense, net In 2017, other expense, net was $(367) compared to $(602) in 2016. The decrease was primarily due to foreign exchange rate gains in 2017 that did not occurin 2016 and $205 in net costs related to pursuing targeted acquisitions incurred in 2016. Income Tax Expense Income taxes were as follows: 2017 2016 Income tax expense $ 8 $ 217 Percentage of income tax expense of income (loss) from continuing operations before income taxes, non-controlling interest and discontinued operations 0.56% -6.97% The expense in 2017 and 2016 was primarily due to foreign taxes on German and Indonesia operations. In 2017, income tax expense was partially offset by aSingapore tax benefit recognized during 2017. Loss from Discontinued Operations Loss from discontinued operations, net of income taxes, was $128 and $1,770 for the years ended December 31, 2017 and December 31, 2016. Loss on Sale of Discontinued Operations Loss on sale of discontinued operations, net of income taxes, was $164 for the year ended December 31, 2017 due to our sale of Datrix, LLC. Please refer toNote 2 for additional information. Loss Allocated to Non-Controlling Interest Loss allocated to non-controlling interest of $938 and $157 for the years ended December 31, 2017 and December 31, 2016 were primarily due to losseswithin HHE, and the lack of 100% ownership in this entity for the entire year. 28 Liquidity and Capital Resources Our primary sources of cash have been cash flows from operations, bank borrowings, and sales of equity. For the last three years, cash has been used forrepayments of bank borrowings, the acquisition of HHE, purchases of equipment and working capital to support growth. As of December 31, 2018, we had approximately $8,047 of cash, cash equivalents and restricted cash on hand. Sources of our cash for the year endedDecember 31, 2018 have been from our financing activities, as described below. Consolidated net working capital increased to $62,897 at December 31, 2018 from $8,985 at December 31, 2017. Our cash flows from operating, investingand financing activities, as reflected in the statement of cash flows for the years ended December 31, are summarized as follows: December 31, 2018 December 31, 2017 December 31, 2016 Cash provided by (used in): Operating activities $ 177 $ 4,230 $ (405)Investing activities (44,997) (4,720) (2,302)Financing activities 52,000 (36) 3,508 Effect of exchange rate changes on cash (150) 281 (518)Increase (decrease) in cash $ 7,030 $ (245) $ 283 Operating Activities. The most significant items that contributed to the $177 provided by operating activities were net income of $5,547, add backs fornon-cash depreciation and stock-based compensation, and increases in accounts payable, partially offset by increases in inventory, contract assets andaccounts receivable to support business growth. Days sales in inventory decreased from 89 at December 31, 2017 to 79 at December 31, 2018. Dayspayables outstanding decreased from 71 days at December 31, 2017 to 65 days at December 31, 2018. Day sales outstanding decreased from 36 days atDecember 31, 2017 to 34 days at December 31, 2018. Cash generated from operations may be affected by a number of factors. See “Forward Looking Statements” and “Item 1A Risk Factors” contained in thisForm 10-K for a discussion of some of the factors that can negatively impact the amount of cash we generate from our operations. Investing Activities. Net cash used in investing activities of $44,997 consisted of purchases of $38,093 in investment securities, $5,507 in purchases ofproperty, plant and equipment, and $1,397 for the investment in several of the Company’s joint ventures, including Soundperience, Signison and others. Financing Activities. Net cash provided by financing activities of $52,000 was comprised primarily of proceeds from the issuance of common stock, net ofoffering costs, of $88,967 and proceeds from long-term debt of $14,169 partially offset by repayments of borrowings of $25,868 and the payments forrepurchase of common stock and related costs of $25,907. We had the following bank arrangements at December 31: December 31, 2018 December 31, 2017 Total borrowing capacity under existing facilities $ 13,884 $ 19,545 Facility Borrowings: Domestic revolving credit facility — 4,000 Domestic term loan — 6,250 Foreign overdraft and letter of credit facility — 1,250 Total borrowings and commitments — 11,500 Remaining availability under existing facilities $ 13,884 $ 8,045 During the second half of 2018, we utilized proceeds from our public offering (see Note 18) and repaid all of our domestic and foreign bank debt. 29 Domestic Credit Facilities The Company and its domestic subsidiaries are parties to a credit facility with CIBC Bank USA (formerly known as The PrivateBank and Trust Company).The credit facility, as amended through December 31, 2018, provides for a $11,000 revolving credit facility, with a $200 sub facility for letters of credit.Under the revolving credit facility, the availability of funds depends on a borrowing base composed of stated percentages of the Company’s eligible tradereceivables and eligible inventory, and eligible equipment less a reserve. The credit facility matures on December 15, 2022. The Company was in compliance with all applicable covenants under the credit facility as of December 31, 2018. Foreign Credit Facility In addition to its domestic credit facilities, the Company’s wholly-owned subsidiary, IntriCon, PTE LTD., entered into an international senior secured creditagreement with Oversea-Chinese Banking Corporation Ltd. that provides for an asset-based line of credit. Borrowings bear interest at a rate of .75% to 2.5%over the lender’s prevailing prime lending rate. Capital Adequacy We believe that funds raised from our August 2018 public offering, funds expected to be generated from operations and funds available under our revolvingcredit loan facility will be sufficient to meet our anticipated cash requirements for operating needs for at least the next 12 months. While managementbelieves that we will be able to meet our liquidity needs for at least the next 12 months, no assurance can be given that we will be able to do so. Contractual Obligations The following table represents our contractual obligations and commercial commitments, excluding interest expense, as of December 31, 2018. Contractual Obligations Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Pension and other postretirement benefit obligations $ 1,254 $ 192 $ 348 $ 302 $ 412 Operating leases 7,499 2,417 4,895 187 — Total contractual obligations $ 8,753 $ 2,609 $ 5,243 $ 489 $ 412 There are certain provisions in the underlying contracts that could accelerate our contractual obligations as noted above. Foreign Currency Fluctuation Generally, the effect of changes in foreign currencies on our results of operations is partially or wholly offset by our ability to make corresponding pricechanges in the local currency. From time to time, the impact of fluctuations in foreign currencies may have a material effect on the financial results of theCompany. Foreign currency transaction amounts included in the statements of operation include losses of $64, $89 and $128 in 2018, 2017 and 2016,respectively. See Note 17 to the Company’s consolidated financial statements included herein. Off-Balance Sheet Obligations We had no material off-balance sheet obligations as of December 31, 2018 other than the operating leases disclosed above. Related Party Transactions For a discussion of related party transactions, see Note 21 to the Company’s consolidated financial statements included herein. 30 Litigation For a discussion of litigation, see “Item 3. Legal Proceedings” and Note 20 to the Company’s consolidated financial statements included herein. New Accounting Pronouncements See “New Accounting Pronouncements” set forth in Note 1 of the Notes to the Consolidated Financial Statements under Item 8 of this Annual Report onForm 10-K, for information pertaining to recently adopted accounting standards or accounting standards to be adopted in the future. Critical Accounting Policies and Estimates The significant accounting policies of the Company are described in Note 1 to the consolidated financial statements and have been reviewed with the auditcommittee of our Board of Directors. The preparation of financial statements in conformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingentassets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Certain accounting estimates and assumptions are particularly sensitive because of their importance to the consolidated financial statements and possibilitythat future events affecting them may differ markedly. The accounting policies of the Company with significant estimates and assumptions are describedbelow. Revenue Recognition For its body-worn device segment, the Company recognizes revenue when a performance obligation is satisfied by transferring control of a distinct good orservice to a customer. For its hearing health direct-to-end-consumer segment, the Company recognizes revenue after the customer trial period has ended(generally 60 days from shipment). Body-worn device segment customers have 30 days to notify the Company if the product is damaged or defective. Beyond that, there are no significantobligations that remain after shipment other than warranty obligations. Contracts with customers do not include product return rights; however, the Companymay elect in certain circumstances to accept returns of products. The Company records revenue for product sales net of returns. Sales and use tax are reportedon a net basis. The Company defers recognition of revenue on discounts to customers if discounts are considered significant. In general, the Company warrants its products to be free from defects in material and workmanship and will fully conform to and perform to specifications fora period of one year. The Company develops a warranty reserve based on historical experience. While the Company’s warranty costs have historically beenwithin its expectations, the Company cannot guarantee that it will continue to experience the same warranty return rates or repair costs that it has experiencedin the past. Accounts Receivable Reserves This reserve is an estimate of the amount of accounts receivable that are uncollectible. The reserve is based on a combination of specific customer knowledge,general economic conditions and historical trends. Management believes the results could be materially different if economic conditions change for ourcustomers. Inventory Valuation Inventory is recorded at the lower of our cost or market value. Market value is an estimate of the future net realizable value of our inventory. It is based onhistorical trends, product life cycles, forecasts of future inventory needs and on-hand inventory levels. Management believes reserve levels could bematerially affected by changes in technology, our customer base, customer needs, general economic conditions and the success of certain Company salesprograms. Goodwill and Intangible Assets Goodwill is reviewed for impairment annually or more frequently if changes in circumstances or the occurrence of events suggest impairment exists. TheCompany may apply a qualitative assessment to determine if it is more likely than not that goodwill is impaired. If the Company does not pass the qualitativeassessment, or choses to skip the assessment, it performs a test comparing fair value of a reporting unit to its carrying value. The Company would need torecognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The Company has concluded that noimpairment of goodwill or intangible assets occurred during the years ended December 31, 2018, 2017 and 2016. 31 Long-lived Assets The carrying value of long-lived assets is periodically assessed to insure their carrying value does not exceed the undiscounted cash flows expected to begenerated from their expected use and eventual disposition. This assessment includes certain assumptions related to future needs for the asset to help generatefuture cash flow. Changes in those assessments, future economic conditions or technological changes could have a material adverse impact on the carryingvalue of these assets. Deferred Taxes The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporarydifferences become deductible. Management considers the scheduled reversal of deferred tax liabilities and projected future taxable income in making thisassessment. Actual future operating results, as well as changes in our future performance, could have a material impact on the valuation allowance. Employee Benefit Obligations We provide retirement and health care insurance for certain domestic retirees and employees of our Selas operations discontinued in 2005. We measurethe costs of our obligation based on our best estimate. The net periodic costs are recognized as employees render the services necessary to earn the post-retirement benefit. Several assumptions and statistical variables are used in the models to calculate the expense and liability related to the plans. Wedetermine assumptions about the discount rate, the expected rate of return on plan assets and the future rate of compensation increases. The actuarialmodels also use assumptions on demographic factors such as retirement, mortality and turnover. Changes in actuarial assumptions could vary materiallyfrom actual results due to economic events and different rates of retirement, mortality and withdrawal. ITEM 7A.Quantitative and Qualitative Disclosures About Market Risk Not applicable. ITEM 8.Financial Statements and Supplementary Data Management’s Report on Internal Control over Financial Reporting Management of IntriCon Corporation and its subsidiaries (“the Company”) is responsible for establishing and maintaining adequate internal control overfinancial reporting, as such term is defined in Rules 13a-15(f) of the Securities Exchange Act of 1934. The Company’s internal control over financialreporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies andprocedures that (1) pertain to maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets ofthe Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of the financial statements in accordancewith generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations ofmanagement and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, useor disposition of the Company’s assets that could have a material effect on the financial statements. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of theeffectiveness of internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changesin conditions, or that the degree of compliance with the policies or procedures may deteriorate. The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018, using criteria setforth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).Based on this assessment, the Company’s management believes that, as of December 31, 2018, the Company’s internal control over financial reporting waseffective based on those criteria. The Company’s independent registered public accounting firm has audited the Company’s internal control over financial reporting as of December 31, 2018,as stated in the Report of Independent Registered Public Accounting Firm appearing under Item 8. There were no changes in our internal control over financial reporting during the most recent fiscal quarter covered by this report that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. 32 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the board of directors of IntriCon Corporation and Subsidiaries: Opinions on the Financial Statements and Internal Control over Financial Reporting We have audited the accompanying consolidated balance sheets of IntriCon Corporation and Subsidiaries (the “Company”) as of December 31, 2018 and2017, the related consolidated statements of operations, comprehensive income (loss), equity, and cash flows, for each of the three years in the period endedDecember 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internalcontrol over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework: (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018and 2017, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2018, in conformity withaccounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effectiveinternal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – Integrated Framework: (2013) issued byCOSO. Adoption of New Accounting Standard As discussed in Notes 1 and 5 to the consolidated financial statements, the Company has changed its method of accounting for revenue for all periodspresented due to the full retrospective adoption of FASB Accounting Standards Update No. 2014-09 (Topic 606), Revenue from Contracts with Customers,and related amendments. