10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

☒ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2018

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from_____to_____

Commission File Number 0-29923

_____________________________________

CUI Global, Inc.

(Exact name of registrant as specified in its charter)

Colorado	(3670)	84-1463284
(State or jurisdiction of	(Primary Standard Industrial	(I.R.S. Employer
incorporation or organization)	Classification Code Number)	Identification No.)

20050 SW 112th Avenue

Tualatin, Oregon 97062

(503) 612-2300

(Address and Telephone Number of Principal Executive Offices and Principal Place of Business)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange where registered
Common Stock par value $0.001 per share	The NASDAQ Stock 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 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   ☒ Yes  ☐ No

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Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   ☒ Yes  ☐ No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will 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, or a smaller reporting company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and ‘‘smaller reporting company’’ in Rule 12b-2 of the Exchange Act.

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 or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).   ☐ Yes   ☒ No

The aggregate market value of the voting and non-voting common equity held by non-affiliates, based on the closing price of our common stock on the last business day of the registrant’s most recently completed fiscal second quarter (June 30, 2018), was approximately $73,354,786. Shares of common stock beneficially held by each executive officer and director as well as 10% holders as of June 30, 2018 have been excluded from this computation because these persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for any other purpose.

As of March 18, 2019, the registrant had 28,581,953 shares of common stock outstanding and no shares of Preferred Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

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Part I
Item 1.	Business	4
Item 1A.	Risk Factors	11
Item 1B.	Unresolved Staff Comments	23
Item 2.	Properties	24
Item 3.	Legal Proceedings	24
Item 4.	Mine Safety Disclosure	24
Part II
Item 5.	Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	24
	Market Value	25
	Description of Securities	24
Item 6.	Selected Financial Data	29
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	31
	Critical Accounting Policies	31
	Liquidity and Capital Resources	38
	Results of Operations	43
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	49
Item 8.	Financial Statements and Supplementary Data	51
Item 9.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	97
Item 9A.	Controls and Procedures	98
Item 9B.	Other Information	100
Part III
Item 10.	Directors, Executive Officers and Corporate Governance	100
	Our Corporate Governance Practices	103
	Audit Committee	105
	Audit Committee Report	105
	Nominating Committee	106
Item 11.	Executive Compensation	109
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	120
Item 13.	Certain Relationships, Related Transactions and Director Independence	123
Item 14.	Principal Accounting Fees and Services	123
Part IV
Item 15.	Exhibits, Financial Statement Schedules	125
	Exhibits	125
Item 16.	Form 10-K Summary	126
	Signatures	126
	Certifications

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PART I

Item 1.  Business

Corporate Overview and Our Products

CUI Global, Inc. and Subsidiaries are collectively referred to as ‘‘CUI Global’’ or “The Company.” CUI Global is a Colorado corporation organized on April 21, 1998 with its principal place of business located at 20050 SW 112th Avenue, Tualatin, Oregon 97062, phone (503) 612-2300. The Company is a platform company dedicated to maximizing shareholder value through the acquisition, development and commercialization of new, innovative technologies and businesses. The Company's operations fall into two reportable segments: Power and Electromechanical segment and Energy segment. In addition, the Company’s corporate overhead activities are included in an ‘‘Other’’ category. CUI Global has subsidiaries in 4 countries, including the United States, United Kingdom, Canada and Japan. Through its subsidiaries, CUI Global has built a diversified portfolio of industry leading technologies that touch many markets.

Power and Electromechanical Segment

CUI Inc., CUI-Canada and CUI Japan - Subsidiaries

CUI Inc. is based in Tualatin, Oregon, CUI-Canada, is based in Toronto, Canada and CUI Japan is based in Tokyo, Japan (collectively referred to as “CUI”). These three subsidiaries are providers of power supply solutions and electromechanical components including power supplies, transformers, converters, connectors and industrial controls for Original Equipment Manufacturers (OEMs). Since its inception in 1989, CUI has been delivering quality products, extensive application solutions and superior personal service. CUI's solid customer commitment and honest corporate message are a hallmark in the industry.

The Power and Electromechanical segment aggregates its product offerings into two categories: power supply solutions - including external and embedded ac-dc power supplies, dc-dc converters and offering a technology architecture that addresses power and related accessories; and components - including connectors, speakers, buzzers, and industrial control solutions including encoders and sensors. These offerings provide a technology architecture that addresses power and related accessories to industries as broadly ranging as telecommunications, consumer electronics, medical and defense.

Power Supply Solutions

Our current power line consists of external and embedded ac-dc power supplies, and dc-dc converters. This dynamic, broadly applicable product line accounts for a significant portion of our current revenue.

Advanced Power

With the rapid rise in cloud computing and the “Internet of Things,” CUI is well positioned with our advanced power portfolio to address these quickly-growing markets. System complexity, energy efficiency regulations and the need for more processing power in smaller spaces has moved digital power to a mandatory technology in data communications, server and storage applications. The acquisition of certain assets and certain liabilities of Tectrol, Inc. (now CUI-Canada) in 2015 allows us to address the front-end power requirements of these same systems, providing a complete power solution for our customers. In an environment where OEMs are reducing their approved vendor list, the capability to deliver a full system solution is becoming critical.

Virtual Power Systems and ICE®

CUI Inc. entered into a hardware agreement with Virtual Power Systems (VPS) to be the exclusive third-party design and development provider of ICE (Intelligent Control of Energy) products enabled by the VPS patented software system. The ICE system is a revolutionary Software Defined Power® solution that combines CUI Inc.’s hardware and Virtual Power Systems’ software into a platform that increases data centers' power infrastructure utilization. CUI Inc. has an exclusive five-year agreement with VPS, which will automatically renew for an additional five years unless notice is given by either party within six months of the end of the term.

Components

AMT®   Encoder

CUI Inc. has an exclusive agreement to develop, sell and distribute the AMT encoder worldwide. The AMT series modular encoder is designed with proprietary, capacitive, code-generating technology as compared to optical or magnetic encoding. This unique device allows breakthroughs in selectable resolution, shaft-adaptation and convenient mounting solutions to bring ease of installation, reduction in SKUs and economies of scale in purchasing. The AMT amounts to almost 2,000 encoders in one package. The AMT has been awarded several design wins from Motion Control OEM’s, while producing a wide range of products including robotics. This portfolio of products continues to grow and become more diverse in its ability to meet the needs of the customer base.

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Anticipated Growth Strategy for Our Power and Electromechanical Segment

We hope to grow our power and electromechanical product line through a planned strategy to continually increase our name recognition as a technology company. Our plan, already in effect, includes:

• developing collaborative relationships with our customers by seeking to meet their design needs in a timely and cost-effective manner;

• developing new technologies and expanded manufacturing capabilities as needed;

• growing our global sales and distribution through our international distribution channels; and

• directing our marketing efforts through one of our two channels: either directly with the sales representative who understands the targets in the area or through our distributors with partnership marketing.

These areas, however, need forward-looking growth investment to understand the customers’ needs and develop products accordingly. We are in line with market standards for quality, customer service and pricing. Our plan is to stay with this market during our anticipated growth. We intend to expand according to our existing model. This expansion may require additional manufacturer representative coverage and outside sales people in strategic areas.

Energy Segment

Orbital Gas Systems, Ltd. and Orbital Gas Systems, North America, Inc. - Subsidiaries

Orbital Gas Systems, Ltd. (Orbital-UK) is based in Stone, Staffordshire in the United Kingdom and Orbital Gas Systems, North America, Inc. (Orbital North America), is based in Houston, Texas. Orbital-UK has operated successfully in the natural gas industry for over 30 years and is a leading provider of natural gas infrastructure and high-tech solutions to United Kingdom transmission companies, including: Scotia Gas Networks (SGN); Wales & West; Cadent and National Grid. Orbital North America leverages the experience of Orbital-UK in an effort to reach the North American market with the innovative solutions that Orbital-UK customers have benefited from for years.

The Energy segment subsidiaries, collectively referred to as Orbital Gas Systems (Orbital), have developed a portfolio of products, services and resources to offer a diverse range of personalized gas engineering solutions to the gas utilities, power generation, emissions, manufacturing and automotive industries. Its proprietary VE^® Technology enhances the capability and speed of our GasPT^® Technology. VE Technology provides a superior method of penetrating the gas flow without the associated vortex vibration, thereby making it a ‘‘stand-alone’’ product for thermal sensing (thermowells) and trace-element sampling.

We deal with several independent licensors for whose intellectual property we compete with other manufacturers. Rights to such intellectual property, when acquired by us, are usually exclusive and the agreements require us to pay the licensor a royalty on our net sales of the item. These license agreements, in some cases, also provide for advance royalties and minimum guarantees to maintain technical rights and exclusivity.

GasPT®

Through an exclusive licensing contract with DNV GL (formerly: GL Industrial Services UK, Ltd.) (formerly: British-based Advantica, Ltd.), CUI Global owns exclusive rights to manufacture, sell and distribute a gas quality inferential measurement device designed by DNV GL on a worldwide basis, now marketed as the GasPT. The Company has minimum commitments, including royalty payments, under this licensing contract.

The GasPT, is a low-cost solution for measuring natural gas quality. It's connected to a natural gas system to provide a fast, accurate, close to real time measurement of the physical properties of the gas, such as thermal conductivity, speed of sound and carbon dioxide content. From these measurements it infers an effective gas mixture comprising five components: methane, ethane, propane, nitrogen, and measured carbon dioxide and then uses ISO6976 to calculate the gas quality characteristics of calorific value (CV), Wobbe index (WI), relative density (RD), and compression factor (Z). An ISO, International Organization for Standardization, is a documented agreement containing technical specifications or other precise criteria to be used consistently as rules, guidelines or definitions of characteristics to ensure that materials, products, processes and services are fit for their purpose.

This innovative technology has been certified for use in fiscal monitoring by Ofgem in the United Kingdom, the Polish Oil & Gas Company Department of Testing and Calibration in Warsaw, NOVA Chemical/TransCanada in Canada, the Pipeline Research Counsel International (PRCI) in the US, ENGIE (the French energy giant), and NMi & The International Organization of Legal Metrology (‘‘OIML’’). There is no equivalent product competition. There are instruments like gas chromatographs (‘‘GC’’) that technically can be considered competition, but they are slow, complicated to use and as much as five times the installed price of the GasPT.

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For example, in the case of one of Orbital's customers, an Italian gas transmission company, there are ~ 7,000 customer access points, servicing 7,500 customers. Those would include city gates, large industrial users, power generation plants and others. Those customer access ports would be applicable for the GasPT Technology.

In addition, there are more than 50,000 gas-fired turbines in operation worldwide. Each turbine is subject to variances in natural gas quality. Depending on the quality of the gas, by using our GasPT Technology, those very expensive machines can be tuned to run more efficiently and therefore longer with significantly cleaner emissions. Because of the delay in information from the GC’s, such tuning cannot be effectively accomplished. This greater efficiency has led National Grid in the UK to change its entire turbine control strategy, canceling orders for several GC’s and, in 2013, replacing those GC’s with GasPT devices specifically designed for natural gas-fired turbine control.