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting,and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on InternalControl over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on theCompany’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company AccountingOversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securitieslaws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud and whether effective internalcontrol over financial reporting was maintained in all material respects. Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements,whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regardingthe amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significantestimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control overfinancial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, andtesting and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such otherprocedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate. 33 /s/ Baker Tilly Virchow Krause, LLP We have served as the Company’s auditor since 2005. Minneapolis, Minnesota March 14, 2019 34 INTRICON CORPORATIONConsolidated Statements of Operations (In Thousands, Except Per Share Amounts) Year Ended December 31 2018 2017(as adjusted) 2016(as adjusted) Revenue, net $ 116,462 $ 90,637 $ 68,980 Cost of goods sold 79,299 63,890 52,264 Gross profit 37,163 26,747 16,716 Operating expenses: Sales and marketing 12,369 9,447 4,700 General and administrative 13,009 10,339 9,154 Research and development 4,671 4,458 4,688 Restructuring charges (Note 3) — — 132 Total operating expenses 30,049 24,244 18,674 Operating income (loss) 7,114 2,503 (1,958) Interest expense, net (314) (716) (553)Other expense, net (769) (367) (602)Income (loss) from continuing operations before income taxes and discontinued operations 6,031 1,420 (3,113)Income tax expense 484 8 217 Income (loss) from continuing operations before discontinued operations 5,547 1,412 (3,330)Loss from discontinued operations and impairment, net of income taxes (Note 2) — (128) (1,770)Loss on sale of discontinued operations (Note 2) — (164) — Net income (loss) 5,547 1,120 (5,100)Less: Loss allocated to non-controlling interest — (938) (157)Net income (loss) attributable to IntriCon shareholders $ 5,547 $ 2,058 $ (4,943) Basic income (loss) per share attributable to IntriCon shareholders: Continuing operations $ 0.73 $ 0.34 $ (0.49)Discontinued operations — (0.04) (0.27) Net income (loss) per share: $ 0.73 $ 0.30 $ (0.76) Diluted income (loss) per share attributable to IntriCon shareholders: Continuing operations $ 0.64 $ 0.32 $ (0.49)Discontinued operations — (0.04) (0.27) Net income (loss) per share: $ 0.64 $ 0.28 $ (0.76) Average shares outstanding: Basic 7,599 6,852 6,497 Diluted 8,630 7,307 6,497 (See accompanying notes to the consolidated financial statements) 35 INTRICON CORPORATIONConsolidated Statements of Comprehensive Income (Loss)(In Thousands) Year Ended December 31 2018 2017 2016 (as adjusted) (as adjusted) Net income (loss) $5,547 $1,120 $(5,100)Interest rate swap, net of taxes of $0 (8) 26 22 Pension and postretirement obligations, net of taxes of $0 20 20 20 Foreign currency translation adjustment, net of taxes of $0 (206) 235 (335)Comprehensive income (loss) $5,353 $1,401 $(5,393) (See accompanying notes to the consolidated financial statements) 36 INTRICON CORPORATIONConsolidated Balance Sheets(In Thousands, Except Per Share Amounts) December 31, December 31, 2018 2017 (as adjusted) At December 31, Current assets: Cash, cash equivalents and restricted cash $8,047 $1,017 Available for sale securities 38,093 — Accounts receivable, less allowance for doubtful accounts of $807 at December 31, 2018 and $332 atDecember 31, 2017 11,479 9,052 Inventories 18,981 13,708 Contract assets 5,624 2,979 Other current assets 2,320 1,544 Total current assets 84,544 28,300 Property, plant, and equipment 37,161 40,124 Less: Accumulated depreciation 25,429 32,949 Net machinery and equipment 11,732 7,175 Goodwill 10,808 10,808 Intangible assets, net 2,585 2,740 Investment in partnerships 2,091 1,616 Other assets, net 3,488 3,835 Total assets $115,248 $54,474 Current liabilities: Current maturities of long-term debt $— $2,040 Accounts payable 13,191 10,423 Accrued salaries, wages and commissions 4,409 3,113 Other accrued liabilities 4,047 3,739 Total current liabilities 21,647 19,315 Long-term debt, less current maturities — 9,321 Other postretirement benefit obligations 377 455 Accrued pension liabilities 706 772 Other long-term liabilities 544 3,172 Total liabilities 23,274 33,035 Commitments and contingencies (Note 20) Equity: Common stock, $1.00 par value per share; 20,000 shares authorized; 8,664 and 6,900 shares issued andoutstanding at December 31, 2018 and December 31, 2017, respectively 8,664 6,900 Additional paid-in capital 84,999 21,581 Accumulated deficit (509) (6,056)Accumulated other comprehensive loss (927) (733)Total shareholders’ equity 92,227 21,692 Non-controlling interest (253) (253)Total equity 91,974 21,439 Total liabilities and equity $115,248 $54,474 (See accompanying notes to the consolidated financial statements) 37 INTRICON CORPORATIONConsolidated Statements of Cash Flows(In Thousands) 2018 2017 2016 (as adjusted) (as adjusted) Cash flows from operating activities: Net income (loss) $5,547 $1,120 $(5,100)Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 2,943 2,194 2,041 Stock-based compensation 1,395 844 685 Loss on impairment of assets of discontinued operations — — 796 Loss on sale of discontinued operations — 164 — Change in deferred gain — — (55)Loss on disposition of property — 9 55 Change in allowance for doubtful accounts 475 162 35 Equity in loss of investments 390 421 78 Amortization of debt issuance costs 158 80 57 Changes in operating assets and liabilities: Accounts receivable (2,877) (2,040) 1,493 Inventories (5,225) (2,768) 1,087 Contract assets (2,645) (1,117) 1,082 Other assets (599) (811) (741)Accounts payable 1,719 3,729 (1,386)Accrued expenses (710) 2,137 (545)Other liabilities (394) 106 13 Net cash provided by (used in) operating activities 177 4,230 (405) Cash flows from investing activities: Proceeds from sale of property, plant and equipment — 19 — Purchase of investment securities (38,093) — — Investment in partnerships (1,397) (1,776) — Purchase of Hearing Help Express (Note 4) — (650) (536)Purchases of property, plant and equipment (5,507) (2,313) (1,766)Net cash used in investing activities (44,997) (4,720) (2,302) Cash flows from financing activities: Proceeds from long-term borrowings 14,169 19,162 19,357 Repayments of long-term borrowings (25,868) (19,373) (19,524)Payment of debt issuance costs (88) (139) (140)Proceeds from equity offering, net of offering costs 88,967 — 3,678 Payments for repurchase of common stock and related costs (25,907) — — Proceeds from employee stock purchases and exercise of stock options 727 314 137 Net cash provided by (used in) financing activities 52,000 (36) 3,508 Effect of exchange rate changes on cash (150) 281 (518) Net increase (decrease) in cash 7,030 (245) 283 Cash, cash equivalents and restricted cash, beginning of year 1,017 1,262 979 Cash, cash equivalents and restricted cash, end of year $8,047 $1,017 $1,262 (See accompanying notes to the consolidated financial statements) 38 INTRICON CORPORATIONConsolidated Statements of Equity(In Thousands) Shareholders’ Equity Common StockNumber ofShares Common StockAmount AdditionalPaid-inCapital Accumulated Deficit(as adjusted) Accumulated OtherComprehensive Loss Non-ControllingInterest Total Equity(as adjusted) Balance December 31, 2015 5,981 $5,981 $17,721 $(3,171) $(721) $(38) $19,772 Exercise of stock options 16 16 11 — — — 27 Shares issued from equity offering 805 805 2,873 — — — 3,678 Shares issued under the ESPP 18 18 93 — — — 111 Stock-based compensation — — 685 — — — 685 Net loss — — — (4,943) — (157) (5,100)Investment by non-controllinginterest — — — — — 650 650 Comprehensive loss — — — — (293) — (293)Balance December 31, 2016 6,820 $6,820 $21,383 $(8,114) $(1,014) $455 $19,530 Exercise of stock options 69 69 131 — — — 200 Shares issued under the ESPP 11 11 103 — — — 114 Stock-based compensation — — 844 — — — 844 Net income (loss) — — — 2,058 — (938) 1,120 Comprehensive loss — — — — 281 — 281 Acquisition of non-controllinginterest — — — — — (650) (650)Allocation of non-controllinginterest at acquisition (Note 4) — — (880) — — 880 — Balance December 31, 2017 6,900 $6,900 $21,581 $(6,056) $(733) $(253) $21,439 Exercise of stock options 532 532 (23) — — — 509 Shares issued from equity offering 1,725 1,725 87,242 — — — 88,967 Repurchase of director andexecutive shares (500) (500) (25,407) — — — (25,907)Shares issued under the ESPP 7 7 211 — — — 218 Stock-based compensation — — 1,395 — — — 1,395 Net income — — — 5,547 — — 5,547 Comprehensive loss — — — — (194) — (194)Balance December 31, 2018 8,664 $8,664 $84,999 $(509) $(927) $(253) $91,974 (See accompanying notes to the consolidated financial statements) 39 IntriCon Corporation Notes to Consolidated Financial Statements (In Thousands, Except Per Share Data) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Headquartered in Arden Hills, Minnesota, IntriCon Corporation (together with its subsidiaries, referred to as the Company, we, us or our) is an internationalcompany engaged in designing, developing, engineering, manufacturing and distributing body-worn devices. The Company designs, develops, engineers,manufactures and distributes micro-miniature products, microelectronics, micro-mechanical assemblies, complete assemblies and software solutions,primarily for the emerging value based hearing healthcare market, the medical biotelemetry market and the professional audio communication market. Inaddition to its operations in the state of Minnesota, the Company has facilities in the state of Illinois, and in Singapore, Indonesia, the United Kingdom andGermany. Basis of Presentation – In December 2016, the Company’s board of directors approved plans to discontinue its cardiac diagnostic monitoring business. TheCompany sold the cardiac diagnostic monitoring business on February 17, 2017 to Datrix LLC. For all periods presented, the Company classified thisbusiness as discontinued operations, and, accordingly, has reclassified historical financial data presented herein. See further information in Note 2. Consolidation – The consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All material intercompanytransactions and balances have been eliminated in consolidation. Principles of Consolidation – The Company evaluates its voting and variable interests in entities on a qualitative and quantitative basis. The Companyconsolidates entities in which it concludes it has the power to direct the activities that most significantly impact an entity’s economic success and has theobligation to absorb losses or the right to receive benefits that could be significant to the entity. Discontinued Operations – The Company records discontinued operations when the disposal of separately identified business unit constitutes a significantstrategic shift in the Company’s operations. Non-Controlling Interests – The Company owns 50 percent of earVenture and owned 20 percent of Hearing Help Express, Inc. (“Hearing Help Express” orHHE”) from October 2016 until December 2017, when it acquired the 80 percent noncontrolling interest of HHE. See further information at Note 4. TheCompany has consolidated the results of earVenture and HHE in 2018, 2017 and 2016 based on the Company’s ability to control the operations of theentities and the likelihood that the Company bears the largest risk and reward of their financial results. The Company allocates profits and losses according toownership percentages, unless contractual agreements expressly dictate otherwise. In addition, profit or loss on downstream eliminated transactions areattributable to the Company. The remaining ownership is accounted for as a non-controlling interest and reported as part of equity in the consolidatedfinancial statements. The Company allocates gains and losses to the non-controlling interest even when such allocation might result in a deficit balance,reducing the losses attributed to the controlling interest. Changes in ownership interests are treated as equity transactions if the Company maintains control. Segment Disclosures – A business segment is a distinguishable component of an enterprise that is engaged in providing an individual product or service or agroup of related products or services and that is subject to risks and returns that are different from those of other business segments. The Company hasdetermined that the Company operates in two reportable segments, our body-worn device segment and our direct-to-end-consumer hearing health segment, asfurther described in Note 6. Use of Estimates – The Company makes estimates and assumptions relating to the reporting of assets and liabilities, the recording of reported amounts ofrevenues and expenses and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements. Actual results could differfrom those estimates. Considerable management judgment is necessary in estimating future cash flows and other factors affecting the valuation of goodwill,intangible assets, and employee benefit obligations including the operating and macroeconomic factors that may affect them. The Company uses historicalfinancial information, internal plans and projections and industry information in making such estimates. 40 Revenue Recognition – Revenue is measured based on consideration specified in the contract with a customer, adjusted for any applicable estimates ofvariable consideration and other factors affecting the transaction price, including noncash consideration, consideration paid or payable to customers andsignificant financing components. Revenue from all customers is recognized when a performance obligation is satisfied by transferring control of a distinctgood or service to a customer, as further described below under “Performance obligations”. Individual promised goods and services in a contract are considered a performance obligation and accounted for separately if the individual good or serviceis distinct, i.e., the customer can benefit from the good or service on its own or with other resources that are readily available to the customer and the good orservice is separately identifiable from other promises in the arrangement. When an arrangement includes multiple performance obligations, the considerationis allocated between the performance obligations in proportion to their estimated stand-alone selling price. Costs related to products delivered are recognizedin the period incurred, unless criteria for capitalization of costs are met. Cost of goods sold consist primarily of direct labor, manufacturing overhead,materials and components. The Company excludes from revenue taxes collected from a customer that are assessed by a governmental authority and imposed on and concurrent with aspecific revenue-producing transaction. The Company includes shipping and handling fees in revenue. Shipping and handling costs associated with outbound freight after control over a product hastransferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold. The timing of revenue recognition, billings and cash collections results in billed accounts receivable, unbilled receivables (contract assets), and customeradvances and deposits (contract liabilities) on the Consolidated Balance Sheet as further described below under “Receivables, net”, “Contract assets” and“Contract liabilities”. When more than one party is involved in providing goods or services to a customer, an entity determines whether it is a principal or an agent in thesetransactions by evaluating the nature of its promise to the customer. An entity is a principal and therefore records revenue on a gross basis if it controls apromised good or service before transferring that good or service to the customer. An entity is an agent and records as revenue the net amount it retains for itsagency services if its role is to arrange for another entity to provide the goods or services. Performance obligations - A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account.A contract’s transaction price is allocated to each