Orbital has successfully introduced the combined GasPT analyzer and VE sample system (GasPTi) to National Grid, the largest natural gas provider in the UK. In addition, along with passing first phase testing by GE-Energy in October/November 2012, the GasPTi device successfully completed second phase testing with GE-Energy in October 2013. The device is in final phase testing at GE's Oil & Gas Learning Center in Nuovo Pignone, Florence, Italy.

On September 3, 2015, our Italian gas transmission customer issued a public tender for the installation of at least 3,300 metering devices to change the way the customer monitors its facilities and assets. After a several months bidding process, Orbital and its partner, SOCRATE were awarded the initial purchase order (400 units) under the tender. Those 400 units were delivered on-time and in-budget during 2016. A regulatory issue unrelated to the technology has delayed the next phase of the project through 2018. While the Company expects the project to resume in 2019, there can be no assurance of this. The customer is currently working with its regulatory body to implement a program that would improve its ability to more rapidly deploy the new metering solutions. The Company has confirmed that the GasPT device is still the only qualified technology for this project.

Bio-Methane to Grid

In addition, Orbital has been very involved in developing a method by which bio-methane gas can be injected into the existing natural gas infrastructure without enhancement, thus remaining environmentally-friendly while maintaining a carbon neutral footprint.

Bio-methane gas (produced wherever organic material is decaying) can be, and is a significant source of environmentally-friendly, carbon neutral energy in the U.K. Italy produces as much as 8 billion cubic meters of bio-methane gas per year and could dramatically reduce its carbon footprint by capturing that bio-methane gas in the form of energy. The specific advantages of bio-methane as a source of energy is that it uses already-existing pipeline infrastructure to quickly and efficiently deliver energy to the end-user, who, in most cases, is already connected to the grid.

The problem in the U.K. and elsewhere is maintaining accurate billing after the bio-methane gas is injected into the grid. In brief, due to the method by which billing is currently done in the U.K. (and throughout much of Western Europe), bio-methane gas must be enhanced by injecting propane or some other complex carbon material to meet critical calorific value (“CV”) levels before being injected into the grid to allow the bio-methane gas to fit the CV envelope of the regional billing model.

Such enhancement means that the very simple, environmentally-friendly bio-methane gas is transformed into a complex carbon gas, which increases its carbon footprint. In addition, the energy used by fleets of vehicles transporting propane to the propane injectors at each bio-methane-to-grid facility further increases the carbon footprint and resulting pollution to the environment - all-in-all, a very environmentally-unfriendly, highly polluting method of delivering what would otherwise be a “green” alternative energy source.

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DNV GL, the well-respected Norwegian consulting firm, has opined that the need to enhance bio-methane gas actually makes such gas less environmentally-friendly than standard natural gas sources.

The question, then, is how to avoid having to enhance bio-methane gas before injecting it into the grid. The answer, simply, is to measure the quality of the gas for billing downstream from the bio-methane injection sites, so the CV does not affect the billing, which is done in a much closer proximity to the end-user; thereby, becoming much more accurate and reliable. A simplified animation of the analysis/issues can be found at a link from our www.CUIGlobal.com website (Future Billing Methodology Animation).

To develop such a billing methodology, DNV GL (in conjunction with Orbital) has produced a “proof-of-concept” proposal. The first portion of that proposal, an industry survey, was memorialized in the Future Billing Methodology (“FBM”) Project Consultation Report, which can also be found at the DNV GL website, which is linked to at our www.CUIGlobal.com website (FBM Project Consultation).

That consultation resulted in an approval by Ofgem, the U.K. regulatory authority, to move forward with field trials to “decarbonize” the U.K. energy network.  A copy of the Stage Gate Report memorializing that Ofgem approval can be found on the DNV GL website, for which a link can be found on our www.CUIGlobal.com website (FBM Stage Gate Report).

A comprehensive description of the field trials, including the use of Orbital’s proprietary GasPT technology to provide for quick, efficient, accurate, and cost-effective data monitoring, was published on January 11, 2018.  A copy of that report can be found at the DNV GL website, which is linked to at www.CUIGlobal.com (FBM Project Progress Report - Phase 1).

On April 3, 2018, the successful delivery reward criteria report covering the second phase of industry engagement for the project was published. The report provided initial thoughts from key delivery agencies on the potential impacts of implementing a future Calorific Value zone based billing framework. This report can be found at the DNV GL website, which is linked to at www.CUIGlobal.com (Successful Delivery Reward Criteria Report).

Finally, on December 13, 2018, the second annual progress report was published. The smart metering laboratory trials have been delayed 12 months and are now projected to be completed by December 31, 2019 and the final future billing methodology recommendation has also been delayed 12 months and is now expected to be completed by March 31, 2020. A copy of that report can be found at the DNV GL website, which is linked to at www.CUIGlobal.com (FBM Project Progress Report 2).

Orbital has produced an initial, formal bid for the UK project of up to £490,000,000 ($624,000,000 USD at December 31, 2018) over 15 to 20 years.  DNV GL and Ofgem, the UK regulatory agency, have both confirmed that the formal bid falls “within budget guidelines.”

VE Technology®

Orbital holds exclusive worldwide rights to manufacture, sell, design, and otherwise market the VE-Probe, VE sample system, VE thermowell and VE Technology^® from its United Kingdom-based inventor, EnDet Ltd. The agreement, which includes certain royalty commitments, gives Orbital exclusive and sole control of all technology related to its revolutionary GasPT natural gas metering systems. The GasPT technology provides fast and accurate measurement of the physical properties of the natural gas mixture. By combining the GasPT technology with the equally unique VE Technology, which can provide a gas sample from a high-pressure transmission line in less than two seconds, Orbital has created the GasPTi metering system.

The GasPTi system can accurately provide nearly real-time data to the natural gas operator in a total cycle-time of less than five seconds. It provides this analysis at a fraction of the installation cost of current technology with none of the associated maintenance, carrier gas, calibration gas, or other ancillary costs associated with traditional technology.

VE Technology gives us the ability to control and produce the entire bill of materials for our GasPTi systems, thus allowing us to capture a larger margin as we provide this unique metering solution to the natural gas industry.

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In addition, the VE Technology, combined with applicable detectors, allows us to produce trace-element detectors for such components as mercury (Hg), moisture (H20), and hydrogen sulfide (H2S) that are particularly effective in quickly and accurately identifying these elements. That ability has allowed us to sell a significant number of our probes into the Gorgon LNG Project in Australia, a large Northeastern LNG terminal in the US, and chemical plants throughout North America.

Some features of the VE Technology that set it apart from its competition are the VE fixed or retractable sampling probe with its patented helical strakes to eliminate vortex shedding and the need for wake calculations and its patented aerodynamic probe tip to actively reject particulate, minimizing the need for filtration and allowing a small bore to optimize sample transit time. In addition, the VE sample system provides a simple, optimized system to deliver a representative sample to any analyzer with no dead volume, threaded connections or components in the sample pathway. Simple concepts and decades of detailed engineering allows quick and simple customization to suit any application.

Anticipated Growth Strategy for Our Energy Segment

We will continue to market our GasPT inferential natural gas monitoring device, VE technology products, and other product and integrated solutions. Our strategy includes:

• For GasPT, our strategy has been to identify the large gas utility companies who would most likely provide opportunities for batch sales rather than single unit sales. This approach has focused strongly on the United Kingdom, Europe and North America. The Company will continue its efforts in those areas.

• In 2018, Orbital signed a distribution agreement with internationally recognized German equipment supplier, SAMSON AG. That agreement allows the technology to be introduced in various territories wherein Orbital has no access, including, but not limited to China, Russia, various CIS countries, and throughout Asia. The agreement calls for certain minimum sales targets and will significantly broaden the customer base for GasPT, VE Technology, and the GasPTi with SAMSON utilizing their 4,000-person sales network to promote and sell GasPT in its many iterations into the large industrial category, including pharmaceuticals, glass and steel manufacturers, breweries, etc.

• Beyond this, our strategy is based on identification of the main geographic locations for liquefied natural gas importation (pipelines and terminals), mixing and blending points and strategic locations for security of supply strategies, which can be current or planned pipelines and import terminals where additional gas quality monitoring may be required.

• Orbital continues to develop new integrated solutions, promote existing technologies, and increase customer relationships.

• The Company will continue to identify opportunities to utilize the unique VE Technology beyond the existing product offering, with a focus on gas sampling, thermowells, and trace element sampling applications.

• We signed an exclusive distribution agreement for our GasPT technology with an Italian company, SOCRATE s.p.a., for sales, marketing, distribution and service of our GasPT gas metering device for Italy and North Africa, including Libya and Tunisia.

• During 2016, Orbital signed a Technology and Patent License Agreement with Daily Thermetrics, a globally-respected design and manufacturing company providing process industries with precise temperature measurement instrumentation. The Agreement calls for the manufacture and sale of the patented natural gas sampling VE Technology in North America. This relationship is expected to allow Orbital to more efficiently penetrate the North American energy market.

• Orbital has begun marketing its BioMethane solution globally and expects to see sales of the units into North America in late 2019 or early 2020. Orbital’s engineering teams from the U.K. and the U.S. have worked together to develop a productized version of the BioMethane-to-grid units sold into the U.K. over the past few years. Orbital branded marketing material has been created and multiple sales visits, lunch and learns and trade shows have been scheduled for attendance in 2019. We expect this to be a new growth area for the North American office.

• The Company will continue to seek new opportunities to design, manufacture, and produce innovative solutions within the Energy segment to increase customer reach, product innovation, and growth. In such an effort, during 2016, Orbital was awarded a $3.0 million project to design, manufacture, and produce innovative solutions for gas quality and volumetric metering within SGN’s (formerly: Scotia Gas Network) Great Britain gas distribution network. Orbital-UK was awarded the contract by DNV GL, a leader within the oil and gas industry. The project is part of DNV GL’s Future Billing Methodology (“FBM”) Project, which, when implemented in late-2019, could call for the deployment of literally tens-of-thousands of the Company’s proprietary GasPT analyzers.

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The objective of the SGN project is to optimize gas network design and network operation assumptions. This project will use a pilot trial methodology with the procurement and installation of innovative sensor technologies across pressure tiers in a gas distribution system. These technologies, combined with novel power and communications and a cloud-based data system, will be used by DNV GL to develop a prototype real-time energy demand model, a world first. Innovative technology, such as Orbital’s proprietary GasPT Technology, form the backbone of the solution coupled with custom metering designs to be used to meet the project criteria. The project produces a GasPT application which would allow the millions of residential energy consumers to have immediate, real-time access to the cost of their energy usage.

We continue negotiations with ENGIE, the French transmission company, for deployment of the devices to both GRTgaz (ENGIE’s pipeline subsidiary) and Elengy (ENGIE’s liquid natural gas subsidiary). ENGIE has agreed to represent the technology to other Western European, North American, and Asian entities in a partnership with Orbital.

In conclusion, Orbital utilizes internationally recognized distribution partners in various global markets to reach customers throughout the natural gas industry. These distribution partners are utilized to supplement and enhance our existing sales and engineering teams in the UK and USA.

ISO 9001:2008 Certification

CUI Inc.; CUI-Canada; Orbital Gas Systems, Ltd. and Orbital Gas Systems, North America Inc. are certified to the ISO 9001:2008 Quality Management Systems standards and guidelines. These entities are registered as conforming to the requirements of standard: ISO 9001:2008. The CUI Quality Management Systems are applicable to design, development and distribution of electromechanical components for OEM manufacturing. Orbital’s Quality Management Systems are designed to safeguard product quality, health and safety and the environment through the design, build, installation commissioning and after sales processes. ISO 9001 is accepted worldwide as the inclusive international standard that defines quality.

Orbital-UK's Environmental Management System has also been verified by an independent third party (NQA) as complying with the requirements of BS EN ISO 14001:2008. This assists Orbital in meeting applicable environmental legislation and to control the environmental aspects of our activities as a company.

The certification of compliance with ISO 9001:2008 recognizes that our policies, practices and procedures ensure consistent quality in the design services, technology and products we provide to our customers.

Acquisition Strategy

We are constantly alert to potential acquisition targets, both in innovative technology and potential strategic partners. In that regard, we are repeatedly approached by inventors and others, to assess and assist in commercialization and marketing of new technologies. These contacts largely arise because of our reputation and successes as well as our recent technology product line additions including GasPT, VE and ICE. Much like our past acquisitions, there are many small, well-run electronics and gas industry companies that become available for multiple reasons. We will consider each of these potential opportunities as they arise with a careful analysis of the relevant synergies with our current business, along with the potential for increasing revenue and/or market share.

Research and Development Activities

Research and development costs for CUI Global were approximately $2.8 million, $2.5 million and $2.0 million for the years ended December 31, 2018, 2017 and 2016, respectively. Research and development costs are related to the various technologies for which CUI Global has acquired licensing rights or is developing internally. The expenditures for research and development have been directed primarily towards the further development of power technologies including advanced power products, AMT Capacitive Encoders and towards further development of the GasPT and VE technologies. The Company expects that research and development expenses will continue during 2019 as the Company continues to expand its product offering and technologies due to market acceptance and customer integration.

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Employees

As of December 31, 2018, CUI Global, Inc., together with its consolidated subsidiaries, had 357 employees. As of December 31, 2018, 73 of its employees in Canada are represented by a labor union. This is an increase in total employees from the 333 total employees reported as of December 31, 2017 and a slight decrease in unionized employees from the 75 reported as of December 31, 2017. The Company considers its relations with its employees to be good. The Company may add additional staff as needed to handle all phases of its business.

Intellectual Property License Evolution

AMT® encoder technology

Through an exclusive licensing contract with AnderMotion Technologies, LLC, signed on or about April 20, 2009, CUI acquired exclusive rights to manufacture, sell and distribute motion control devices utilizing the AMT encoder technology.

Novum® Digital POL technology

Through a non-exclusive licensing agreement with Power-One, Inc., signed on or about September 18, 2009, CUI has access to Power-One’s portfolio of Digital Power Technology patents for incorporation into CUI’s advanced power supply solutions.

GasPT® technology

Through an exclusive licensing contract with DNV GL (formerly: GL Industrial Services UK, Ltd.) (formerly British-based Advantica, Ltd.) ("GL") and signed on or about January 4, 2010, CUI Global acquired exclusive rights to manufacture, sell and distribute a Gas Quality Inferential Measurement Device (GasPT), designed by GL, on a worldwide basis. According to the agreement, a percentage of sales is remitted back to DNV GL in the form of a royalty payment.

VE Technology

On July 30, 2013, our Orbital subsidiary acquired exclusive worldwide rights to manufacture, sell, design, and otherwise market the VE Technology from its United Kingdom-based inventor, EnDet Ltd. The agreement, which includes ongoing royalty requirements, gives Orbital exclusive and sole control of all VE-based technology.

Virtual Power Systems and ICE®

In 2015, CUI entered into a hardware agreement with Virtual Power Systems (VPS) to be the exclusive third-party development and manufacturing provider of ICE (Intelligent Control of Energy) products enabled by the VPS patented software system. The ICE system is a revolutionary Software Defined Power® solution that combines CUI’s hardware and Virtual Power Systems’ software into a platform that increases data centers' power infrastructure utilization. On June 25, 2018, CUI renewed and extended the agreement to be an exclusive five-year agreement with VPS that includes automatic five-year extensions unless either party makes notification within six months of the end of the agreement.

Intellectual Property Protection

The Company relies on various intellectual property laws and contractual restrictions to protect its proprietary rights in products, logos and services. These include confidentiality, invention assignment and nondisclosure agreements with employees, contractors, suppliers and strategic partners. The confidentiality and nondisclosure agreements with employees, contractors and suppliers are in perpetuity or for a sufficient length of time so as to not threaten exposure of proprietary information.

Under the United States Trademark Act of 1946, as amended, and the system of international registration of trademarks governed by international treaties, the Madrid Agreement, which maintains the international register and, in several instances, direct trademark registration in foreign countries, we and our subsidiaries actively maintain up to date the following trademarks: CUI INC, AMT, Novum, CUI Global, GasPT, IRIS, AMP, Architects of Modern Power, AMP Group, Total Power supply solutions and Orbital Gas Systems.

The Company continuously reviews and updates the existing intellectual property filings and files new documentation both nationally and internationally (Patent Cooperation Treaty) in a continuing effort to maintain up-to-date protection of its intellectual property.

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For those intellectual property applications pending, there is no assurance that the registrations will be granted. Furthermore, the Company is exposed to the risk that other parties may claim the Company infringes their existing patent and trademark rights, which could result in the Company’s inability to develop and market its products unless the Company enters into licensing agreements with the technology owner or could force the Company to engage in costly and potentially protracted litigation.

Competitive Business Conditions

The industries in which the company competes are very broad. We operate a commoditized power and electromechanical parts distribution business that is focused on efficiency of delivery, quality, technical support and competitive pricing to differentiate our products from competitors. The market is subject to some volatility due to production requirements of larger global firms. We feel that our power and electromechanical parts distribution business is diverse and broad. We have very strong retail distribution partners that maximize our product exposure to new designs and small to medium sized customers. We focus on the OEM market and supply higher levels of support, customer service and a constantly expanding product line in order to further differentiate from our competitors. This product line ranges from a $0.02 connector to a several thousand-dollar power solution – all different products for different customers. Additionally, we utilize third-party external sales representative organizations to penetrate new customers otherwise not readily available to the company.

CUI is well recognized in the power supply market and has differentiated itself through technology with a foundation of legacy and product quality. As of December 31, 2018, our Power and Electromechanical segment accounted for approximately 79% of our revenues and our Energy segment accounted for approximately 21% of our revenues. We continue to add new products and technologies that will provide us the opportunity to compete outside of price and more on innovative technology and strategic partnerships.

From our portfolio of full-featured power supplies, we believe that we are competitive with market leaders in our space and that the market is ready for new technologies and new ideas. With the shift toward digitally-based power supplies accelerating, our strategy is to develop a true software-defined power ecosystem where the sum of the components is greater than its parts.

Similarly, the natural gas inferential metering device, the GasPT along with our VE Technology, competes in a mature industry with established competitors. There are significant investments being made globally into the natural gas extraction and transportation infrastructure. Our natural gas quality measurement system is a comparably low-cost solution to measuring natural gas quality as compared to our best competition. It can be connected to a natural gas system to provide a fast, accurate, close to real-time measurement of the physical properties, such as thermal conductivity, speed of sound and carbon dioxide content. From these measurements it infers an effective gas mixture comprising five components: methane, ethane, propane, nitrogen and measured carbon dioxide and then uses ISO6976 to calculate the gas quality characteristics of calorific value (CV), Wobbe index (WI), relative density (RD) and compression factor (Z). This technology has been certified for use in fiscal monitoring by Ofgem in the United Kingdom and ARERA in Italy. There is no equivalent product competition. There are instruments like gas chromatographs that are technically competition, but they are slower and more complicated to use and as much as five times the installed price of the GasPT system.

Philanthropic Philosophy

In an industry first, CUI has chosen that, in addition to sales commission, many of our sales representative firms will also receive a charity commission to be donated to charities of their choice. One of CUI’s values is generosity, which includes philanthropic giving. We give in our local community and we want to also give in the communities in which we do business.

Item 1A. Risk Factors

RISK FACTORS

Our business is subject to various risks and uncertainties. Investors should read carefully the following factors as well as the cautionary statements referred to in ‘‘Forward-Looking Statements’’ herein. If any of the risks and uncertainties described below or elsewhere in this annual report on Form 10-K actually occur, the Company's business, financial condition or results of operations could be materially adversely affected.

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Risks Related to Our Business and Products

Historically, we have generated annual losses from operations and we may need additional funding in the future.

Historically, on an annual basis, we have not generated sufficient revenues from operations to self-fund our capital and operating requirements. For the year ended 2018, we had a net loss of $17.3 million and our accumulated deficit as of December 31, 2018 was $124.0 million. If we are not able to generate sufficient income and cash flows from operations to fund our operations and growth plans, we may seek additional capital from equity and debt placements or corporate arrangements. Additional capital may not be available on terms favorable to us, or at all. If we raise additional funds by issuing equity securities, our shareholders may experience dilution. Debt financing, if available, may involve restrictive covenants or security interests in our assets. If we raise additional funds through collaboration arrangements with third parties, it may be necessary to relinquish some rights to technologies or products. If we are unable to raise adequate funds or generate them from operations, we may have to delay, reduce the scope of, or eliminate some or all of our growth plans or liquidate some or all of our assets.

There is no assurance we will achieve or sustain profitability.

For the year ended December 31, 2018, we had a net loss of $17.3 million. There is no assurance that we will achieve or sustain profitability. If we fail to achieve or sustain profitability, the price of our common stock could fall and our ability to raise additional capital could be adversely affected.

We have expanded our business activities and these activities may not be successful and may divert our resources from our existing business activities.

Our historical business was a commoditized power and electromechanical parts distribution business. In recent years, we have focused our business on the acquisition, development and commercialization of new and innovative technologies/products. We may not be successful in acquiring technologies that are commercially viable. We may fail to successfully develop or commercialize technologies that we acquire. Research, development and commercialization of such acquired technologies may disproportionately divert our resources from our other business activities.

If our manufacturers or our suppliers are unable to provide an adequate supply of products, our growth could be limited and our business could be harmed.