distinct performance obligation in proportion to the standalone selling price for each and recognized asrevenue when, or as, the performance obligation is satisfied. The Company’s various performance obligations and the timing or method of revenuerecognition in each of the Company’s markets are discussed below: Medical biotelemetry market - Customer orders from the medical biotelemetry market consist of a specified number of assembled and customized parts thatthe customer further integrates into their production process to produce market ready products. Customer orders do not include additional follow-on goods orservices. With the exception of prompt payment discounts, the transaction price for medical biotelemetry market products is the invoiced amount, as variableconsideration in the form of refunds, credits, rebates, price concessions, pricing incentives or other items impacting transaction price are not present. All of the Company’s products manufactured for the medical biotelemetry market are designed to each customer’s specifications, do not have an alternativeuse and cannot be sold or redirected by the Company to others. The Company has an enforceable right to payment for any finished or in-process units,including a reasonable margin, if the customer terminates the contract for reasons other than the Company’s failure to perform as promised. Control of theseunits is deemed to transfer to the customer over time during the manufacturing process, using the same measure of progress toward satisfying the promise todeliver the units to the customer. Each order is for a series of distinct units that comprise a single performance obligation. Consequently, the transaction priceis recognized as revenue over time based on actual costs incurred in the manufacturing process to date relative to total expected costs to produce all orderedunits. Medical biotelemetry market products are invoiced when shipped and paid within normal commercial terms. The Company records a contract asset forrevenue recognized over time in the production process for customized products that have not been shipped or invoiced to the customer. Hearing health market - Customer orders from the hearing health market consist of hearing aid devices and related accessories. Each unit of product deliveredunder a customer order represents a distinct and separate performance obligation as the customer can benefit from each unit on its own or with other resourcesthat are readily available to the customer and each unit of product is separately identifiable from other products in the arrangement. 41 With the exception of prompt payment discounts, the transaction price for the hearing health markets products is the invoiced amount, as variableconsideration in the form of refunds, credits, rebates, price concessions, pricing incentives or other items impacting transaction price are not present. Nearly all of the Company’s products manufactured for the hearing health market could be reworked without significant cost and sold to another customer inthe event of the customer’s termination of an order before delivery, and therefore have an alternative use to the Company. Generally, revenue is recognizedupon the transfer of control of the products which is based on shipment terms; however, in certain cases the amount of shipment is adjusted for expectedfuture returns and related consideration received. Professional audio market - The Company sells body-worn audio devices with application in the aviation, fire, law enforcement, safety and military marketsas well as for performers and production staff in the music and stage performance markets. Each unit on a customer’s purchase order represents a distinct andseparate performance obligation as the customer can benefit from each unit on its own or with other resources that are readily available to the customer andeach unit is separately identifiable from the others because one does not significantly affect, modify or customize another. Variable consideration in the form of refunds, credits, rebates, price concessions, pricing incentives or other items impacting the transaction price are notpresent. Invoiced amounts are deemed to approximate standalone selling price, such that a relative standalone selling price allocation between performanceobligations is not required. The products manufactured for the professional audio market could be reworked without significant cost and sold to another customer in the event of thecustomer’s termination of an order before delivery and therefore have an alternative use to the Company. Transfer of control of the goods, and revenuerecognition, occurs at the point in time of shipment or delivery of the products to the customer depending on the applicable shipping terms. Professionalaudio market products are billed when shipped and paid within normal commercial terms. Hearing health direct-to-end-consumer (DTEC) market - The hearing health DTEC business distributes hearing aids and related accessories to the endconsumer and is the Company’s only business market that generates revenue from sales to the end consumer. The Company also sells a limited number ofservice plans for the hearing aids. Each product or service is a distinct performance obligation as each is independently useful either on its own or togetherwith other products procured from the Company or other vendors and each product or service is separately identifiable from the others because one does notsignificantly affect, modify or customize another. Invoiced amounts are deemed to approximate standalone selling price, therefore a relative standaloneselling price allocation between performance obligations is not necessary. The hearing health DTEC business offers a 60-day trial period to the end consumer for hearing aids, during which customers can return the hearing aids for afull refund or exchange for a different hearing aid. The Company recognizes revenue only after completion of the 60-day trial period, when the customer’scommitment to the arrangement is deemed to exist and an enforceable right to payment is established. The transaction price for hearing aid accessories and service plans is the invoiced amount, as variable consideration in the form of refunds, credits, rebates,price concessions, pricing incentives or other items impacting transaction price are not present. Hearing aid accessories are billed and revenue is recognizedupon shipment to the customer. Invoices are paid within normal commercial terms. Annual service plans are billed along with the hearing aid at the end of the60-day trial period or upon renewal of the service plan, and paid within normal commercial terms. As the customer consumes the benefits of the service planrelatively evenly over the plan term, revenue for service plans is recognized on a straight-line basis commencing at the end of the trial period. Sales Commissions - Sales commissions paid to sales representatives are eligible for capitalization as they are incremental costs that would not have beenincurred without entering into a specific sales arrangement and are recoverable through the expected margin on the transaction. The Company has elected toapply the practical expedient provided by ASC 340-40-25-4 and recognize the incremental costs of obtaining contracts as an expense when incurred, as theamortization period of the assets that would have otherwise been recognized is one year or less. These costs are included in sales and marketing expenses onthe consolidated statements of operations. Fair Value of Financial Instruments – The carrying value of cash, accounts receivable, notes payable, and trade accounts payables approximate fair valuebecause of the short maturity of those instruments. The fair values of the Company’s long-term debt obligations, pension and post-retirement obligationsapproximate their carrying values based upon current market rates of interest. Concentration of Cash – The Company deposits its cash in what management believes are high credit quality financial institutions. The balance, at times,may exceed federally insured limits. 42 Restricted Cash – Restricted cash consists of deposits required to secure a credit facility at our Singapore location and deposits required to fund retirementrelated benefits for certain employees. Available for Sale Securities – Available for sale securities are measured at fair value on a recurring basis and primarily relate to marketable equitysecurities. These items are marked-to-market at each reporting period with gains and losses recorded in net income. The securities are classified as current ifexpected to be used in operations, sold or transferred to alternative investment vehicles within the next 12 months. Accounts Receivable – Amounts recorded in receivables, net, on the consolidated balance sheet include amounts billed and currently due from customers.The amounts due are stated at their net estimated realizable value. An allowance for doubtful accounts is maintained to provide for the estimated amount ofreceivables that will not be collected. The Company reviews customers’ credit history before extending unsecured credit and establishes an allowance foruncollectible accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. Invoices are generallydue 30 days after presentation. Accounts receivable over 30 days are considered past due. The Company does not accrue interest on past due accountsreceivables. Receivables are written off once all collection attempts have failed and are based on individual credit evaluation and specific circumstances ofthe customer. The allowance for doubtful accounts balance was $807 and $332 as of December 31, 2018 and 2017, respectively. Inventories – Inventories are stated at the lower of cost or net realizable value. The cost of the inventories is determined by the first-in, first-out method. Contract Assets - Contract assets primarily include unbilled amounts recognized as revenue for customized products manufactured for the medicalbiotelemetry market. The customized goods have no alternative use to the Company and the Company has an enforceable right to payment for performancecompleted to date. The Company begins revenue recognition when these goods enter the manufacturing process and continues based on a measure ofprogress toward completion using a cost-to-cost input method that considers labor and overhead costs incurred and materials used to date in themanufacturing process relative to total expected production costs. Given the relatively short duration of the production process, contract assets are classifiedas current. Contract assets are reclassified to accounts receivable upon shipment of and invoicing for the products, at which point the right to considerationbecomes unconditional. Property, Plant and Equipment – Property, plant and equipment are carried at cost. Depreciation is computed on a straight-line basis using estimated usefullives of 5 to 40 years for buildings and improvements and 3 to 12 years for machinery and equipment. Leasehold improvements are amortized using thestraight-line method over the shorter of the lease term or the estimated useful life of the asset. Improvements are capitalized and expenditures formaintenance, repairs and minor renewals are charged to expense when incurred. At the time assets are retired or sold, the costs and accumulated depreciationare eliminated and the resulting gain or loss, if any, is reflected in the consolidated statement of operations. Depreciation expense was $1,961, $1,739 and$1,870 for the years ended December 31, 2018, 2017, and 2016, respectively. Intangible Assets – Definite-lived intangible assets consist of various acquired Hearing Help Express trademarks and customer relationships which areamortized over eighteen to twenty years. Amortization expense was $155, $180 and $0 for the years ended December 31, 2018, 2017, and 2016, respectively. Impairment of Long-lived Assets and Long-lived Assets to be Disposed of – The Company reviews its long-lived assets, certain identifiable intangibles,other assets and goodwill for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset group to future net undiscounted cash flowsexpected to be generated by the asset group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount bywhich the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fairvalue less costs to sell. As of December 31, 2018, the Company has determined that no impairment of long-lived assets from continuing operations exists. Goodwill is reviewed for impairment annually or more frequently if changes in circumstances or the occurrence of events suggest impairment exists. TheCompany may apply a qualitative assessment to determine if it is more likely than not that goodwill is impaired. If a reporting unit does not pass thequalitative assessment, or the Company choses to skip the assessment, it performs a test comparing fair value of a reporting unit to its carrying value. TheCompany would need to recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. Other Assets, Net – The principal amounts included in other assets, net are technology related assets, of which, $2,259 relates to technology access with NXPSemiconductors. The Company capitalizes costs of acquired technology which provide a future economic benefit. Amortization expense was $739, $455 and$159 for the years ended December 31, 2018, 2017, and 2016, respectively. 43 Investment in Partnerships – Certain of the Company’s investments in equity securities are long-term, strategic investments in companies. Depending onwhether the Company has significant influence over the entity, the Company accounts for these investments under the cost or equity method of accounting.Under the equity method the Company records the investment at the amount the Company paid and adjusts for the Company’s share of the investee’s incomeor loss and dividends paid. If payment for an investment exceeds the underlying book value of the investment, the Company allocates the difference to thefair value of the investment assets and to goodwill; and records related amortization of those assets within the equity investment balance and related equityin income (loss) of the investment. The investments are reviewed quarterly for changes in circumstances or the occurrence of events that suggest theCompany’s investment may not be recoverable. To date there have been no impairment losses recognized. Other Long-Term Liabilities – The amounts included in other long-term liabilities relate to deferred rent. Income Taxes – Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future taxconsequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases,operating losses and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income inthe years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established to the extent the future benefitfrom the deferred tax assets realization is more likely than not unable to be realized. The effect on deferred tax assets and liabilities of a change in tax rates isrecognized in income in the period that includes the enactment date. The Company recognizes accrued interest and penalties related to uncertain taxpositions in income tax expense. At December 31, 2018 and 2017, the Company had no accrual for the payment of tax related interest and there was no taxinterest or penalties recognized in the consolidated statements of operations. The Company’s federal and state tax returns are potentially open toexaminations for fiscal years 2003-2005, 2009-2013 and 2015-2017. Employee Benefit Obligations – The Company provides pension and health care insurance for certain domestic retirees and employees of its operationsdiscontinued in 2005. These obligations have been included in continuing operations as the Company retained these obligations. The Company alsoprovides retirement related benefits for certain foreign employees. The Company measures the costs of its obligation based on actuarial determinations. Thenet periodic costs are recognized as employees render the services necessary to earn the post-retirement benefit and the obligation is recorded on theconsolidated balance sheet as accrued pension liabilities. Assumptions about the discount rate, the expected rate of return on plan assets and the future rate of compensation increases are determined by the Company.The Company believes the assumptions are within accepted guidelines and ranges. However, these actuarial assumptions could vary materially from actualresults due to economic events and different rates of retirement, mortality