We rely on third parties to supply components for and to manufacture our products. In order to grow our business to achieve profitability, we may need our manufacturers and suppliers to increase, or scale up, production and supply by a significant factor over current levels. There are technical challenges to scaling up capacity that may require the investment of substantial additional funds by our manufacturers or suppliers and hiring and retaining additional management and technical personnel who have the necessary experience. If our manufacturers and suppliers are unable to do so, we may not be able to meet the requirements to grow our business to anticipated levels. We also may represent only a small portion of our supplier’s or manufacturer’s business, and if they become capacity constrained, they may choose to allocate their available resources to other customers that represent a larger portion of their business.

Our global operations are subject to increased risks, which could harm our business, operating results and financial condition.

Our ability to manage our business and conduct our operations internationally requires considerable management attention and resources and is subject to a number of risks, including the following:

• challenges caused by distance, language and cultural differences and by doing business with foreign agencies and governments;

• longer payment cycles in some countries;

• uncertainty regarding liability for services and content;

• credit risk and higher levels of payment fraud;

• currency exchange rate fluctuations and our ability to manage these fluctuations;

• foreign exchange controls that might prevent us from repatriating cash earned in countries outside the U.S.;

• import and export requirements that may prevent us from shipping products or providing services to a particular market and may increase our operating costs;

• potentially adverse tax consequences;

• higher costs associated with doing business internationally;

• political, social and economic instability abroad, terrorist attacks and security concerns in general;

• natural disasters, public health issues, and other catastrophic events;

• reduced or varied protection for intellectual property rights in some countries; and

• different employee/employer relationships and the existence of workers’ councils and labor unions.

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In addition, compliance with complex foreign and U.S. laws and regulations that apply to our international operations increases our cost of doing business in international venues and could expose us or our employees to fines and penalties. These numerous and sometimes conflicting laws and regulations include import and export requirements, content requirements, trade restrictions, tax laws, sanctions, internal and disclosure control rules, data privacy requirements, labor relations laws, U.S. laws such as the Foreign Corrupt Practices Act and local laws prohibiting corrupt payments to governmental officials. Violations of these laws and regulations could result in fines, civil and criminal penalties against us, our officers or our employees, prohibitions on the conduct of our business and damage to our reputation. Any such violations could include prohibitions on our ability to offer our products and services in one or more countries and could also materially damage our reputation, our brand, our international expansion efforts, our ability to attract and retain employees, our business and our operating results.

Our revenues depend on key customers and suppliers.

The Company’s major product lines in 2018, 2017 and 2016 were power and electromechanical products, natural gas infrastructure and high-tech solutions.

During 2018, over 36% of revenues were derived from two customers, Digi-Key Electronics at 24% and Future Electronics at 12%. During 2017, over 36% of revenues were derived from two customers, Digi-Key Electronics at 26% and Future Electronics at 10%. During 2016, over 19% of revenues were derived from one customer, Digi-Key Electronics.

At December 31, 2018, of the gross trade accounts receivable totaling approximately $14.6 million, there were no individual customers greater than 10% of total trade accounts receivable. At December 31, 2017, of the gross trade accounts receivable totaling approximately $11.0 million, approximately 21% was due from two customers: GL Industrial Services UK Ltd. at 11% and Digi-Key Electronics at 10%.

During 2018, the Company did not have any supplier concentrations that provided over 10% our our inventory purchases. During 2017, the Company had one supplier concentration of 12% related to inventory product received.

With the United Kingdom operations of Orbital, the Company also has foreign revenue and trade accounts receivable concentrations in the United Kingdom of 16% and 29%, respectively as of and for the year ended December 31, 2018 and 17% and 28%, respectively as of and for the year ended December 31, 2017. Additionally, at December 31, 2017 the Company had accounts receivable concentrations of 11% in Canada.

There is no assurance that we will continue to maintain all of our existing key customers in the future. Should we, for any reason, discontinue our business relationship with any one of these key customers, the impact to our revenue stream would be substantial. For additional information on our concentrations, see Note 15 – Concentrations.

We rely on third-party distributors to generate a substantial part of our revenue and, if we fail to expand and manage our distribution channels, our revenues could decline and our growth prospects could suffer.

We derive a substantial portion of our revenues from sales of our power and electromechanical component products through distributors and we expect that sales through these distributors will represent a substantial portion of our revenues for the foreseeable future. Our ability to expand our distribution channels, including for Energy segment technologies and Power and Electromechanical segment products, depends in part on our ability to educate our distributors about our products, which are complex. Many of our distributors have established relationships with our competitors. If our distributors choose to place greater emphasis on products and services of their own or those offered by our competitors, our ability to grow our business and sell our products may be adversely affected. If our distributors do not effectively market and sell our products, or if they fail to meet the needs of our customers, then our ability to grow our business and sell our products may be adversely affected. The loss of one or more of our larger distributors, which may cease marketing our products with limited or no notice and our possible inability to replace them, could adversely affect our sales. Our failure to recruit additional distributors or any reduction or delay in their sales of our products or conflicts between distributor sales and our direct sales and marketing activities could materially and adversely affect our results of operations.

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We are a relatively small specialty component and solutions business and face formidable competition.

We are a relatively small company with limited capitalization in comparison to many of our international competitors in each of our business segments. Because of our size and capitalization, we believe that we have not yet established sufficient market awareness in our segments that is essential to our continued growth and success in all of our markets. We face formidable competition in every aspect of our business from other companies, many of whom have greater name recognition, more resources and broader product offerings than ours.

We also expect competition to intensify in the future. For example, the market for our power and electromechanical components and our inferential natural gas monitoring device, the GasPT, is emerging and is characterized by rapid technological change, evolving industry standards, frequent new product introductions and shortening product life cycles. Our future success in keeping pace with technological developments and achieving product acceptance depends upon our ability to enhance our current products and to continue to develop and introduce new product offerings and enhanced performance features and functionality on a timely basis at competitive prices. Our inability, for technological or other reasons, to enhance, develop, introduce or deliver compelling products in a timely manner, or at all, in response to changing market conditions, technologies or customer expectations, could have a material adverse effect on our operating results and growth prospects. Our ability to compete successfully will depend in large measure on our ability to maintain a technically skilled development and engineering staff and to adapt to technological changes and advances in the industry, including providing for the continued compatibility of our products with evolving industry standards and protocols in a competitive environment.

Acquisitions could result in operating difficulties, dilution and other harmful consequences.

We continue our process of integrating acquisitions into our own business model and we expect to continue to evaluate and enter into discussions regarding a wide array of potential strategic transactions. These transactions could be material to our financial condition and results of operations. The process of integrating an acquired company, business or technologies may create unforeseen operating difficulties and expenditures. The areas where we face risks include:

• implementation or remediation of controls, procedures and policies of the acquired company;

• diversion of management time and focus from operating our business to acquisition integration challenges;

• coordination of product, engineering and sales and marketing functions;

• transition of operations, users and customers into our existing customs;

• cultural challenges associated with integrating employees from the acquired company into our organization;

• retention of employees from the businesses we acquire;

• integration of the acquired company’s accounting, management information, human resource and other administrative systems;

• liability for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities and other known and unknown liabilities;

• litigation or other claims in connection with the acquired company, including claims from terminated employees, customers, former shareholders, or other third parties;

• in the case of foreign acquisitions, the need to integrate operations across different cultures and languages and to address the particular economic, currency, political and regulatory risks associated with specific countries;

• failure to successfully further develop the acquired technologies; and

• other as yet unknown risks that may impact our business.

Our failure to address these risks or other problems encountered in connection with our past or future acquisitions could cause us to fail to realize the anticipated benefits of such acquisitions, incur unanticipated liabilities and harm our business generally. For example, a majority of Orbital-UK’s revenues for each of its last two fiscal years has come from a few customers. If we fail to continue to do business with Orbital-UK’s primary customers at substantially similar or greater levels than recent historical levels, our financial condition, results of operations and growth prospects would be significantly harmed.

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Future acquisitions could also result in dilutive issuances of our equity securities, the incurrence of debt, contingent liabilities or amortization expenses, write-offs of goodwill, or reductions to our tangible net worth any of which could harm our business, financial condition, results of operations and prospects. Also, the anticipated benefit of many of our acquisitions may not materialize.

We will need to grow our organization and we may encounter difficulties in managing this growth.

As of December 31, 2018, CUI Global, Inc., together with its consolidated subsidiaries, had 357 full-time employees. We expect to experience growth in the number of our employees and the scope of our operations as we follow our growth strategy. To manage our anticipated future growth, we must continue to implement and improve our managerial, operational and financial systems, expand our facilities and continue to recruit and train additional qualified personnel. Also, our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and devote a substantial amount of time to managing these growth activities. Due to our limited resources, we may not be able to effectively manage the expansion of our operations or recruit and train additional qualified personnel, which may result in weaknesses in our infrastructure, give rise to operational mistakes, loss of business opportunities, loss of employees and reduced productivity among remaining employees. The physical expansion of our operations may lead to significant costs and may divert financial resources from other projects, such as the development of new products. If our management is unable to effectively manage our expected growth, our expenses may increase more than expected, our ability to generate or increase our revenue could be reduced and we may not be able to implement our business strategy. Our future financial performance and our ability to commercialize new products and compete effectively will depend, in part, on our ability to effectively manage any future growth.

Our operating results will vary over time and such fluctuations could cause the market price of our common stock to decline.

Our operating results may fluctuate significantly due to a variety of factors, many of which are outside of our control. Because revenues for any future period are not predictable with any significant degree of certainty, you should not rely on our past results as an indication of our future performance. If our revenues or operating results fall below the expectations of investors or securities analysts or below any estimates we may provide to the market, the price of our common shares would likely decline substantially. Factors that could cause our operating results and stock price to fluctuate include, among other things:

• varying demand for our products due to the financial and operating condition of our distributors and their customers, distributor inventory management practices and general economic conditions;

• inability of our contract manufacturers and suppliers to meet our demand;

• success and timing of new product introductions by us and the performance of our products generally;

• announcements by us or our competitors regarding products, promotions or other transactions;

• costs related to responding to government inquiries related to regulatory compliance;

• our ability to control and reduce product costs;

• changes in the manner in which we sell products;

• volatility in foreign exchange rates, changes in interest rates and/or the availability and cost of financing or other working capital to our distributors and their customers; and

• the impact of write downs of excess and obsolete inventory.

Our operating expenses will increase as we make further expenditures to enhance and expand our operations in order to support additional growth in our business and national stock market reporting and compliance obligations.

In the future, we expect our operations and marketing investments to increase substantially to support our anticipated growth and as a result of our listing on the NASDAQ Stock Market. We have made significant investments in using more professional services and expanding our operations outside the United States. We may make additional investments in personnel and continue to expand our operations to support anticipated growth in our business. In addition, we may determine the need in the future to build a direct sales force to market and sell our products or provide additional resources or cooperative funds to our distributors. Such changes to our existing sales model would likely result in higher selling, general and administrative expenses as a percentage of our revenues. We expect such increased investments could adversely affect operating income in the short term while providing long-term benefit.