and withdrawal. Stock Based Compensation and Equity Plans – Under the Company stock-based compensation plans, executives, employees and outside directors receiveawards of options to purchase common stock and restricted stock units. Under all awards, the terms are fixed at the grant date. For stock options, the exerciseprice equals the market price of the Company’s stock on the date of the grant. Options under the plans generally vest over three years, and have a maximumterm of 10 years. The Company expenses grant-date fair values of stock options, based on the Black-Scholes model, ratably over the vesting period of therelated share-based award. Restricted stock units are valued based on the grant price and are expensed evenly over the vesting period. The restricted stockunits vest in equal, annual installments over a three year period beginning on the first anniversary of the date of grant at which time common stock is issuedwith respect to vested units. The plans also permits the granting of stock awards, stock appreciation rights, restricted stock and other equity based awards. Product Warranty – The Company offers a warranty on various products and services. The Company estimates the costs that may be incurred under itswarranties and records a liability in the amount of such costs at the time the product is sold. Factors that affect the Company’s warranty liability include thenumber of units sold, historical and anticipated rates of warranty claims and cost per claim. The Company periodically assesses the adequacy of its recordedwarranty liabilities and adjusts the amounts as necessary. The amount of the reserve recorded is equal to the costs to repair or otherwise satisfy the claim.Historically, the Company has not incurred any significant amounts of warranty expense on its products. Therefore, no reserve for warranty costs isconsidered necessary by management as of December 31, 2018 or 2017. Patent Costs – Costs associated with the submission of a patent application are expensed as incurred given the uncertainty of the patents providing futureeconomic benefit to the Company. Advertising Costs – Advertising costs amounted to $3,419, $1,696, and $190 in 2018, 2017 and 2016, respectively, and are charged to expense whenincurred. Research and Development Costs – Research and development costs, net of customer funding, amounted to $4,671, $4,458, and $4,688 in 2018, 2017 and2016, respectively, and are charged to expense when incurred, net of customer funding. The Company accrues proceeds received under governmental grantswhen earned and estimable as a reduction to research and development expense. 44 Customer Funded Tooling Costs – The Company designs and develops molds and tools for reimbursement on behalf of several customers. Costs associatedwith the design and development of the molds and tools are charged to expense, net of the customer reimbursement amount. Net customer funded toolingresulted in income (expense) of ($184), $95 and $102 for the years ended December 31, 2018, 2017 and 2016, respectively, and is included in cost of goodssold in the consolidated statements of operations. Income (Loss) Per Share – Basic income (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of commonstock outstanding during the year. Diluted income (loss) per common share reflects the potential dilution of securities that could share in the earnings. TheCompany uses the treasury stock method for calculating the dilutive effect of stock options. Comprehensive Income (Loss) – Comprehensive income (loss) consists of net income (loss), change in fair value of derivative instruments, pension andpost-retirement obligations and foreign currency translation adjustments and is presented in the consolidated statements of comprehensive income (loss). Foreign Currency Translation – The Company’s German subsidiary accounts for its transactions in its functional currency, the euro. The Company’s UnitedKingdom subsidiary accounts for its transactions in its functional currency, the British pound. Foreign assets and liabilities are translated into United Statesdollars using the year-end exchange rates. Equity is translated at average historical exchange rates. Results of operations are translated using the averageexchange rates throughout the year. Translation gains or losses are accumulated as a separate component of equity. Subsequent Event Policy – The Company has evaluated events occurring after the date of the consolidated financial statements for events requiringrecording or disclosure in the financial statements. Derivative Financial Instruments — When deemed appropriate, the Company enters into derivative instruments. The Company does not use derivativefinancial instruments for speculative or trading purposes. All derivative transactions are linked to an existing balance sheet item or firm commitment, and thenotional amount does not exceed the value of the exposure being hedged. We recognize all derivative financial instruments in the consolidated financial statements at fair value regardless of the purpose or intent for holding theinstrument. Generally, changes in fair values of derivatives accounted for as cash flow hedges, to the extent they are effective as hedges, are recorded in othercomprehensive income (loss), net of tax or, if ineffective, on the consolidated statements of operations. New Accounting Pronouncements In March 2017, the (FASB) issued (ASU) 2017-07, Retirement Benefits – Improving the Presentation of Net Periodic Pension Cost and Net PeriodicPostretirement Benefit Cost. This guidance requires entities to present the service cost component of net periodic pension cost and net periodicpostretirement benefit cost in the income statement line items where they report compensation cost. Entities will present all other components of net benefitcost 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 notchanged. This amendment only impacts where those costs are reflected within the income statement. In addition, only the service cost component will beeligible for capitalization in inventory and other assets. The Company adopted the new standard effective January 1, 2018. The adoption of this new standarddid not have a material impact on our 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 IssuesTask Force. The new standard requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, andamounts generally described as restricted cash or restricted cash equivalents. Entities will also be required to reconcile such total to amounts on the balancesheet and disclose the nature of the restrictions. The Company adopted the new standard effective January 1, 2018. The adoption of this new standardcombined restricted cash with cash and cash equivalents within the consolidated statement of cash flows. This reclassification had an immaterial impact onthe prior year’s exchange rate balances within the consolidated statement of cash flows. In February 2016, the FASB issued ASU No. 2016-02, “Leases” (Topic 842), which supersedes the existing guidance for lease accounting, “Leases” (Topic840). ASU No. 2016-02 requires lessees to recognize a lease liability and a right-of-use asset for all leases that extend beyond one year. The amendments inthis ASU will be effective for us for interim and annual periods beginning after December 15, 2018. The original guidance required application on a modifiedretrospective basis with the earliest period presented in the financial statements. In August 2018, the FASB issued ASU 2018-11, “Targeted Improvements” toASC 842, which includes an option to not restate comparative periods in transition and instead to elect to use the effective date of ASC 842, “Leases”, as thedate of initial application of transition. Based on the effective date, this guidance will apply and the Company will adopt this ASU beginning on January 1,2019, and the Company plans to elect the transition option provided under ASU 2018-11. We have completed the qualitative analysis from the lesseeperspective. As part of our process, we elected to utilize certain practical expedients that were provided for transition relief. Accordingly, we are notreassessing expired or existing contracts, lease classifications or related initial direct costs as part of our assessment process. Additionally, we elected thepractical expedient to treat lease and non-lease components of fixed payments due to the lessor as one, and therefore no separate allocation is required on theinitial implementation date of January 1, 2019, and thereafter. We anticipate the adoption of this standard will result in an increase in our right of use assetsand lease liabilities in the range of $5.8 to $6.6 million recorded on our consolidated balance sheets on January 1, 2019. The Company does not believe theadoption of this guidance will have a material impact on its consolidated results of operations or cash flows. 45 2. DISCONTINUED OPERATIONS In December 2016, the Company’s board of directors approved plans to discontinue its cardiac diagnostic monitoring business. The Company sold thecardiac diagnostic monitoring business on February 17, 2017 to Datrix, LLC. The following table shows the results of the cardiac diagnostic monitoring discontinued operations: Year Ended December 31, December 31, December 31, 2018 2017 2016 Revenue, net $ — $ 140 $ 1,161 Operating costs and expenses — (268) (2,135)Loss on impairment — — (796)Net loss from discontinued operations $ — $ (128) $ (1,770) In 2016, the Company evaluated the cardiac diagnostic monitoring business for impairment and recorded non-cash impairment charges of $796. In determining the nonrecurring fair value measurements of the impairment of other short and long-term assets, the Company utilized the market valueapproach. Based on the market value assessment, the Company determined fair values for the identified assets and incurred impairment charges for theremaining book value of the assets during the year ended December 31, 2016 as set forth in the table below. These charges were reflected in the Company’sdiscontinued operations in 2016. Fair value as ofmeasurement date Quoted prices inactive markets foridentical assets(Level 1) Significant otherobservable inputs(Level 2) Significantunobservable inputs(Level 3) Impairment Charge Accounts Receivable $ 123 $— $ — $ 175 $52 Inventory — — — 726 726 Other Assets — — — 18 18 The Company sold the assets of the discontinued operations on February 17, 2017 to Datrix, LLC, who also assumed certain liabilities as part of the asset saleagreement. The Company recognized a loss of $164 relating to the sale of the discontinued operations. 3. RESTRUCTURING CHARGES During 2016, the Company incurred restructuring charges of $132, related to IntriCon UK Limited facility moving costs. The Company does not expect toincur any additional cash charges related to this restructuring. 4. ACQUISITIONS Acquisition of Hearing Help Express In October 2016, the Company purchased 20 percent of Hearing Help Express. The Company paid a total of $693. Based on the facts and circumstancessurrounding the management of the business and the funding of working capital needs, the Company determined that based on its ability to control theoperations of Hearing Help Express and the likelihood that the Company bears the largest risk and reward of its financial results, the results of Hearing HelpExpress should be consolidated in the Company’s consolidated financial statements. 46 The Company accounted for the transaction as a business combination in the fourth quarter of 2016. The transaction allows the Company entry into the saleof products directly to consumers in the United States. In accordance with ASC 805, the purchase price was allocated based on estimates of the fair value ofassets acquired and liabilities assumed. The purchase price was allocated as follows: Cash $ 157 Inventory 341 Accounts Receivable 333 Property, Plant and Equipment 9 Intangible Assets 2,920 Goodwill 1,257 Other Assets 500 Note Payable (2,000)Deferred Revenue (717)IRS Note (461)Non-Controlling Interest (650)Other Payables (996) $ 693 Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired. The establishment of goodwill wasprimarily due to the expected revenue growth that is attributable to increased market penetration from future customers. The Company recognized revenue of $1,025 and losses of approximately $3 relating to the sales of the hearing devices and accessories by HHE from October19, 2016 through December 31, 2016. Acquisition costs of $216 were incurred and recorded during the year ended December 31, 2016 and are included in other expenses, net in the consolidatedstatements of operations. We consider the majority of the acquisition costs to be of the non-operating, miscellaneous nature, as they were incurred as part of anon-operating activity, a business acquisition As part of the agreement to acquire the 20 percent interest, the Company also obtained the right to acquire the remaining 80 percent ownership interest for$650 in cash, the guarantee or repayment of approximately $1,800 in debt to HHE’s 80 percent holder and an earnout. The Company exercised the right toacquire the remaining ownership in January 2017 and closed on the acquisition of the remaining 80 percent interest in December 2017. Because theCompany maintained control upon acquiring the ownership, there was no impact on the assets and liabilities acquired. The Company recorded a $880 chargeto additional paid-in capital related to losses previously allocated to the noncontrolling interest. Unaudited Supplemental Pro Forma Financial Information The following unaudited supplemental pro forma information combines the Company’s results with those of Hearing Help Express as if the acquisition hadoccurred at the beginning of the period presented. This unaudited pro forma information is not intended to represent or be indicative of the Company’sconsolidated results of operations or financial condition that would have been reported for the period presented had the acquisition been completed at thebeginning of the period presented, and should not be taken as indicative of the Company’s future consolidated results of operations or financial condition. December 31, Unaudited 2016 Revenue $73,828 Net earnings attributable to IntriCon Shareholders (4,749)Net earnings per share Basic $(0.73)Diluted $(0.73) 47 The Company believes the above historical pro forma results are not indicative of the future results of Hearing Help Express due to such company beingpurchased out of bankruptcy and due to the many usual and infrequent charges that occurred for this company during the period noted above. 5. Significant Changes Due to Topic 606 The Company’s significant accounting policies are detailed in “Note 1: Summary of Significant Accounting Policies”. In May 2014, the FASB issued ASU2014-09 “Topic 606. Revenue from Contracts with Customers” (Topic 606). Topic 606 supersedes the revenue recognition requirements previously set forthin the Accounting Standards Codification (ASC) Topic 605 “Revenue Recognition,” and requires entities to recognize revenue when control of the promisedgoods or services is transferred to customers at an amount that reflects the consideration to which the entity expects to be entitled to in exchange for thosegoods or services. The Company adopted Topic 606 with a date of initial application of January 1, 2018. The Company applied Topic 606 retrospectively using the practical expedient in ASC 606-10-65-1(f)(3). The Company notes that all previously reportedhistorical amounts are adjusted for the impact of Topic 606. Sales of Customized Medical Biotelemetry Products - The primary factor impacting the timing of the Company’s reported net income (loss) in the financialstatements as a result of the adoption of Topic 606 is the acceleration of revenue and associated cost of goods sold recognized from the sale of customizedmedical biotelemetry products. For sales of these products, the Company previously recognized revenue at a point in time when the products were completedand shipped to the customer. Under Topic 606, if control of the products is transferred to the customer over the manufacturing process and the criteria for overtime revenue recognition are otherwise met, revenue is recognized as products are manufactured utilizing an appropriate measure of progress towardsatisfaction of the performance obligation. The Company’s contracts with customers for the production of customized medical biotelemetry products meetthe criteria for over time revenue recognition; therefore, the Company utilizes an input method based on actual costs incurred in the manufacturing process todate relative to total expected production costs as a measure of progress toward transfer of control of the products to the customer and recognizes revenue onthat basis. Amounts recognized as revenue but not yet shipped or billed to the customer are recorded as contract assets. Principal vs. Agent Role in Sales under Supply Arrangement - The Company has determined that the nature of its promise to a third-party supplier is aperformance obligation to provide the integrated hearing aid products to its customers and that the associated sales contracts meet the control criterianecessary to qualify the Company as the principal in the transactions. As a result, gross reporting of revenues for sales under the supply arrangement isappropriate under Topic 606 and the profit sharing amount due to the third party is reported as cost of goods sold. Impacts on financial statements Previously reported amounts for revenue, cost of goods sold, contract assets and contract liabilities have been retrospectively adjusted to provide amountscomparable to the reporting under Topic 606. The following tables summarize the effects of adopting this accounting standard on the Company’sConsolidated Financial Statements. 48 Consolidated Statement of Operations: Twelve MonthsEndedDecember 31,2017, asreported Effect ofAdoption ofASC 606 Twelve MonthsEndedDecember 31,2017, asadjusted Twelve MonthsEndedDecember 31,2016, asreported Effect ofAdoption ofASC 606 Twelve MonthsEndedDecember 31,2016, asadjusted Revenue, net $ 88,310 $ 2,327 $ 90,637 $ 68,009 $ 971 $ 68,980 Cost of goods sold 61,819 2,071 63,890 50,937 1,327 52,264 Gross profit 26,491 256 26,747 17,072 (356) 16,716 Operating expenses: Sales and marketing 9,447 — 9,447 4,700 — 4,700 General and administrative 10,339 — 10,339 9,154 — 9,154 Research and development 4,458 — 4,458 4,688 — 4,688 Restructuring charges (Note 3) — — — 132 — 132 Total operating expenses 24,244 — 24,244 18,674 — 18,674 Operating income (loss) 2,247 256 2,503 (1,602) (356) (1,958) Interest expense (716) — (716) (553) — (553) Other expense (367) — (367) (602) — (602) Income from continuing operations beforeincome taxes and discontinued operations 1,164 256 1,420 (2,757) (356) (3,113) Income tax expense 8 — 8 217 — 217 Income (loss) from continuing operationsbefore discontinued operations 1,156 256 1,412 (2,974) (356) (3,330) Loss on sale of discontinued operations(Note 2) (164) — (164) — — — Loss from discontinued operations (Note 2) (128) — (128) (1,770) — (1,770) Net income (loss) 864 256 1,120 (4,744) (356) (5,100) Less: Loss allocated to non-controllinginterest (938) — (938) (157) — (157) Net income (loss) attributable to IntriConshareholders $ 1,802 $ 256 $ 2,058 $ (4,587) $ (356) $ (4,943) Basic income (loss) per share attributable toIntriCon shareholders: Continuing operations $ 0.31 $ 0.04 $ 0.34 $ (0.43) $ (0.05) $ (0.49) Discontinued operations (0.04) — (0.04) (0.27) — (0.27) Net income (loss) per share $ 0.26 $ 0.04 $ 0.30 $ (0.71) $ (0.05) $ (0.76) Diluted income (loss) per share attributableto IntriCon shareholders: Continuing operations $ 0.29 $ 0.04 $ 0.32 $ (0.43) $ (0.05) $ (0.49) Discontinued operations (0.04) — (0.04) (0.27) — (0.27) Net income (loss) per share $ 0.25 $ 0.04 $ 0.28 $ (0.71) $ (0.05) $ (0.76) Average shares outstanding: Basic 6,852 6,852 6,852 6,497 6,497 6,497 Diluted 7,307 7,307 7,307 6,497 6,497 6,497 49 Consolidated Statement of Comprehensive Income (Loss): Twelve Months EndedDecember 31, 2017, as reported Effect of Adoption of ASC 606 Twelve Months EndedDecember 31, 2017, as adjusted Net income $ 864 $ 256 $ 1,120 Twelve Months EndedDecember 31, 2016, as reported Effect of Adoption of ASC 606 Twelve Months EndedDecember 31, 2016, as adjusted Net income (loss) $ (4,744) $ (356) $ (5,100) Consolidated Statement of Cash Flows: Twelve Months EndedDecember 31, 2017, as reported Effect of Adoption of ASC 606 Twelve Months EndedDecember 31, 2017, as adjusted Net income $ 864 $ 256 $ 1,120 Inventories (3,114) 346 (2,768)Contract assets — (1,117) (1,117)Accrued Expenses 1,622 515 2,137 Twelve Months EndedDecember 31, 2016, as reported Effect of Adoption of ASC 606 Twelve Months EndedDecember 31, 2016, as adjusted Net income (loss) $ (4,744) $ (356) $ (5,100)Inventories 1,813 (726) 1,087 Contract assets — 1,082 1,082 Consolidated Balance Sheet: December 31, 2017, as reported Effect of Adoption of ASC 606 December 31, 2017, as adjusted Inventories $ 15,397 $ (1,689) $ 13,708 Contract assets — 2,979 2,979 Other accrued liabilities 3,224 515 3,739 Accumulated deficit (6,831) 775 (6,056) 50 Consolidated Statement of Equity: December 31, 2017, as reported Effect of Adoption of ASC 606 December 31, 2017, as adjusted Accumulated Deficit $ (6,831) $ 775 $ (6,056) December 31, 2016, as reported Effect of Adoption of ASC 606 December 31, 2016,as adjusted Accumulated Deficit $ (8,633) $ 519 $ (8,114) December 31, 2015, as reported Effect of Adoption of ASC 606 December 31, 2015, as adjusted Accumulated Deficit $ (4,046) $ 875 $ (3,171) Transaction price allocated to remaining performance obligations - The Company’s remaining performance obligations as of December 31, 2018 primarilyinclude uncompleted production of customized products for which control transfers to the customer over time, certain uncompleted product sales for ordersreceived and future obligations under service plan arrangements recognized over time. The Company has elected to apply the practical expedient provided inASC 606-10-50-14 and not disclose information about the amount of transaction price allocated to these remaining performance obligations as they all haveoriginal expected durations of one year or less. The following table provides information about receivables, contracts assets, and contract liabilities from contracts with customers. December 31, 2018 December 31, 2017, as adjusted Receivables, included in accounts receivable, less allowance for doubtful accounts $ 11,479 $ 9,052 Contract assets 5,624 2,979 Contract liabilities, included in other current liabilities 457 312 Significant changes in contract assets and contract liabilities during the period are as follows: For the twelve months ended December 31, 2018 Contract assetsincrease (decrease) Contract liabilities(increase) decrease Reclassification of beginning contract liabilities to revenue, as a result of performance obligations satisfied $— $ 312 Cash received in advance and not recognized as revenue — (457)Contract assets recognized, net of reclassification to accounts receivable 2,645 — Net Change $ 2,645 $ (145) 51 6. SEGMENT REPORTING The Company currently operates in two reportable segments: body-worn devices and hearing health direct-to-end-consumer. The nature of distribution andservices has been deemed separately identifiable. Therefore, segment reporting has been applied. Income (loss) from operations is total revenues, net less cost of goods sold and operating expenses. Identifiable assets by industry segment include assetsdirectly identifiable with those operations. The accounting policies applied to determine segment information are the same as those described in the summaryof significant accounting policies. The Company evaluates the performance of each segment based on income and loss from operations before income taxes.The following table summarizes data by industry segment: At and for the Year Ended December 31, 2018 Body Worn Devices Hearing HealthDirect-to-End-Consumer Total Revenue, net $109,604 $6,858 $116,462 Income (loss) from continuing operations 9,093 (3,546) 5,547 Identifiable assets (excluding goodwill) 99,301 5,139 104,440 Goodwill 9,551 1,257 10,808 Depreciation and amortization 2,730 213 2,943 Capital expenditures 5,342 165 5,507 At and for the Year Ended December 31, 2017 Body Worn Devices Hearing HealthDirect-to-End-Consumer Total Revenue, net $84,145 $6,492 $90,637 Income (loss) from continuing operations 2,603 (1,191) 1,412 Identifiable assets (excluding goodwill) 37,941 5,725 43,666 Goodwill 9,551 1,257 10,808 Depreciation and amortization 1,982 212 2,194 Capital expenditures 2,158 155 2,313 52 7. GEOGRAPHIC AND CUSTOMER INFORMATION The geographical distribution of long-lived assets, consisting of property, plant and equipment and net revenue to geographical areas as of and for the yearsended December 31, 2018 and 2017 is set forth below: Long-lived Assets, Net December 31, December 31, 2018 2017 United States $ 10,065 $ 5,407 Singapore 1,240 1,254 Other 427 514 Consolidated $ 11,732 $ 7,175 Long-lived assets consist of property and equipment. Excluded from long-lived assets are investments in partnerships, patents, license agreements, intangibleassets and goodwill. The Company capitalizes long-lived assets pertaining to the production of specialized parts. These assets are periodically reviewed toassure the net realizable value from the estimated future production based on forecasted cash flows exceeds the carrying value of the assets. Net Revenue to Geographical Areas Year Ended December 31 Net Revenue to Geographical Areas 2018 2017 2016 United States $ 96,822 $ 73,073 $ 48,431 Europe 8,360 9,249 11,019 Asia 10,009 7,477 8,187 All other countries 1,271 838 1,343 Consolidated $ 116,462 $ 90,637 $ 68,980 Geographic net revenue is allocated based on the location of the customer. Customer Information One customer accounted for 56 percent, 48 percent and 40 percent of the Company’s consolidated net revenue in 2018, 2017 and 2016, respectively. During2018, 2017 and 2016, the top five customers accounted for approximately 70 percent, 63 percent and 59 percent of the Company’s consolidated net revenue,respectively. At December 31, 2018, two customers accounted for a combined 52 percent of the Company’s consolidated accounts receivable. Two customers accountedfor a combined 33 percent of the Company’s consolidated accounts receivable at December 31, 2017. At December 31, 2018, one customer accounted for 78 percent of the Company’s consolidated contract assets. One customer accounted for 62 percent of theCompany’s consolidated contract assets at December 31, 2017. 8. GOODWILL The Company performed its annual goodwill impairment test as of November 30th for each of the years ended December 31, 2018, 2017 and 2016 for allreporting units. For the hearing health direct-to-end consumer reporting unit, the comparison of the Company’s fair value to the carrying value resulted in excess value. Fairvalue was determined using a discounted cash flow method, which requires the use of various estimates. The Company used estimates it considers reasonable.The calculated impact of a 1% change in the discount rate utilized in determining fair value results in a change in fair value of approximately $1,000. 53 The Company has concluded that no impairment of goodwill or intangible assets occurred within continuing operations during the years ended December31, 2018, 2017 and 2016. The changes in the carrying amount of goodwill for the years presented are as follows: Carrying amount at December 31, 2015 $ 9,551 Acquisition of equity interest of Hearing Help Express (Note 4) 1,004 Carrying amount at December 31, 2016 10,555 Adjustments 253 Carrying amount at December 31, 2017 10,808 Adjustments — Carrying amount at December 31, 2018 $ 10,808 9. INTANGIBLE ASSETS Intangible assets consisted of the following: December 31, December 31, 2018 2017 Trademark $ 1,370 $ 1,370 Customer list 1,550 1,550 Accumulated amortization (335) (180)Total, net of accumulated amortization $ 2,585 $ 2,740 The definite-lived intangible assets consist of various acquired Hearing Help Express trademarks and customer relationships. The asset life of trademarks is20 years and the life of the customer list is 18 years. The annual amortization expense for the trademark and customer list will approximate $155 for the nextfive years. 10. INVESTMENT IN PARTNERSHIPS Investment in partnerships consisted of the following: December 31, December 31, 2018 2017 Investment in and cash advance for Soundperience $ 1,022 $ 842 Investment in Signison 865 498 Other 204 276 Total $ 2,091 $ 1,616 As of December 31, 2017, the Company held a 16% ownership interest in Soundperience, which was accounted for using the cost method. In February 2018,the Company acquired an additional 33% stake in Soundperience for 1,500 Euros, bringing our total ownership to 49%. Soundperience is accounted for inthe Company’s financial statements using the equity method as of December 31, 2018. The Company’s investment in Soundperience exceeded the underlying interest in net equity of the Company. As a result, the Company assigned the excessinvestment to related identifiable intangible assets and includes the amortization of those intangibles within the equity in the income (losses) ofSoundperience, which are included in other income (expenses) in the consolidated statements of operations. Soundperience’s income (loss) in earnings isimmaterial for the periods presented. The Company has a 50% ownership interest in Signison as of December 31, 2018. Signison is accounted for in the Company’s financial statements using theequity method. 54 11. INVESTMENT SECURITIES The Company has invested a portion of its proceeds from the August 2018 equity offering in certain liquid investment securities. The Company follows theauthoritative guidance on fair value measurements and disclosures with respect to assets and liabilities that are measured at fair value on both a recurring andnon-recurring basis. Under this guidance, fair value is defined as the exit price, or the amount that would be received to sell an asset or paid to transfer aliability in an orderly transaction between market participants as of the measurement date. The authoritative guidance also establishes a hierarchy for inputsused in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observableinputs be used when available. Observable inputs are inputs market participants would use in valuing the asset or liability, developed based on market dataobtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the factors marketparticipants would use in valuing the asset or liability developed based upon the best information available in the circumstances. The categorization offinancial assets and financial liabilities within the valuation hierarchy is based upon the lowest level of input that is significant to the fair valuemeasurement. The hierarchy is broken down into three levels defined as follows: Level 1 - Inputs are quoted prices in active markets for identical assets or liabilities. Level 2 - Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets thatare not active, and inputs (other than quoted prices) that are observable for the asset or liability, either directly or indirectly. Level 3 - Inputs are unobservable for the asset or liability. Assets and liabilities that are measured at fair value on a recurring basis primarily relate to marketable equity securities. These items are marked-to-market ateach reporting period. The following tables provide information by level for assets and liabilities that are measured at fair value on a recurring basis: Fair Value as of Fair Value Measurements Using Inputs Considered as December 31, 2018 Level 1 Level 2 Level 3 Available for sale securities $ 38,093 $ 38,093 $— $— Fair Value as of Fair Value Measurements Using Inputs Considered as December 31, 2017 Level 1 Level 2 Level 3 Available for sale securities $— $— $— $— Financial assets that are classified as Level 1 securities include available for sale securities. These are valued using quoted market prices in an active market.All of the available for sale securities are invested in a money market account as of December 31, 2018. The Company held no available for sale securities asof December 31, 2017. The Company reviews the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in areclassification of levels for certain securities within the fair value hierarchy. The Company’s policy is to recognize transfers into and out of levels within thefair value hierarchy at the end of the fiscal quarter in which the actual event or change in circumstances that caused the transfer occurs. There were notransfers between Level 1, Level 2, or Level 3 during the three and twelve months ended December 31, 2018. When a determination is made to classify anasset or liability within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement. 