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Our business depends on a strong brand and failing to maintain and enhance our brand would hurt our ability to expand our base of distributors, customers and end-users.

We believe that we have not yet established sufficient market awareness in our various markets. Market awareness of our capabilities and products is essential to our continued growth and our success in all of our markets. We expect the brand identity that we have developed through CUI, GasPT, Orbital Gas Systems, ICE, and AMT to significantly contribute to the success of our business. Maintaining and enhancing these brands is critical to expanding our base of distributors, customers and end-users. If we fail to maintain and enhance our brands, or if we incur excessive expenses in this effort, our business, operating results and financial condition will be materially and adversely affected. Maintaining and enhancing our brands will depend largely on our ability to be a technology leader and continue to provide high-quality products, which we may not do successfully.

New entrants and the introduction of other distribution models in our markets may harm our competitive position.

The markets for development, distribution and sale of our products are rapidly evolving. New entrants seeking to gain market share by introducing new technology and new products may make it more difficult for us to sell our products and could create increased pricing pressure, reduced profit margins, increased sales and marketing expenses or the loss of market share or expected market share, any of which may significantly harm our business, operating results and financial condition.

Adverse conditions in the global economy and disruption of financial markets may significantly restrict our ability to generate revenues or obtain debt or equity financing.

The global economy continues to experience volatility and uncertainty and governments in many countries continue to evaluate and implement spending cuts designed to reduce budget deficits. These conditions and deficit reduction measures could reduce demand for our products and services, including through reduced government infrastructure projects, which would significantly jeopardize our ability to achieve our sales targets. These conditions could also affect our potential strategic partners, which in turn, could make it more difficult to execute a strategic collaboration. Moreover, volatility and disruption of financial markets could limit our customers’ ability to obtain adequate financing or credit to purchase and pay for our products and services in a timely manner, or to maintain operations and result in a decrease in sales volume. General concerns about the fundamental soundness of domestic and international economies may also cause customers to reduce purchases. Changes in governmental banking, monetary and fiscal policies to restore liquidity and increase credit availability may not be effective. Economic conditions and market turbulence may also impact our suppliers’ ability to supply sufficient quantities of product components in a timely manner, which could impair our ability to fulfill sales orders. It is difficult to determine the extent of the economic and financial market problems and the many ways in which they may affect our suppliers, customers, investors and business in general. Continuation or further deterioration of these financial and macroeconomic conditions could significantly harm sales, profitability and results of operations.

Two of our subsidiaries and certain suppliers are located in areas subject to natural disasters or other events that could stop us from having our products made or shipped or could result in a substantial delay in our production or development activities.

We have sales, development and manufacturing resources in Japan and in Houston, Texas. The risk of earthquakes, hurricanes, typhoons and other natural disasters in these geographic areas is significant due to the proximity of major earthquake fault lines in Japan and the proximity of both of these subsidiaries to the coast. Despite precautions taken by us and our third-party providers, a natural disaster or other unanticipated problems, at our location in Japan, Texas or at third-party providers could cause interruptions in the products that we provide. Any disruption resulting from these events could cause significant delays in shipments of our products until we are able to shift our manufacturing, assembly or testing from the affected contractor(s) to another third-party vendor. We cannot assure you that alternative capacity could be obtained on favorable terms, if at all.

Defects in our products could harm our reputation and business.

Our products are complex and have contained and may contain undetected defects or errors, especially when first introduced or when new versions are released. Defects in our products may lead to product returns and require us to implement design changes or updates.

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Any defects or errors in our products, or the perception of such defects or errors, could result in:

• expenditure of significant financial and product development resources in efforts to analyze, correct, eliminate or work around errors or defects;

• loss of existing or potential customers or distributors;

• delayed or lost revenue;

• delay or failure to attain market acceptance;

• delay in the development or release of new products or services;

• negative publicity, which will harm our reputation;

• warranty claims against us;

• an increase in collection cycles for accounts receivable, which could result in an increase in our provision for doubtful accounts and the risk of costly litigation; and

• harm to our results of operations.

We and our contract manufacturers purchase some components, subassemblies and products from a limited number of suppliers. The loss of any of these suppliers may substantially disrupt our ability to obtain orders and fulfill sales as we design and qualify new components.

We rely on third-party components and technology to build and operate our products and we rely on our contract manufacturers to obtain the components, subassemblies and products necessary for the manufacture of our products. Shortages in components that we use in our products are possible and our ability to predict the availability of such components is limited. If shortages occur in the future, as they have in the past, our business, operating results and financial condition would be materially adversely affected. Unpredictable price increases of such components due to market demand may occur. While components and supplies are generally available from a variety of sources, we and our contract manufacturers currently depend on a single or limited number of suppliers for several components for our products. If our suppliers of these components or technology were to enter into exclusive relationships with other providers or were to discontinue providing such components and technology to us and we were unable to replace them cost effectively, or at all, our ability to provide our products would be impaired. Therefore, we may be unable to meet customer demand for our products, which would have a material adverse effect on our business, operating results and financial condition.

We depend on key personnel and will need to recruit new personnel as our business grows.

As a small company, our future success depends in a large part upon the continued service of key members of our senior management team who are critical to the overall management of CUI Global and our subsidiary companies, as well as the development of our technologies, our business culture and our strategic direction. The loss of any of our management or key personnel could seriously harm our business and we do not maintain any key-person life insurance policies on the lives of these critical individuals.

If we are successful in expanding our product and customer base, we will need to add additional key personnel as our business continues to grow. If we cannot attract and retain enough qualified and skilled staff, the growth of the business may be limited. Our ability to provide services to customers and expand our business depends, in part, on our ability to attract and retain staff with professional experiences that are relevant to technology development and other functions the Company performs. Competition for personnel with these skills is intense. We may not be able to recruit or retain the caliber of staff required to carry out essential functions at the pace necessary to sustain or expand our business.

We believe our future success will depend in part on the following:

• the continued employment and performance of our senior management;

• our ability to retain and motivate our officers and key employees; and

• our ability to identify, attract, hire, train, retain and motivate other highly skilled technical, managerial, marketing, sales and customer service personnel.

Our insurance policies may not cover all operating risks and a casualty loss beyond the limits of our coverage could adversely impact our business.

Our business is subject to operating hazards and risks relating to handling, storing, transporting and use of the products we sell. We maintain insurance policies in amounts and with coverage and deductibles that we believe are reasonable and prudent. Nevertheless, our insurance coverage may not be adequate to protect us from all liabilities and expenses that may arise from claims for personal injury or death or property damage arising in the ordinary course of business, and our current levels of insurance may not be maintained or available in the future at economical prices. If a significant liability claim is brought against us that is not adequately covered by insurance, we may have to pay the claim with our own funds, which could have a material adverse effect on our business, consolidated financial condition, results of operations, or cash flows.

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Expanding and evolving data privacy laws and regulations could impact our business and expose us to increased liability.

The General Data Protection Regulation ("GDPR") became effective in the European Union in May 2018, imposes significant new requirements on how we collect, process and transfer personal data, as well as significant financial penalties for non-compliance. Global privacy legislation, enforcement, and policy activity in this area are rapidly expanding and creating a complex regulatory compliance environment. Costs to comply with and implement these privacy-related and data protection measures could be significant. In addition, even our inadvertent failure to comply with federal, state, or international privacy-related or data protection laws and regulations could result in proceedings against us by governmental entities or others. Any inability to adequately address privacy concerns, even if unfounded, or to comply with the more complex privacy or data protection laws, regulations and privacy standards, could lead to significant financial penalties, which may result in a material and adverse effect on our results of operations.

We are subject to taxation in multiple jurisdictions. As a result, any adverse development in the tax laws of any of these jurisdictions or any disagreement with our tax positions could have a material adverse effect on our business, consolidated financial condition or results of operations. In addition, our annual effective income tax rate can change materially as a result of changes in our mix of U.S. and foreign earnings and other factors, including changes in tax laws and changes made by regulatory authorities.

We are subject to taxation in, and to the tax laws and regulations of, multiple jurisdictions as a result of the global scope of our operations and our corporate and financing structure. We are also subject to transfer pricing laws with respect to our intercompany transactions. Adverse developments in these laws or regulations, or any change in position regarding the application, administration or interpretation thereof, in any applicable jurisdiction, could have a material adverse effect on our business, consolidated financial condition or results of our operations. In addition, the tax authorities in any applicable jurisdiction, including the United States, may disagree with the positions we have taken or intend to take regarding the tax treatment or characterization of any of our transactions. If any applicable tax authorities, including U.S. tax authorities, were to successfully challenge the tax treatment or characterization of any of our transactions, it could have a material adverse effect on our business, consolidated financial condition or consolidated results of our operations.

Our overall effective income tax rate is equal to our total tax expense as a percentage of total earnings before tax. However, income tax expense and benefits are not recognized on a global basis but rather on a jurisdictional or legal entity basis. Losses in one jurisdiction may not be used to offset profits in other jurisdictions and may cause an increase in our tax rate. Changes in statutory tax rates and laws, as well as ongoing audits by domestic and international authorities, could affect the amount of income taxes and other taxes paid by us. Also, changes in the mix of earnings (or losses) between jurisdictions and assumptions used in the calculation of income taxes, among other factors, could have a significant effect on our overall effective income tax rate.

Risks Related to Our Intellectual Property and Technology

If we fail to protect our intellectual property rights adequately, our ability to compete effectively or to defend ourselves from litigation could be impaired.

We rely primarily on patent, copyright, trademark and trade secret laws, as well as confidentiality and non-disclosure agreements and other methods, to protect our proprietary technologies and know-how. Given the costs of obtaining patent protection, we may choose not to protect certain innovations that later turn out to be important. Furthermore, there is always the possibility, despite our efforts, that the scope of the protection gained will be insufficient or that an issued patent may be deemed invalid or unenforceable. We license a significant amount of our underlying intellectual property from third parties, i.e., AMT Encoder technology, Digital Point of Load technology, ICE technology, GasPT technology and VE Technology. The loss of our rights as a licensee under any of these or future technology licensing arrangements, or the exclusivity provisions of these agreements, could have a material adverse impact upon our financial position, results of operations, and cash flows.

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Monitoring unauthorized use of our intellectual property is difficult and costly. Unauthorized use of our intellectual property may occur in the future without our knowledge. The steps we have taken may not prevent unauthorized use of our intellectual property. Further, we may not be able to detect unauthorized use of, or take appropriate steps to enforce our intellectual property rights. Our competitors may also independently develop similar technology. Our failure to effectively protect our intellectual property could reduce the value of our technology in licensing arrangements or in cross-licensing negotiations and could impair our ability to compete. Any failure by us to meaningfully protect our intellectual property could result in competitors offering products that incorporate our most technologically advanced features, which could seriously reduce demand for our products.