55 12. INVENTORIES Inventories consisted of the following: Raw materials Work-in process Finished productsand components Total December 31, 2018 Domestic $ 10,657 $ 2,484 $ 1,583 $ 14,724 Foreign 2,671 653 933 4,257 Total $ 13,328 $ 3,137 $ 2,516 $ 18,981 December 31, 2017 Domestic $ 6,924 $ 1,791 $ 1,366 $ 10,081 Foreign 2,258 514 855 3,627 Total $ 9,182 $ 2,305 $ 2,221 $ 13,708 13. SHORT AND LONG-TERM DEBT Short and long-term debt at December 31, 2018 and 2017 was as follows: December 31, 2018 December 31, 2017 Domestic asset-based revolving credit facility $— $ 4,000 Foreign overdraft and letter of credit facility — 1,250 Domestic term loan — 6,250 Unamortized finance costs — (139)Total debt — 11,361 Less: Current maturities — (2,040)Total long-term debt $— $ 9,321 During the second half of 2018, we utilized proceeds from our equity offering (see Note 18) and repaid all of our domestic and foreign bank debt. Domestic Credit Facilities The Company and its domestic subsidiaries are parties to a credit facility with CIBC Bank USA (formerly known as The PrivateBank and Trust Company).The credit facility, as amended through December 31, 2018, provides for a $11,000 revolving credit facility, with a $200 sub facility for letters of credit.Under the revolving credit facility, the availability of funds depends on a borrowing base composed of stated percentages of the Company’s eligible tradereceivables and eligible inventory, and eligible equipment less a reserve. The credit facility matures on December 15, 2022. The Company was in compliance with all applicable covenants under the credit facility as of December 31, 2018. Foreign Credit Facility In addition to its domestic credit facilities, the Company’s wholly-owned subsidiary, IntriCon, PTE LTD., entered into an international senior secured creditagreement with Oversea-Chinese Banking Corporation Ltd. that provides for an asset-based line of credit. Borrowings bear interest at a rate of .75% to 2.5%over the lender’s prevailing prime lending rate. 56 14. OTHER ACCRUED LIABILITIES Other accrued liabilities at December 31: 2018 2017 Pension $ 119 $ 93 Postretirement benefit obligation 73 78 Deferred revenue 786 1,851 NXP liability 2,225 — Other 844 1,717 $ 4,047 $ 3,739 The NXP liability, reflected above, relates to amounts owed to NXP Semiconductors (“NXP”) to gain access to their technology. Currently, the Companyowes NXP $2,225 which must be paid in full by December 20, 2019. 15. DOMESTIC AND FOREIGN INCOME TAXES Domestic and foreign income taxes (benefits) were comprised as follows: Year Ended December 31 2018 2017 2016 Current Federal $— $ 129 $ 62 State — 17 13 Foreign 227 211 178 Total Current $ 227 $357 $253 Deferred Federal 12 (126) (26)State — — — Foreign 245 (223) (10)Total Deferred $ 257 $ (349) $ (36)Income Tax Expense $ 484 $ 8 $ 217 Income (loss) from continuing operations before income taxes and discontinuedoperations Foreign 43 (342) 661 Domestic 5,988 1,762 (3,774) $ 6,031 $ 1,420 $ (3,113) 57 The following is a reconciliation of the statutory federal income tax rate to the effective tax rate based on income (loss): Year Ended December 31 2018 2017 (a) 2016 (a) Tax provision at statutory rate 21.00% 34.00% 34.00%Change in valuation allowance 56.11 (502.26) (46.42)Impact of permanent items, including stock based compensation expense (63.93) 19.62 (7.93)Effect of foreign tax rates 1.03 7.04 2.49 State taxes net of federal benefit (11.70) 8.03 5.05 Effect of dividend of foreign subsidiary in prior year — 74.41 (3.85)Prior year provision to return true-up 2.66 48.21 10.60 Non-controlling interest — 2.08 (1.77)Change in expected future rate 2.13 331.39 — Other 0.73 (21.96) 0.86 Domestic and foreign income tax rate 8.03% 0.56% (6.97)% (a)Historical effective tax rates have been adjusted due to the adoption of ASC 606 “Revenue from Contracts with Customers”. Please refer to Notes 5and 6 for further information. The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2018, and2017 are presented below: Year Ended December 31 2018 2017 Deferred tax assets: Net operating loss carry forwards and credits $ 9,415 $ 6,048 Inventory 678 558 Compensation accruals 1,046 1,083 Accruals and reserves 206 108 Credits 382 387 Other 372 757 Total Deferred tax assets 12,099 8,941 Less: valuation allowance (10,791) (7,407) Deferred tax assets net of valuation allowance $ 1,308 $ 1,534 Deferred tax liabilities Depreciation and amortization (1,068) (1,117) Undistributed earnings of foreign subsidiary — — Total deferred tax liabilities (1,068) (1,117) Net deferred tax $ 240 $ 417 58 The valuation allowance is maintained against deferred tax assets which the Company has determined are more likely than not to be unrealized. The changein valuation allowance was ($3,384), $5,846, and ($3,443) for the years ended December 31, 2018, 2017, and 2016, respectively. For tax reporting purposes,the Company has actual federal and state net operating loss carryforwards of $38,432 and $23,725, respectively, as of December 31, 2018. These netoperating loss carryforwards begin to expire in 2023 for federal tax purposes and began to expire in 2019 for state tax purposes. Subsequently recognized taxbenefits, if any, related to the valuation allowance for deferred tax assets or realization of net operating loss carryforwards will be reported in the consolidatedstatements of operations. If substantial changes in the Company’s ownership occur, there could be an annual limitation on the amount of the carryforwardsthat are available to be utilized. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assetswill not be realized. The Company regularly assesses the likelihood that the deferred tax assets will be recovered from future taxable income. The Companyconsiders projected future taxable income and ongoing tax planning strategies, then records a valuation allowance to reduce the carrying value of the netdeferred taxes to an amount that is more likely than not able to be realized. Based upon the Company’s assessment of all available evidence, including theprevious three years of United States based taxable income and loss after permanent items, estimates of future profitability, and the Company’s overallprospects of future business, the Company determined that it is more likely than not that the Company will not be able to realize a portion of the deferred taxassets in the future. The Company will continue to assess the potential realization of deferred tax assets on an annual basis, or an interim basis ifcircumstances warrant. If the Company’s actual results and updated projections vary significantly from the projections used as a basis for this determination,the Company may need to change the valuation allowance against the gross deferred tax assets. The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than notsustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is thelargest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant taxing authority. The Company hasanalyzed all tax positions for which the statute of limitations remains open. As a result of the assessment, the Company has not recorded any liabilities forunrecognized income tax benefits or retained earnings. The Company does not have any unrecognized tax benefits as of December 31, 2018, 2017 and 2016. The Company is subject to income taxes in the U.S. federal jurisdiction, and various states and foreign jurisdictions. Tax regulations within each jurisdictionare subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The Company is still subject to U.S. federal,state and local, or non-U.S. income tax examinations by tax authorities for the years 2003 to 2005, 2009 to 2013 and for the years 2015 and after. There areno on-going or pending IRS, state, or foreign examinations. The Company recognizes penalties and interest accrued related to liability on unrecognized tax benefits in income tax expense for all periods presented. Asof December 31, 2018 and 2017, the Company has no amounts accrued for the payment of interest and penalties. 59 IRC section 951A Global Intangible Low-Taxed income: The Tax Cuts and Jobs Act enacted in December of 2017 introduced a new Global Intangible Low-Taxed Income (“GILTI”) provision that requires certainincome earned by foreign subsidiaries to be included currently in the gross income of the U.S. shareholder. The GILTI provision is effective beginning thefirst tax year of a U.S. shareholder that begins on or after January 1, 2018. Under U.S. GAAP, the Company is allowed to make an accounting policy choice ofeither 1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period cost when incurred, or 2) factoring such amountsinto the Company’s measurement of its deferred taxes. The Company has chosen to treat GILTI as a current-period cost when incurred. 16. EMPLOYEE BENEFIT PLANS The Company has a defined contribution plan for most of its domestic employees. Under these plans, eligible employees may contribute amounts throughpayroll deductions supplemented by employer contributions for investment in various investments specified in the plans. The Company contributions tothese plans were $569, $445 and $212 for the years ended December 31, 2018, 2017 and 2016. The Company provides post-retirement medical benefits to certain former domestic employees who met minimum age and service requirements. In 1999, aplan amendment was instituted which limits the liability for post-retirement benefits beginning January 1, 2000 for certain employees who retire after thatdate. This plan amendment resulted in a $1,100 unrecognized prior service cost reduction which is recognized as employees render the services necessary toearn the post-retirement benefit. The Company’s policy is to pay the cost of these post-retirement benefits when required on a cash basis. The Company alsohas provided certain foreign employees with retirement related benefits. The following table presents the amounts recognized in the Company’s consolidated balance sheets at December 31, 2018 and 2017 for post-retirementmedical benefits: 2018 2017 Change in Projected Benefit Obligation: Projected benefit obligation at January 1 $ 533 $ 604 Interest cost 16 19 Actuarial loss (21) (7)Participant contributions 13 15 Benefits paid (91) (98)Projected benefit obligation at December 31 450 533 Change in fair value of plan assets: Employer contributions 78 83 Participant contributions 13 15 Benefits paid (91) (98)Funded status (450) (533)Current liabilities 73 78 Noncurrent liabilities 377 455 Net amount recognized 450 533 Amount recognized in other comprehensive income (loss) — — Unrecognized net actuarial gain — — Total $— $— Accrued post-retirement medical benefit costs are classified as other post-retirement benefit obligations as of December 31, 2018 and 2017. 60 Net periodic post-retirement medical benefit costs for 2018, 2017, and 2016 included the following components: For measurement purposes, a 5.7% annual rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) was assumed for 2018; therate was assumed to decrease gradually to 4.6% by the year 2066 and remain at that level thereafter. The difference in the health care cost trend rateassumption may have a significant effect on the amounts reported. The assumptions used for the years ended December 31 were as follows: 2018 2017 2016 Annual increase in cost of benefits 5.7% 5.8% 5.9%Discount rate used to determine year-end obligations 3.9% 3.3% 3.3%Discount rate used to determine year-end expense 3.3% 3.3% 4.5% In addition to the post-retirement medical benefits, the Company provides retirement related benefits to certain former executive employees and to certainemployees of foreign subsidiaries. The liabilities established for these benefits at December 31, 2018 and 2017 are illustrated below. 2018 2017 Current portion $ 119 $ 93 Long-term portion 706 772 Total liability at December 31 $ 825 $ 865 The Company calculated the fair values of the pension plans above utilizing a discounted cash flow, using standard life expectancy tables, annual pensionpayments, and a discount rate of 4.5%. Employer benefit payments (medical and pension), which reflect expected future service, are expected to be paid in the following years: 2019 $ 192 2020 180 2021 168 2022 156 2023 146 Years 2024-2028 412 17. CURRENCY TRANSLATION AND TRANSACTION ADJUSTMENTS All assets and liabilities of foreign operations in which the functional currency is not the U.S. dollar are translated into U.S. dollars at prevailing rates ofexchange in effect at the balance sheet date. Revenues and expenses are translated using average rates of exchange for the year. Adjustments resulting fromthe process of translating the financial statements of foreign subsidiaries into U.S. dollars are reported as a separate component of equity, net of tax, whereappropriate. Foreign currency transaction amounts included in the consolidated statements of operations include losses of $64, $89 and $128 in 2018, 2017 and 2016,respectively. 18. COMMON STOCK AND STOCK OPTIONS The Company has a 2006 Equity Incentive Plan and a 2015 Equity Incentive Plan. The 2015 Equity Incentive Plan, which was approved by the shareholderson April 24, 2015, replaced the 2006 Equity Incentive Plan. New grants may not be made under the 2006 plan; however certain option grants under theseplans remain exercisable as of December 31, 2018. The aggregate number of shares of common stock for which awards could be granted under the 2015Equity Incentive Plan as of the date of adoption was 500 shares. Additionally, as outstanding options under the 2006 plan or 2015 plan expire, terminate, arecancelled or forfeited or are withheld in a net exercise, the shares of the Company’s common stock subject to such options will become available for issuanceunder the 2015 Equity Incentive Plan. Under the plans, executives, employees and outside directors receive awards of restricted stock units (RSUs) and/or options to purchase common stock. TheCompany may also grant stock awards, stock appreciation rights, restricted stock and other equity-based awards, although no such awards, other than awardsunder the director program and management purchase program described below, had been granted as of December 31, 2018. Under all awards, the terms arefixed on the grant date. Generally, the exercise price of stock options equals the market price of the Company’s stock on the date of the grant. RSUs under theplans generally vest over three years. Options under the plans generally vest over three years, and have a maximum term of 10 years. 