In the future we may need to initiate infringement claims or litigation. Litigation, whether we are a plaintiff or a defendant, can be expensive and time-consuming and may divert the efforts of our technical staff and managerial personnel, which could result in lower revenues and higher expenses, whether or not such litigation results in a determination favorable to us.

Confidentiality agreements with employees and others may not adequately prevent disclosure of our trade secrets and other proprietary information.

We have devoted substantial resources to the development of our proprietary technology and trade secrets. In order to protect our proprietary technology and trade secrets, we rely in part on confidentiality agreements with our key employees, licensees, independent contractors and other advisors. These agreements may not effectively prevent disclosure of our trade secrets and may not provide an adequate remedy in the event of unauthorized disclosure of our trade secrets. We may have difficulty enforcing our rights to our proprietary technology and trade secrets, which could have a material adverse effect on our business, operating results and financial condition. In addition, others may independently discover trade secrets and proprietary information and in such cases we could not assert any trade secret rights against such parties. Costly and time consuming litigation could be necessary to determine and enforce the scope of our proprietary rights and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

If a third party asserts that we are infringing on its intellectual property, whether successful or not, it could subject us to costly and time-consuming litigation and our business may be adversely affected.

The technology industry is characterized by the existence of a large number of patents, trademarks and copyrights and by frequent litigation based on allegations of infringement or other violations of intellectual property rights. Third parties may assert patent and other intellectual property infringement claims against us or the parties from whom we license our technological rights in the form of lawsuits, letters or other forms of communication. These claims, whether or not successful, could:

• divert management’s attention;

• result in costly and time-consuming litigation;

• require us to enter into royalty or licensing agreements, which may not be available on acceptable terms, or at all; and

• require us to redesign our products to avoid infringement.

As a result, any third-party intellectual property claims against us could increase our expenses and adversely affect our business. Even if we have not infringed any third parties’ intellectual property rights, we cannot be sure our legal defenses will be successful and even if we are successful in defending against such claims, our legal defense could require significant financial resources and management time. Finally, if a third party successfully asserts a claim that our products infringe its proprietary rights, royalty or licensing agreements might not be available on terms we find acceptable or at all and we may be required to pay significant monetary damages to such third party.

If our contract manufacturers do not respect our intellectual property and trade secrets, our business, operating results and financial condition could be materially adversely affected.

Because most of our contract manufacturers operate outside the United States, where prosecution of intellectual property infringement and trade secret theft is more difficult than in the United States, certain of our contract manufacturers, their affiliates, their other customers or their suppliers may attempt to use our intellectual property and trade secrets to manufacture our products for themselves or others without our knowledge. Although we attempt to enter into agreements with our manufacturers to preclude them from using our intellectual property and trade secrets, we may be unsuccessful in monitoring and enforcing our intellectual property rights. Although we take steps to stop counterfeits, we may not be successful and customers who purchase these counterfeit goods may have a bad experience and our brand may be harmed. If such an impermissible use of our intellectual property or trade secrets were to occur, our ability to sell our products at competitive prices and to be the sole provider of our products may be adversely affected and our business, operating results and financial condition could be materially and adversely affected.

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Cyber risk and the failure to maintain the integrity of our operational or security systems or infrastructure, or those of third parties with which we do business, could have a material adverse effect on our business, consolidated financial condition and results of operations.

We are subject to an increasing number of various types of information technology vulnerabilities, threats and targeted computer crimes which pose a risk to the security of our systems and networks and the confidentiality, availability and integrity of our data. Disruptions or failures in the physical infrastructure or operating systems that support our businesses and customers, or cyber-attacks or security breaches of our networks or systems, could result in the loss of customers and business opportunities, legal liability, regulatory fines, penalties or intervention, reputational damage, reimbursement or other compensatory costs, and additional compliance costs, any of which could materially adversely affect our business, financial condition and results of operations. While we attempt to mitigate these risks, our systems, networks, products, solutions and services remain potentially vulnerable to advanced and persistent threats. Despite our efforts, our facilities and systems and those of our customers and third-party service providers may be vulnerable to security breaches, theft, misplaced or lost data, programming and/or human errors that could lead to the compromising of sensitive, confidential or personal data or information, improper use of our systems, software solutions or networks, unauthorized access, use, disclosure, modification or destruction of information, defective products, production downtimes and operational disruptions, which in turn could adversely affect our consolidated financial condition and results of operations.

Risks Related to Our Common Stock

Our common stock price may be volatile, which could result in substantial losses for individual shareholders.

The market price for the Company’s common stock is volatile and subject to wide fluctuations in response to factors, including the following, some of which are beyond our control, which means our market price could be depressed and could impair our ability to raise capital:

• actual or anticipated variations in our quarterly operating results;

• announcements of technological innovations or new products or services by the Company or our competitors;

• conditions or trends relating to our gas technologies or power and electromechanical technologies;

• changes in the economic performance and/or market valuations of other power and electromechanical, electronic component, industrial controls, gas metering, monitoring and sampling related companies;

• conditions or trends relating to the marketing, sale or distribution of power and electromechanical components and industrial controls to OEM manufacturing customers;

• changes in the economic performance and/or market valuations of other inferential natural gas monitoring device or power and electromechanical components and industrial electronic component-related companies;

• additions or departures of key personnel;

• fluctuations of the stock market as a whole;

• announcements about our earnings that are not in line with expectations;

• announcements by our competitors of their earnings that are not in line with expectations;

• the volume of shares of common stock available for public sale;

• sales of stock by us or by our shareholders;

• short sales, hedging and other derivative transactions on shares of our common stock;

• our ability to retain existing customers, attract new customers and satisfy our customers’ requirements;

• general economic conditions;

• changes in our pricing policies;

• our ability to expand our business;

• the effectiveness of our personnel;

• new product and service introductions;

• technical difficulties or interruptions in our services;

• the timing of additional investments in our products;

• regulatory compliance costs;

• costs associated with future acquisitions of technologies and businesses; and

• extraordinary expenses such as litigation or other dispute-related settlement payments.

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These factors may materially and adversely affect the market price of our common stock, regardless of our performance. In addition, the stock market in general and the market for technology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of those companies. These broad market and industry factors may seriously harm the market price of our common stock, regardless of our actual operating performance. Additionally, because the trading volume of our stock is not large, there can be a disparity between the bid and the asked price that may not be indicative of the stock’s true value.

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

Sales of a significant number of shares of our common stock in the public market could harm the market price of our common stock and make it more difficult for us to raise funds through future offerings of common stock.

We have never paid dividends on our common stock and do not expect to pay any in the foreseeable future.

Potential purchasers should not expect to receive a return on their investment in the form of dividends on our common stock. The Company has never paid cash dividends on its common stock and the Company does not expect to pay dividends in the foreseeable future.

We currently anticipate that we will retain future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Our payment of any future dividends will be at the discretion of our board of directors after taking into account various factors, including but not limited to our financial condition, operating results, cash needs, growth plans and the terms of any credit agreements that we may be a party to at the time. Our ability to pay dividends may be further restricted by the terms of any of our future debt or preferred securities. Accordingly, investors must rely on sales of their own common stock after price appreciation, which may never occur, as the only way to realize their investment. Investors seeking cash dividends should not purchase shares of our stock.

There is a limited public trading market for our common stock so you may not be able to resell your stock and may not be able to turn your investment into cash.

Our common stock is currently traded on the NASDAQ Stock Market under the trading symbol ‘‘CUI.’’ Our shares of common stock are thinly traded. Due to the illiquidity, the market price may not accurately reflect our relative value. There can be no assurance that there will be an active market for our shares of common stock either now or in the future. Because our common stock is thinly traded, a large block of shares traded can lead to a dramatic fluctuation in the share price and investors may not be able to liquidate their investment in us at all or at a price that reflects the value of the business.

Risks Relating to Shareholder Rights

Our board of directors has the authority, without shareholder approval, to issue preferred stock with terms that may not be beneficial to existing common shareholders and with the ability to adversely affect shareholder voting power and perpetuate their control.

Although we do not have any preferred stock outstanding presently, our Articles of Incorporation allow us to issue shares of preferred stock without any vote or further action by our shareholders. Our board of directors has the authority to issue preferred stock without further shareholder approval, as well as the authority to fix and determine the relative rights and preferences of preferred stock. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock or other preferred shareholders and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock.

Preferred stock could be used to dilute a potential hostile acquirer. Accordingly, any future issuance of preferred stock or any rights to purchase preferred shares may have the effect of making it more difficult for a third party to acquire control of us. This may delay, defer or prevent a change of control or an unsolicited acquisition proposal. The issuance of preferred stock also could decrease the amount of earnings attributable to and assets available for distribution to, the holders of our common stock and could adversely affect the rights and powers, including voting rights, of the holders of our common stock and preferred stock.

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Our Articles of Incorporation limits director liability, thereby making it difficult to bring any action against them for breach of fiduciary duty.

CUI Global, Inc. is a Colorado corporation. As permitted by Colorado law, the Company’s Articles of Incorporation limits the liability of directors to CUI Global, Inc. or its shareholders for monetary damages for breach of a director’s fiduciary duty, with certain exceptions. These provisions may discourage shareholders from bringing suit against a director for breach of fiduciary duty and may reduce the likelihood of derivative litigation brought by shareholders on behalf of the Company against a director.

Our charter documents and note outstanding to IED, Inc. may inhibit a takeover that shareholders consider favorable.

Provisions of our Articles of Incorporation and Bylaws may delay or discourage transactions involving an actual or potential change in control of the Company, including transactions in which shareholders might otherwise receive a premium for their shares, or transactions that our shareholders might otherwise deem to be in their best interests. These provisions:

• provide that the authorized number of directors may be changed by resolution of the board of directors;

• provide that all vacancies, including newly created directorships, may, except as otherwise required by law, be filled by the affirmative vote of a majority of directors then in office, even if less than a quorum; and

• do not provide for cumulative voting rights.

CUI Global issued a note to IED, Inc. in connection with our acquisition of CUI Inc. The note provides that, for so long as any obligations are outstanding under the note, IED will have a right to match any bona fide offer from a third party to acquire CUI Inc. by any means. This matching right could discourage third parties from making an offer to acquire us, which would involve indirectly acquiring CUI Inc., or from acquiring CUI Inc. directly, in a transaction our shareholders might find advantageous because any such offer could be matched by IED and result in the third party utilizing time and resources to formulate an offer without being able to complete a transaction.

Risks Related to Acquisitions

A significant portion of our total assets for acquisitions consists of goodwill, which is subject to periodic impairment analysis, and a significant impairment determination in any future period could have an adverse effect on our results of operations even without a significant loss of revenue or increase in cash expenses attributable to such period.

As of December 31, 2018, we have goodwill totaling approximately $13.1 million associated with the Company's acquisitions. We are required to evaluate this goodwill for impairment based on the fair value of the operating business units to which this goodwill relates, at least once a year. This estimated fair value could change if we are unable to achieve operating results at the levels that have been forecasted, the market valuation of those business units decreases based on transactions involving similar companies, or there is a permanent, negative change in the market demand for the services offered by the business units. These changes could result in an impairment of the existing goodwill balance that could require a material non-cash charge to our results of operations. See Note 2 - Summary of Significant Accounting Policies - Indefinite-Lived Intangibles and Goodwill Assets for more information on the Company’s goodwill impairment testing and the $4.3 million impairment taken against goodwill and other intangible assets in 2018 and the $3.2 million impairment taken against goodwill and other intangibles in 2017.

Our operating results may be affected by fluctuations in foreign currency exchange rates, which may affect our operating results in U.S. dollar terms.

A portion of our revenue arises from our international operations and we anticipate that, as we grow, our revenues from international operations will increase. Revenues generated and expenses incurred by our international operations are often denominated in foreign currencies. As a result, our consolidated U.S. dollar financial statements are subject to fluctuations due to changes in exchange rates as revenues and expenses of our international operations are translated from local currencies into U.S. dollars. In addition, our financial results are subject to changes in exchange rates that impact the settlement of transactions. The Company does not currently undertake any hedges to protect against adverse foreign currency exposure.

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The United Kingdom’s proposed withdrawal from the European Union could have an adverse effect on our business and financial results.

On June 23, 2016, a referendum was held in the United Kingdom to determine whether the country should remain a member of the European Union ("EU"), with voters approving to withdraw from the EU (commonly referred to as Brexit). The UK is currently scheduled to depart on March 29, 2019. Following the referendum, the UK government began discussions with the EU on the terms and conditions of the withdrawal from the EU and on terms of a transition period to December 31, 2020 proposed by the EU but not yet agreed upon. Current uncertainty over the final outcome of the negotiations between the UK and EU, could have an adverse effect on our business and financial results. The long-term effects of Brexit will depend on the terms negotiated between the UK and the EU, which may take years to complete. Our Orbital-UK operations could be impacted by the global economic uncertainty caused by Brexit.

The announcement of Brexit caused significant volatility in global stock markets and currency exchange rate fluctuations that resulted in the strengthening of the U.S. dollar against foreign currencies in which we conduct business. Volatility in exchange rates is expected to continue in the short term and a strong U.S. dollar relative to the British pound and other currencies may adversely affect our results of operations. During periods of a strengthening dollar, the local currency results of our international operations may translate into fewer U.S. dollars. Uncertainty over Brexit and currency fluctuations could also impact our customers, who may curtail or postpone near-term capital investments or take other actions that adversely affect the growth of our volume and revenue streams from these customers.

In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the UK determines which EU laws to replace or replicate. Our UK operations may incur additional costs and expenses as we adapt to potentially divergent regulatory frameworks from the rest of the EU.

The UK may need to adopt specific legislation and apply for regulatory authorization and permission in separate EU member states. This may impact our overall business opportunities to operate in the EU and UK seamlessly. These added challenges may impact our customers' overall business, which may impact our volume and revenue.

Any of these effects of Brexit, among others, could adversely affect our business and financial results.

Our gas quality inferential measurement device, GasPT®, has not gained market acceptance as rapidly as we anticipated.

Our future financial performance and ability to commercialize the GasPT device and compete successfully will depend on our ability to effectively manage acceptance and introduction of our GasPT device in the natural gas quality inferential measurement device market. Although we have entered into agreements and letters of understanding with third parties, which could result in substantial sales of the GasPT device over the next several years, there is no assurance we will sell at or near the number of units forecasted under these contracts.

Several factors have and may continue to contribute to the slower than anticipated market acceptance of the GasPT device, such as: disruptive technologies, such as the GasPT device, are slow to be accepted in a mature industry, such as natural gas distribution; extensive testing and research required by large natural gas distribution customers takes an extended period of time before such potential customers place firm orders; macro-economic issues in the natural gas industry may slow or impede capital expenditures; and registration, regulatory approvals, certifications and licensing requirements in foreign countries.

Our strategy has been to establish market acceptance and credibility with potential customers through a campaign of product exposure and disclosure of highly acceptable test results of recognized international testing laboratories along with industry seminars, conventions, trade shows, professional periodicals and public relations. While we believe that the base has been laid for substantial sales of our GasPT device over the next several years, there is no assurance that our strategy and efforts will be successful.

Item 1B. Unresolved Staff Comments

None.

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Item 2.  Properties

During December 2018, our wholly owned subsidiary, CUI Properties, LLC signed closing documents on the sale and leaseback of our Tualatin, Oregon corporate office real estate located at 20050 SW 112th Avenue in the Tualatin Franklin Business Park. The sale price for the facility was $8.1 million and the lease is for 10 years. Cash proceeds from the sale were $4.2 million after expenses and the payoff of the promissory note payable and interest rate swap derivative to Wells Fargo Bank. CUI Properties, LLC, originally purchased our Tualatin, Oregon corporate office real estate in September 2013. In addition to the corporate office, the property also includes the Company’s warehouse facility for CUI Inc. in the Power and Electromechanical segment. The purchase price for the property in 2013 was $5.1 million and was partially funded by a promissory note payable to Wells Fargo Bank in the amount of $3.7 million plus interest at the rate of 2.0% above LIBOR, payable over ten years.

In November 2017, the Company's Houston operations, included in the Energy segment, relocated to a larger rented office and warehouse space in Houston, TX, of approximately 40,000 square feet for which the lease runs until 2022. This facility replaced a 13,175 square foot facility, that was rented through December 2017.

In March 2015, as part of the Tectrol (CUI-Canada) acquisition in the Power and Electromechanical segment, the Company leased a 73,700 square foot manufacturing facility in Toronto, Canada that runs until 2020.

In September 2015, Orbital, in the Energy segment, completed the construction of a new 46,000 square foot state-of-the-art manufacturing/administration/research and development facility on its existing site in the UK to supplement existing office space. This enhanced onsite facility enabled the Company to not renew its lease on an additional building it was leasing for manufacturing and office space requirements.

Additionally, CUI Japan, in the Power and Electromechanical segment, has leased space in Tokyo, Japan, which is used as a sales office and is leased through March 2020.

The Company has enough manufacturing and office capacity to meet its business needs for the foreseeable future.

Item 3.  Legal Proceedings

The Company and its subsidiaries are not parties in any legal proceedings. No director, officer or affiliate of the Company, any owner of record or beneficially of more than five percent of any class of voting securities of the Company or any associate of any such director, officer, affiliate of the Company or security holder is a party adverse to the Company or any of its subsidiaries or has a material interest adverse to the Company or any of its subsidiaries.

Item 4.  Mine Safety Disclosure

Not applicable.

PART II

Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Description of Securities

The Company’s Common Stock is traded on The NASDAQ Stock Market under the trading symbol ‘‘CUI.’’ The Company currently has authorized 325,000,000 common shares, par value $0.001 per share, and as of December 31, 2018, the Company’s issued and outstanding shares consisted of 28,552,886 shares of common stock of which 27,987,706 shares are freely tradable without restriction or limitation under the Securities Act. As of December 31, 2018, the Company had in excess of 3,000 beneficial holders of our common stock and in excess of 2,300 shareholders of record. The actual number of shareholders is greater than this number of record holders and includes shareholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees.

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The holders of Common Stock are entitled to one vote per share and do not have cumulative voting rights. Holders of the Company’s Common Stock do not have any pre-emptive or other rights to subscribe for or purchase additional shares of capital stock and no conversion rights, redemption or sinking-fund provisions.

Market Value

The Company’s Common Stock is traded on the NASDAQ Stock Market under the trading symbol ‘‘CUI.’’ The following table sets forth, the high and low sales prices of our Common Stock on the NASDAQ during each quarter of the two most recent years.

	High		Low
2018
First Quarter	$	3.25	$	2.50
Second Quarter		3.16		2.56
Third Quarter		3.00		2.15
Fourth Quarter		2.25		1.17
2017
First Quarter	$	6.90	$	4.31
Second Quarter		4.93		3.17
Third Quarter		4.12		3.01
Fourth Quarter		4.35		2.44

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Stock Performance Graph

The following graph compares the performance of our common stock to the performance of the NASDAQ Composite Index and the Russell 2000 Index. The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity markets. The comparisons in the chart below are provided in response to SEC disclosure requirements and are not intended to forecast or be indicative of future performance of our common stock. We issued 7,392,856 shares in October 2017, which increased the total number of shares outstanding by about 35% and this had a dilutive effect on the share price as reflected in the following graph.

	Period Ending
Index	12/31/2013 *		12/31/2014		12/31/2015		12/31/2016		12/31/2017		12/31/2018
CUI Global, Inc.	$	100.00	$	117.88	$	111.39	$	109.65	$	43.51	$	19.46
NASDAQ Composite		100.00		114.75		122.74		133.62		173.22		168.30
Russell 2000		100.00		104.89		100.26		121.63		139.44		124.09

* Assumed $100 invested on 12/31/2013 in stock or index, including reinvestment of dividends. Fiscal year ended December 31.

Source: S&P Global Market Intelligence

©2019

Dividend Policy

The Company has never paid cash dividends on its Common Stock and the Company does not expect to pay dividends in the foreseeable future.

We currently expect to retain future earnings to finance the growth and development of our business. The timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flows; our general financial condition and future prospects; our capital requirements and surplus; contractual restrictions; the amount of distributions, if any, received by us from our subsidiaries; and other factors deemed relevant by our board of directors. Any future dividends on our common shares would be declared by and subject to the discretion of our board of directors.

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Common Stock Reserved for Future Issuances

Set forth below is a summary of the outstanding securities, transactions and agreements, which relate to 923,898 shares of common stock the Company is required to reserve for potential future issuances.

•	923,898 common shares reserved for outstanding options issued under our Equity Compensation Plans.
	As of December 31, 2018, there were reserved for issuance an aggregate of 923,898 shares of common stock for options outstanding under the Company’s 2008 Equity Incentive Plan and the Company’s 2009 Equity Incentive Plan (Executive).

Other than as described herein, as of the date of this report, there are currently no plans, arrangements, commitments or understandings for the issuance of additional shares of Common Stock.

RECENT SALES OF UNREGISTERED SECURITIES

Following is a list of all securities we sold within the past three years, which were not registered under the Securities Act. The Company relied on Section 4(2) of the Securities Act of 1933 as the basis for an exemption from registration for the following issuances.