61 The Company granted 98 RSUs for the year ended December 31, 2018. The RSUs vest in equal, annual installments over a three year period beginning on thefirst anniversary of the date of grant at which time common stock is issued with respect to vested units. Additionally, the board has established the non-employee directors’ stock fee election program, referred to as the director program, as an award under the2015 equity incentive plan. The director program gives each non-employee director the right under the 2015 equity incentive plan to elect to have some orall of his quarterly director fees paid in common shares rather than cash. No shares were issued under the director program for the years ended December 31,2018, 2017 and 2016. On July 23, 2008, the Compensation Committee of the Board of Directors approved the non-employee director and executive officer stock purchase program,referred to as the management purchase program, as an award under the 2015 Plan. The purpose of the management purchase program is to permit theCompany’s non-employee directors and executive officers to purchase shares of the Company’s Common Stock directly from the Company. Pursuant to themanagement purchase program, as amended, participants may elect to purchase shares of Common Stock from the Company not exceeding an aggregate of$100 during any fiscal year. Participants may make such election one time during each twenty business day period following the public release of theCompany’s earnings announcement, referred to as a window period, and only if such participant is not in possession of material, non-public informationconcerning the Company and subject to the discretion of the Board to prohibit any transactions in Common Stock by directors and executive officers duringa window period. There were no shares purchased under the program during the years ended December 31, 2018, 2017 and 2016. Stock award activity during the periods indicated is as follows: Outstanding Awards Weighted-average Aggregate Stock Options RSUs Total Exercise Price Intrinsic Value Outstanding at December 31, 2015 1,324 — 1,324 6.36 Awards forfeited or cancelled (70) — (70) 5.75 Awards granted 192 — 192 7.11 Awards exercised (61) — (61) 5.22 Outstanding at December 31, 2016 1,385 — 1,385 6.54 Awards forfeited or cancelled (30) — (30) 12.42 Awards granted 303 — 303 7.28 Awards exercised (220) — (220) 10.67 Outstanding at December 31, 2017 1,438 — 1,438 6.00 Awards forfeited or cancelled (8) — (8) 7.20 Awards granted — 98 98 — Awards exercised (600) — (600) 5.65 0 Outstanding at December 31, 2018 830 98 928 $ 5.59 $ 19,299 Exercisable at December 31, 2017 970 $5.42 $ 13,958 Exercisable at December 31, 2018 576 $ 5.81 $11,855 Available for future grant at December 31,2018 249 62 The number of shares available for future grant at December 31, 2018, does not include a total of up to 428 shares subject to options outstanding under the2006 plan which will become available for grant under the 2015 Equity Incentive Plan as outstanding options under the 2006 plan expire, terminate, arecancelled or forfeited or are withheld in a net exercise of such options. The weighted-average remaining contractual term of options exercisable and options outstanding at December 31, 2018 was 4.56 and 5.96 years. The totalintrinsic value of options exercised during fiscal 2018, 2017 and 2016, was $25,724, $631 and $76, respectively. The weighted-average per share grant date fair value of restricted stock units granted was $20.61 in 2018. The weighted-average per share grant date fairvalue of options granted was $4.20 and $4.17, in 2017 and 2016, respectively, using the Black-Scholes option-pricing model. No options were issued in2018. For disclosure purposes, the fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option-pricing model with thefollowing weighted average assumptions: 2017 2016 Dividend yield 0.0% 0.0%Expected volatility 59.29 - 63.51% 61.66 - 66.45%Risk-free interest rate 1.87-2.16% 1.36-2.00%Expected life (years) 6.0 6.0 During 2018, the Company did not issue any stock options. The Black-Scholes option-pricing model was developed for use in estimating the fair value oftraded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of subjective assumptions,including the expected stock price volatility. Because the Company’s options have characteristics different from those of traded options, in the opinion ofmanagement, the existing models do not necessarily provide a reliable single measure of the fair value of its options. The Company calculates expected volatility for stock options and awards using the Company’s historical volatility. The expected term for stock options and awards is calculated based on the Company’s estimate of future exercise at the time of grant. The Company currently estimates a zero percent forfeiture rate for stock options and regularly reviews this estimate. There were no material forfeitures duringfiscal years 2018, 2017 and 2016. The risk-free rates for the expected terms of the stock options and awards and the employee stock purchase plan is based on the U.S. Treasury yield curve ineffect at the time of grant. The Company recorded $1,395, $844, and $685 of non-cash stock compensation expense for the years ended December 31, 2018, 2017 and 2016,respectively. There were 38 stock options that were forfeited using the “net exercise” method of exercise for the year ended December 31, 2018. As ofDecember 31, 2018, there was $1,905 of total non-cash stock compensation expense related to non-vested awards that is expected to be recognized over aweighted-average period of 1.83 years. The Company also has an Employee Stock Purchase Plan (the “Purchase Plan”). The Purchase Plan, as amended, provides that a maximum of 300 shares maybe sold under the Purchase Plan. There were 7, 11, and 18 shares purchased under the Purchase Plan during the years ended December 31, 2018, 2017 and2016, respectively. On August 20, 2018, the Company completed a public offering and sale of 1,725 shares of common stock at a price to the public of $55.00 per share less anunderwriting discount of $3.30 per share. The net proceeds from this offering, after deducting underwriting discounts and offering expenses, totaledapproximately $88,967 and were used to repay debt, fund capital expenditures, to repurchase 500 shares of common stock owned by directors and officersand for working capital and other general corporate purposes. 63 19. INCOME (LOSS) PER SHARE The following table sets forth the computation of basic and diluted income (loss) per share: Year Ended December 31 2018 2017 2016 Numerator: Income (loss) from continuing operations before discontinued operations $ 5,547 $ 1,412 $ (3,330) Loss from discontinued operations, net of income taxes — (128) (1,770) Loss on sale of discontinued operations — (164) — Net income (loss) 5,547 1,120 (5,100) Less: Loss allocated to non-controlling interest — (938) (157) Net Income (loss) attributable to shareholders $ 5,547 $ 2,058 $ (4,943) Denominator: Basic – weighted shares outstanding 7,599 6,852 6,497 Weighted shares assumed upon exercise of stock options 1,031 455 — Diluted – weighted shares outstanding 8,630 7,307 6,497 Basic income (loss) per share attributable to shareholders: Continuing operations $ 0.73 $ 0.34 $ (0.49)Discontinued operations — (0.04) (0.27)Net income (loss) per share: $ 0.73 $ 0.30 $ (0.76) Diluted income (loss) per share attributable to shareholders: Continuing operations $ 0.64 $ 0.32 $ (0.49)Discontinued operations — (0.04) (0.27)Net income (loss) per share: $ 0.64 $ 0.28 $ (0.76) 64 The Company excluded all stock options, including 37 in the money options, in 2016 from the computation of the diluted income per share because theireffect would have been anti-dilutive due to the Company’s net loss in the period. The Company excluded in the money stock options of 5 and 28 in 2018and 2017, respectively, from the computation of the diluted income per share because their effect would be anti-dilutive. For additional disclosures regardingthe stock options, see Note 18. 20. CONTINGENCIES AND COMMITMENTS The Company is a defendant along with a number of other parties in lawsuits alleging that plaintiffs have or may have contracted asbestos-related diseases asa result of exposure to asbestos products or equipment containing asbestos sold by one or more named defendants. These lawsuits relate to the discontinuedheat technologies segment which was sold in March 2005. Due to the non-informative nature of the complaints, the Company does not know whether any ofthe complaints state valid claims against the Company. Certain insurance carriers have informed the Company that the primary policies for the period August1, 1970-1978 have been exhausted and that the carriers will no longer provide defense and insurance coverage under those policies. However, the Companyhas other primary and excess insurance policies that the Company believes afford coverage for later years. Some of these other primary insurers have accepteddefense and insurance coverage for these suits, and some of them have either ignored the Company’s tender of defense of these cases, or have deniedcoverage, or have accepted the tenders but asserted a reservation of rights and/or advised the Company that they need to investigate further. Becausesettlement payments are applied to all years a litigant was deemed to have been exposed to asbestos, the Company believes that it will have funds availablefor defense and insurance coverage under the non-exhausted primary and excess insurance policies. However, unlike the older policies, the more recentpolicies have deductible amounts for defense and settlements costs that the Company will be required to pay; accordingly, the Company expects that itslitigation costs will increase in the future. Further, many of the policies covering later years (approximately 1984 and thereafter) have exclusions for anyasbestos products or operations, and thus do not provide insurance coverage for asbestos-related lawsuits. The Company does not believe that the assertedexhaustion of some of the primary insurance coverage for the 1970-1978 period will have a material adverse effect on its financial condition, liquidity, orresults of operations. Management believes that the number of insurance carriers involved in the defense of the suits, and the significant number of policyyears and policy limits under which these insurance carriers are insuring the Company, make the ultimate disposition of these lawsuits not material to theCompany’s consolidated financial position or results of operations. The Company’s former wholly owned French subsidiary, Selas SAS, filed for insolvency in France. The Company may be subject to additional litigation orliabilities as a result of the completion of the French insolvency proceeding, including liabilities under guarantees aggregating approximately $448. The Company is also involved from time to time in other lawsuits arising in the normal course of business. While it is not possible to predict with certaintythe outcome of these matters, management is of the opinion that the disposition of these lawsuits and claims will not materially affect our consolidatedfinancial position, liquidity or results of operations. Total expense for 2018, 2017 and 2016 under leases pertaining primarily to engineering, manufacturing, sales and administrative facilities, with an initialterm of one year or more, aggregated $2,327, $1,728, and $1,498, respectively. Remaining payments under such leases are as follows: 2019 - $2,417; 2020 -$2,255; 2021 - $1,689; 2022 - $950; 2023 - $188, which includes three leased facility in Minnesota, two that expire in 2022 and one that expires in 2023,one leased facility in Illinois that expires in 2021, one leased facility in Singapore that expires in 2020, one leased facility in Indonesia that expires in 2021,one leased facility in the United Kingdom that expires in 2021, and one leased facility in Germany that expires in 2022. Certain leases contain renewaloptions as provided in the lease agreements. On October 5, 2007, the Company entered into employment agreements with its executive officers. The agreements call for payments ranging from one to twoyears base salary and unpaid bonus, if any, to the executives should there be a change of control as defined in the agreement and the executives are notretained for a period of at least one year following such change of control. Under the agreements, all stock options granted to the executives would vestimmediately and be exercisable in accordance with the terms of such stock options. The Company also agreed that if it enters into an agreement to sellsubstantially all of its assets, it will obligate the buyer to fulfill its obligations pursuant to the agreements. The agreements terminate, except to the extent thatany obligation remains unpaid, upon the earlier of termination of the executive’s employment prior to a change of control or asset sale for any reason or thetermination of the executive after a change of control for any reason other than by involuntary termination as defined in the agreements. 65 21. RELATED-PARTY TRANSACTIONS The Company uses the law firm of Blank Rome LLP for legal services. A partner of that firm is the son-in-law of the Chairman of our Board of Directors. TheCompany paid approximately $498, $140, and $406 to Blank Rome LLP for legal services and costs in 2018, 2017 and 2016, respectively. The Company has a 50% ownership in Signison, a German based hearing health company. Signison owes the Company notes receivable of $1,678 which isincluded in investment in partnership on the balance sheet as of December 31, 2018. The Company used $25,850 of the proceeds from the 2018 equity offering to repurchase 500 shares of common stock from certain directors and officers. Theprice paid by the Company for each share was the same price per share that the Company received in the offering. Prior to and during the fourth quarter of 2017, one of our subsidiaries leased office and factory spaces that was owned by one present and two former officersof the subsidiary, including Mark Gorder, a member of the Company’s Board of Directors and the President and Chief Executive Officer of the Company.During the fourth quarter of 2017, such related parties sold the property to an unrelated party and the Company continues to lease the property. The total baserent expense, real estate taxes and other charges incurred to the related parties under the lease was approximately $371 and $484 for the years endedDecember 31, 2017 and 2016, respectively. 22. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS Supplemental disclosures of cash flow information: Year Ended December 31 2018 2017 2016 Interest received $381 $1 $1 Interest paid 680 716 568 Income taxes paid 190 166 196 Noncash Transactions: 2018 2017 2016 NXP technology access $(473) $2,732 $— NXP liability (375) 2,600 — Property, plant and equipment purchases that remain in accounts payable as of December 31, 2018 were $1,030. 23. REVENUE BY MARKET The following table sets forth, for the periods indicated, net revenue by market: Year Ended December 31 2018 2017 2016 Medical Biotelemetry $75,645 $53,452 $36,618 Hearing Health 26,720 24,527 23,837 Hearing Health Direct-to-End-Consumer 6,858 6,492 1,025 Professional Audio Communications 7,239 6,166 7,500 Total Net Revenue $116,462 $90,637 $68,980 24. SUBSEQUENT EVENTS In January 2019, the Company purchased the source code for the Sentibo Smart Brain self-fitting software from Soundperience for 1,829 Euros and therelinquishing of our 49% ownership interest in Soundperience. 66 ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial DisclosureNone. ITEM 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this report (the “Evaluation Date”), the Company carried out anevaluation, under the supervision and with the participation of management, including the Chief Executive Officer (principal executive officer) and the ChiefFinancial Officer (principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules13a-15(e) or 15d-15(e) of the Exchange Act). Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of theEvaluation Date, our disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in the reports thatit files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in applicable rules and forms,and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisionsregarding required disclosure. Management’s Annual Report on Internal Control Over Financial Reporting. The report of management required under this Item 9A is contained in Item 8of this Annual Report on Form 10-K under the caption “Management’s Report on Internal Control Over Financial Reporting.” Independent Registered Public Accounting Firm’s Attestation Report on Internal Control Over Financial Reporting. The attestation report of Baker TillyVirchow Krause, LLP, our independent registered public accounting firm, required under this Item 9A, is contained in Item 8 of this Annual Report on Form10-K under the caption “Report of Independent Registered Public Accounting Firm”. Changes in Internal Controls over Financial Reporting. There were no changes in our internal control over financial reporting (as such term is defined inRules 13a-15(f) and 15d-15(f) under the Exchange Act) during the most recent fiscal quarter covered by this report that would have materially affected, or arereasonably likely to materially affect, the Company’s internal control over financial reporting. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systemare met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relativeto their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues andinstances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements dueto error or fraud may occur and not be detected. ITEM 9B. Other Information None. 67 PART III ITEM 10. Directors, Executive Officers and Corporate Governance The information called for by Item 10 is incorporated by reference from the Company’s definitive proxy statement relating to its 2019 annual meeting ofshareholders, including but not necessarily limited to the sections of the 2019 proxy statement entitled “Proposal 1 – Election of Directors” and “Section16(a) Beneficial Ownership Reporting Compliance.” The information concerning executive officers contained in Item 4A hereof is incorporated by reference into this Item 10. Code of Ethics The Company has adopted a code of ethics that applies to its directors, officers and employees, including its principal executive officer, principal financialand accounting officer, controller and persons performing similar functions. Copies of the Company’s code of ethics are available without charge uponwritten request directed to Cari Sather, Director of Human Resources, IntriCon Corporation, 1260 Red Fox Road, Arden Hills, Minnesota 55112. TheCompany intends to satisfy the disclosure requirement under Item 10 of Form 8-K regarding any future amendments to a provision of its code of ethics byposting such information on the Company’s website: www.intricon.com. ITEM 11. Executive Compensation The information called for by Item 11 is incorporated by reference from the Company’s definitive proxy statement relating to its 2019 annual meeting ofshareholders, including but not necessarily limited to the sections of the 2019 proxy statement entitled “Director Compensation for 2019,” and “ExecutiveCompensation”. ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information called for by Item 12 is incorporated by reference from the Company’s definitive proxy statement relating to its 2019 annual meeting ofshareholders, including but not necessarily limited to the section of the 2019 proxy statement entitled “Share Ownership of Certain Beneficial Owners,Directors and Certain Officers.” Equity Compensation Plan Information The following table details information regarding the Company’s existing equity compensation plans as of December 31, 2018: Plan Category (a)Number ofsecurities to beissued uponexercise ofoutstandingoptions, warrantsand rights (1) (b)Weighted-averageexercise price ofoutstandingoptions, warrantsand rights (2) (c)Number ofsecuritiesremainingavailable forfuture issuanceunder equitycompensationplans (excludingsecurities reflectedin column (a)) (3) Equity compensation plans approved by security holders 928 $5.59 341 Equity Compensation plans not approved by security holders — — — Total 928 $5.59 341 (1)The amount in column (a) includes outstanding options to purchase 830 shares of common stock and unvested restricted stock units for 98shares of common stock. (2)The weighted average exercise price in column (b) is based only on outstanding stock options. (3) The amount shown in column (c) includes 249 shares issuable under the Company’s 2015 Equity Incentive Plan (the “2015 Plan”) and 92shares available for purchase under the Company’s Employee Stock Purchase Plan. Under the terms of the 2015 Plan, as outstanding optionsunder the Company’s 2006 Equity Incentive Plan expire, terminate, are cancelled or forfeited or are withheld in a net exercise, the shares ofcommon stock subject to such options will become available for issuance under the 2015 Plan. As of December 31, 2018, 428 shares of commonstock were subject to outstanding options under the 2006 Equity Incentive Plan. Accordingly, if any of these options expire, terminate, arecancelled or forfeited or are withheld in a net exercise, the shares of common stock subject to such options also will be available for issuanceunder the 2015 Plan. 68 ITEM 13. Certain Relationships and Related Transactions, and Director Independence The information called for by Item 13 is incorporated by reference from the Company’s definitive proxy statement relating to its 2019 annual meeting ofshareholders, including but not necessarily limited to the sections of the 2019 proxy statement entitled “Certain Relationships and Related PartyTransactions” and “Independence of the Board of Directors.” ITEM 14. Principal Accounting Fees and Services The information called for by Item 14 is incorporated by reference from the Company’s definitive proxy statement relating to its 2019 annual meeting ofshareholders, including but not necessarily limited to the sections of the 2019 proxy statement entitled “Independent Registered Public Accounting FeeInformation.” PART IV ITEM 15. Exhibits, Financial Statement Schedules (a) The following documents are filed as a part of this report: 1)Financial Statements – The consolidated financial statements of the Registrant are set forth in Item 8 of Part II of this report. Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and 2016. Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2018, 2017 and 2016. Consolidated Balance Sheets at December 31, 2018 and 2017. Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016. Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2018, 2017 and 2016. Notes to Consolidated Financial Statements. 69 3)Exhibits – 3.1The Company’s Amended and Restated Articles of Incorporation, as amended. (Incorporated by reference from the Company’s Current Reporton Form 8-K filed with the Commission on April 24, 2008.) 3.2The Company’s Amended and Restated By-Laws. (Incorporated by reference from the Company’s Current Report on Form 8-K filed with theCommission October 12, 2007.) 4.1Specimen Common Stock Certificate. (Incorporated by reference from the Company’s Registration Statement on Form S-3 (registration no.333-200182) filed with the Commission on November 13, 2014.) +10.1Supplemental Retirement Plan (amended and restated effective January 1, 1995). (Incorporated by reference from the Company’s AnnualReport on Form 10-K for the year ended December 31, 1995.) +10.22006 Equity Incentive Plan, as amended. (Incorporated by reference from Appendix A to the Company’s proxy statement filed with the SECon March 15, 2012.) +10.3Form of Stock Option Agreement issued to executive officers pursuant to the 2006 Equity Incentive Plan. (Incorporated by reference from theCompany’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006.) +10.4Form of Stock Option Agreement issued to directors pursuant to the 2006 Equity Incentive Plan. (Incorporated by reference from theCompany’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006.) +10.5Non-Employee Directors Stock Fee Election Program. (Incorporated by reference from the Company’s Annual Report on Form 10-K for theyear ended December 31, 2006.) +10.6Non-Employee Director and Executive Officer Stock Purchase Program, as amended. (Incorporated by reference from the Company’sQuarterly Report on Form 10-Q for the quarter ended September 30, 2008.) 10.7Agreement by and between K/S HIMPP and IntriCon Corporation dated December 1, 2006 and the schedules thereto. (Incorporated byreference from the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.) +10.8Employment Agreement with Mark S. Gorder. (Incorporated by reference from the Company’s Current Report on Form 8-K filed with theCommission October 12, 2007.) +10.9Form of Employment Agreement with executive officers. (Incorporated by reference from the Company’s Current Report on Form 8-K filedwith the Commission October 12, 2007.) 10.10.1Eleventh Amendment to Loan and Security Agreement and Waiver among the Company, IntriCon, Inc., I-Management, LLC, Hearing HelpExpress, Inc., and CIBC Bank USA (formerly known as The PrivateBank and Trust Company), dated as of December 15, 2017. Exhibit A tothis Amendment contains the fully amended Loan and Security Agreement among the parties. (Incorporated by reference from the Company’sAnnual Report on Form 10-K for the year ended December 31, 2017.) 10.10.2Twelfth Amendment to Loan and Security Agreement among the Company, IntriCon, Inc., Hearing Help Express, Inc. and CIBC Bank USA(formerly known as The PrivateBank and Trust Company), dated as of July, 23, 2018. (Incorporated by reference from the Company’sQuarterly Report on Form 10-Q for the quarter ended June 30, 2018) 10.11Amended and Restated Revolving Note from the Company, IntriCon, Inc. and Hearing Help Express, Inc. to CIBC Bank USA (formerlyknown as The PrivateBank and Trust Company), dated July 23, 2018. (Incorporated by reference from the Company’s Quarterly Report onForm 10-Q for the quarter ended June 30, 2018). 10.12Amended and Restated Term Note from the Company, IntriCon, Inc., I-Management, LLC and Hearing Help Express, Inc. to CIBC Bank USA(formerly known as The PrivateBank and Trust Company), dated December 15, 2017. (Incorporated by reference from the Company’s AnnualReport on Form 10-K for the year ended December 31, 2017.) 70 10.13Amended and Restated CapEx Note from the Company, IntriCon, Inc. and Hearing Help Express, Inc. to CIBC Bank USA (formerly known asThe PrivateBank and Trust Company), dated July, 23, 2018. (Incorporated by reference from the Company’s Quarterly Report on Form 10-Qfor the quarter ended June 30, 2018). +10.14Annual Incentive Plan for Executives and Key Employees. (Incorporated by reference from the Company’s Quarterly Report on Form 10-Q forthe quarter ended March 31, 2012.) +10.15Amended and Restated Amendment to Equity Plans. (Incorporated by reference from the Company’s Annual Report on Form 10-K for theyear ended December 31, 2013.) +10.16Amendment No. 2 to Equity Plans. (Incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the quarter endedMarch 31, 2016.) +10.172015 Equity Incentive Plan. (Incorporated by reference from Appendix A to the Company’s proxy statement filed with the SEC on March 6,2015.) +10.18Form of Stock Option Agreement issued to employees pursuant to the 2015 Equity Incentive Plan. (Incorporated by reference from theCompany’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015.) +10.19Form of Stock Option Agreement issued to directors pursuant to the 2015 Equity Incentive Plan. (Incorporated by reference from theCompany’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2015.) +10.20Form of Performance Stock Option Agreement issued to employees pursuant to the 2015 Equity Incentive Plan. (Incorporated by referencefrom the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.) +10.21Form of Restricted Stock Unit Agreement issued to employees pursuant to the 2015 Equity Incentive Plan. (Incorporated by reference fromthe Company’s Annual Report on Form 10-K for the year ended December 31, 2017.) +10.22Form of Restricted Stock Unit Agreement issued to directors pursuant to the 2015 Equity Incentive Plan. (Incorporated by reference from theCompany’s Annual Report on Form 10-K for the year ended December 31, 2017.) +10.23Employee Stock Purchase Plan, as amended (Incorporated by reference from Appendix A to the Company’s proxy statement filed with theSEC on March 11, 2016). 10.24Investment Agreement dated as of April 19, 2017 among IntriCon, Inc., Rheinton GmbH and Soundperience GmbH (English translation).(Incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017.) 10.25Equity Purchase Agreement, dated August 10, 2018, among the Company and certain directors and officers of the Company. (Incorporated byreference from the Company’s Current Report on Form 8-K filed with the Commission on August 14, 2018.) 21.1*List of significant subsidiaries of the Company. 23.1*Consent of Independent Registered Public Accounting Firm (Baker Tilly Virchow Krause, LLP). 31.1*Certification of principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2*Certification of principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1*Certification of principal executive officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002. 32.2*Certification of principal financial officer pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002. 101The following materials from IntriCon Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018, formatted in XBRL(eXtensible Business Reporting Language): (i) Consolidated Statements of Operations for the years ended December 31, 2018, 2017 and2016; (ii) Consolidated Statements of Comprehensive Income (Loss); (iii) Consolidated Balance Sheets as of December 31, 2018 and 2017;(iv) Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016; (v) Consolidated Statements ofShareholders’ Equity for the years ended December 31, 2018, 2017 and 2016; and (vi) Notes to Consolidated Financial Statements. * Filed herewith.+ Denotes management contract, compensatory plan or arrangement. ITEM 16. Form 10-K Summary None. 71 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized. INTRICON CORPORATION (Registrant) By: /s/ Scott Longval Scott Longval Executive Vice President, Chief Financial Officer, Treasurer andSecretaryDated: March 14, 2019 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantand in the capacities and on the dates indicated. /s/ Mark S. Gorder Mark S. Gorder President and Chief Executive Officer and Director (principal executive officer) March 14, 2019 /s/ Scott Longval Scott Longval Executive Vice President, Chief Financial Officer Treasurer and Secretary (principal accounting and financial officer) March 14, 2019 /s/Nicholas A. Giordano Nicholas A. Giordano Director March 14, 2019 /s/Robert N. Masucci Robert N. Masucci Director March 14, 2019 /s/ Michael J. McKenna Michael J. McKenna Director March 14, 2019 /s/ Philip I. Smith Philip I. Smith Director March 14, 2019 72EXHIBIT 21.1 Significant Subsidiaries of IntriCon Corporation SubsidiaryPlace of Incorporation IntriCon GmbHGermanyVertrieb von Elecktronikteilen IntriCon UK LimitedUnited Kingdom IntriCon, Inc.Minnesota IntriCon PTE LTD.Singapore PT IntriCon IndonesiaIndonesia Hearing Help Express, Inc.Illinois  EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the incorporation by reference in the Registration Statements on Forms S-3 (Registration Nos. 333-200182, 333-224723, and 333-226334, asamended) and Forms S-8 (Registration Nos. 333-16377, 333-66433, 333-59694, 333-129104, 333-134256, as amended, 333-145577, 333-168586, asamended, 333-173837, 333-181160, as amended, 333-204123, and 333-211326) of IntriCon Corporation and Subsidiaries of our report dated March 14,2019, relating to the consolidated financial statements and the effectiveness of internal control over financial reporting, which appears on page 33 of thisannual report on Form 10-K for the year ended December 31, 2018. /s/ BAKER TILLY VIRCHOW KRAUSE, LLP Minneapolis, Minnesota March 14, 2019 EXHIBIT 31.1 CERTIFICATION I, Mark S. Gorder, certify that: 1.I have reviewed this annual report on Form 10-K of IntriCon Corporation; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Date: March 14, 2019 /s/ Mark S. Gorder President and Chief Executive Officer (principal executive officer) EXHIBIT 31.2 CERTIFICATION I, Scott Longval, certify that: 1.I have reviewed this annual report on Form 10-K of IntriCon Corporation; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,the registrant’s internal control over financial reporting; and 5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Date: March 14, 2019 /s/ Scott Longval Executive Vice President and Chief Financial Officer (principal financial officer) EXHIBIT 32.1 CERTIFICATION PURSUANT TO18 U.S.C.SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Mark S. Gorder, Chief Executive Officer (Principal Executive Officer) Of IntriCon Corporation (The “Company”), Certify, Pursuant To Section 906 Of TheSarbanes-Oxley Act Of 2002, 18 U.S.C. Section 1350, That: 1)The Annual Report On Form 10-K Of The Company For The Year Ended December 31, 2018 (The “Report”) Fully Complies With TheRequirements Of Section 13(A) Or 15(D) Of The Securities Exchange Act Of 1934; And 2)The Information Contained In The Report Fairly Presents, In All Material Respects, The Financial Condition And Results Of Operations Of TheCompany. Date: March 14, 2019/S/ Mark S. Gorder Mark S. Gorder President And Chief Executive Officer (Principal Executive Officer) The Foregoing Certification Is Being Furnished Solely Pursuant To Section 906 Of The Sarbanes-Oxley Act Of 2002 (Section 1350 Of Chapter 63 Of Title 18Of The United States Code) And Is Not Being Filed As Part Of The Report Or As A Separate Disclosure Document. EXHIBIT 32.2CERTIFICATION PURSUANT TO18 U.S.C.SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002I, Scott Longval, Chief Financial Officer (principal financial officer) of IntriCon Corporation (the “Company”), certify, pursuant to Section 906 of theSarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: 1)the annual report on Form 10-K of the Company for the year ended December 31, 2018 (the “Report”) fully complies with the requirements ofSection 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of theCompany. Date: March 14, 2019 /s/ Scott Longval Scott Longval Executive Vice President, Chief Financial Officer and Treasurer (principalfinancial officer) The foregoing certification is being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Section 1350 of Chapter 63 of Title 18 ofthe United States Code) and is not being filed as part of the Report or as a separate disclosure document. 

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