 2018 Sales of Unregistered Securities

 Common Stock Issued During 2018

(Dollars in thousands)
Dates of issuance	Type of issuance	Expense/ Prepaid	Stock issuance recipient	Reason for issuance	Total no. of shares		Grant date fair value recorded at issuance
January, April July, and October 2018	Vested restricted common stock	Expense	Four board members	Director compensation		72,157	$	175
January and July 2018	Common stock	Expense	Three Employees	Approved bonuses		68,118		183	(1)
July and December 2018	Common stock	Expense	Related Party, James McKenzie	Pursuant to royalty agreement		5,755		14	(1)
Total 2018 issuances						146,030	$	372	(2)(3)

(1) Includes bonus and royalties of $170 thousand that was accrued and expensed in 2017.

(2) Total excludes $3 thousand of stock compensation related to royalties that were recorded as expense but not issued and outstanding as of December 31, 2018.

(3) Excludes $24 thousand of stock compensation for stock issued in 2017 that was amortized from prepaid expense in 2018.

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2017 Sales of Unregistered Securities

Common Stock Issued During 2017

(Dollars in thousands)
Date of issuance	Type of issuance	Expense/ Prepaid/ Cash	Stock issuance recipient	Reason for issuance	Total no. of shares		Grant date fair value recorded at issuance
January, April, August and October 2017	Vested restricted common stock	Expense	Four board members	Director compensation		49,980	$	200
January, February and June 2017	Common stock	Expense	Three Employees	Approved bonuses		28,634		182	(1)
January and December 2017	Common stock	Expense	Related party, James McKenzie	Pursuant to royalty agreement		3,293		16	(1)
January and February 2017	Common stock	Expense	Two Employees	Cashless stock option exercises		245		—	(2)
May 2017	Common stock	Prepaid expense/expense	Third-party consultant	Strategic investor marketing services		15,000		57	(3)
Total 2017 issuances						97,152	$	455	(4)(5)

(1) Includes bonuses and royalty of $176 thousand that were accrued and expensed in 2016.

(2) The Company received $0 for the issuance in the cashless option exercises.

(3) Amount includes $24 thousand that was included in prepaid expense at December 31, 2017.

(4) Does not include stock expense of $170 thousand included in accrued liabilities at December 31, 2017 for unissued stock.

(5) Does not include registered 7,392,856 shares issued in October 2017 via the S-3 registration statement. See Note 10. Shareholders' Equity for more information on the October share issuances.

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2016 Sales of Unregistered Securities

Common Stock Issued During 2016

(Dollars in thousands)
Dates of issuance	Type of issuance	Expense/ Prepaid	Stock issuance recipient	Reason for issuance	Total no. of shares		Grant date fair value recorded at issuance
January, April, July and October 2016	Vested restricted common stock	Expense	Five board members	Director compensation		46,854	$	267	(1)
January and July 2016	Vested restricted common stock	Expense	Four Employees	Approved bonuses		56,782		381	(2)
January, March, September and December 2016	Common stock	Expense	Related party, James McKenzie	Pursuant to royalty agreement		6,275		38
February and April 2016	Common stock	Expense	Three Employees	Cashless Stock option exercise		718		—	(3)
Total 2016 issuances						110,629	$	686	(4)

(1) Includes $38 thousand of stock-based expense related to 2015 director fees accrued and expensed in the fourth quarter of 2015.

(2) Bonuses of $366 thousand were accrued and expensed in the fourth quarter of 2015.

(3) The Company received $0 for issuances via cashless option exercise.

(4) Does not include stock expense of $176 thousand included in accrued liabilities at December 31, 2016.

Shares Eligible for Future Sale

As of December 31, 2018, we had outstanding 28,552,886 shares of Common Stock. Of these shares, 27,987,706 shares are freely tradable without restriction or limitation under the Securities Act.

The 565,180 shares of Common Stock held by existing shareholders as of December 31, 2018 that are ‘‘restricted’’ within the meaning of Rule 144 adopted under the Securities Act (the ‘‘Restricted Shares’’), may not be sold unless they are registered under the Securities Act or sold pursuant to an exemption from registration, such as the exemption provided by Rule 144 promulgated under the Securities Act. The Restricted Shares were issued and sold by us in private transactions in reliance upon exemptions from registration under the Securities Act.

Item 6. Selected Financial Data

The following tables contain selected consolidated financial data as of the dates and for the periods presented. The selected consolidated balance sheet data as of December 31, 2018 and 2017 and the selected consolidated statement of operations data for the years ended December 31, 2018, 2017, and 2016 have been derived from our audited consolidated financial statements and related notes that we have included elsewhere in this Form 10-K. The selected consolidated balance sheet data as of December 31, 2016, 2015, and 2014 and the selected consolidated statement of operations data for the years ended December 31, 2015 and 2014 have been derived from audited consolidated financial statements that are not presented in this Form 10-K. The timing of acquisitions and divestitures completed during the years presented affects the comparability of the selected financial data.

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The selected historical consolidated financial data as of any date and for any period are not necessarily indicative of the results that may be achieved as of any future date or for any future period. You should read the following selected historical financial data in conjunction with the more detailed information contained in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and our consolidated financial statements and the related notes that we have presented elsewhere in this Form 10-K.

(In thousands, except per share amounts)	For the Years Ended December 31,
	2018 (c)			2017				2016			2015 *			2014
Selected Statements of Operations Data:
Total revenues	$	96,789		$	83,275			$	86,461		$	86,240		$	76,045
Cost of revenues		67,879			55,406				54,200			53,948			47,494
Gross profit		28,910			27,869				32,261			32,292			28,551
Selling, general and administrative expense		36,341			33,921				34,239			33,023			25,924
Depreciation and amortization		2,152			2,163				2,366			2,862			4,197
Research and development		2,802			2,525				2,016			1,848			1,306
Provision for (credit to) bad debt		33			(13	)			93			195			(39	)
Impairment of goodwill and intangible assets (a)		4,347			3,155				—			4			32
Other operating expenses		13			47				57			54			27
Loss from operations		(16,778	)		(13,929	)			(6,510	)		(5,694	)		(2,896	)
Other income (expense)		(251	)		234				(251	)		(260	)		(123	)
Interest expense		(502	)		(500	)			(467	)		(441	)		(508	)
(Loss) before taxes		(17,531	)		(14,195	)			(7,228	)		(6,395	)		(3,527	)
Income tax (benefit) expense		(206	)		(1,606	)	(b)		38			(408	)		(726	)
Net loss	$	(17,325	)	$	(12,589	)		$	(7,266	)	$	(5,987	)	$	(2,801	)
Basic and diluted loss per common share	$	(0.61	)	$	(0.56	)		$	(0.35	)	$	(0.29	)	$	(0.14	)

* Includes the operations of CUI-Canada since its acquisition in March 2015.

(In thousands, except share data)	As of December 31,
	2018		2017		2016		2015		2014
Selected Balance Sheet Data:
Cash and cash equivalents	$	3,979	$	12,646	$	4,617	$	7,267	$	11,704
Short-term investments held to maturity		—		—		—		—		11,160
Total current assets		35,481		41,276		32,103		38,157		43,126
Total assets		70,167		87,909		79,843		90,848		93,054
Total current liabilities		18,586		18,914		17,738		17,055		12,355
Total liabilities		28,629		30,423		31,208		31,332		27,084
Total Stockholders' equity		41,538		57,486		48,635		59,516		65,970
Common shares outstanding		28,552,886		28,406,856		20,916,848		20,806,219		20,747,740

(a) During the year ended December 31, 2018, management determined that an impairment of $4.3 million was necessary related to goodwill at Orbital-UK. During the year ended December 31, 2017, management determined that an impairment of $3.2 million was necessary related to goodwill at Orbital-UK. During the year ended December 31, 2014, management determined that an impairment of $32 thousand was necessary related to intangible, technology rights for a product line that was determined to have a shortened expected life.

(b) There was an $887 thousand tax benefit generated from the effect of the USA Tax Cut and Jobs Act ("Tax Act") passed in December 2017. See Note 14 Income Taxes for more information on this benefit.

(c) ASC 606, Revenue from Contracts with Customers, was applied on a modified retrospective basis as of January 1, 2018 thus prior year amounts are not restated. See note 2 for more information on the adoption of ASC 606.

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Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations

Important Note about Forward-Looking Statements

The following discussion and analysis should be read in conjunction with our audited consolidated financial statements as of December 31, 2018 and notes thereto included in this document and our unaudited 10-Q filings for the first three quarters of 2018 and the notes thereto. In addition to historical information, the following discussion and other parts of this Form 10-K contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to factors discussed elsewhere in this Form 10-K.

The statements that are not historical constitute ‘‘forward-looking statements.’’ Said forward-looking statements involve risks and uncertainties that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements, expressed or implied by such forward-looking statements. These forward-looking statements are identified by the use of such terms and phrases as ‘‘expects,’’ ‘‘intends,’’ ‘‘goals,’’ ‘‘estimates,’’ ‘‘projects,’’ ‘‘plans,’’ ‘‘anticipates,’’ ‘‘should,’’ ‘‘future,’’ ‘‘believes,’’ and ‘‘scheduled.’’

The variables, which may cause differences include, but are not limited to, the following: general economic and business conditions; competition; success of operating initiatives; operating costs; advertising and promotional efforts; the existence or absence of adverse publicity; changes in business strategy or development plans; the ability to retain management; availability, terms and deployment of capital; business abilities and judgment of personnel; availability of qualified personnel; labor and employment benefit costs; availability and costs of raw materials and supplies; and changes in, or failure to comply with various government regulations. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate; therefore, there can be no assurance that the forward-looking statements included in this Form 10-K will prove to be accurate.

In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any person that the objectives and expectations of the Company will be achieved.

Overview

CUI Global, Inc. is a Colorado corporation organized on April 21, 1998. The Company’s principal place of business is located at 20050 SW 112th Avenue, Tualatin, Oregon 97062, phone (503) 612-2300. CUI Global is a platform company dedicated to maximizing shareholder value through the acquisition, development and commercialization of new, innovative technologies. Through its subsidiaries, CUI Global has built a diversified portfolio of industry leading technologies that touch many markets.

Critical Accounting Policies

Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (‘‘GAAP’’). GAAP requires the use of estimates, assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue, and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

While all of our significant accounting policies impact the Company’s financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would have caused a material change in our results of operations, financial position or liquidity for the periods presented in this report.

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Asset Impairment

The Company reviews its long-lived assets including finite-lived intangibles for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable. In performing the review for recoverability, the Company estimates the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized as the excess of the carrying amount over the fair value. Otherwise, an impairment loss is not recognized. Management estimates the fair value and the estimated future cash flows expected. Any changes in these estimates could impact whether there was impairment and the amount of the impairment.

In the fourth quarter of 2018, the Company determined that certain long-term prepaid assets classified on the balance sheet as deposits and other assets, which were reliant on future revenue in order to be amortized to expense, did not have adequate forecasted revenue to justify the current valuation. This was primarily driven by the lack of substantial sales over the last two years within the Energy segment and uncertainty regarding the level of future sales. For that reason, the Company recorded a $1.5 million impairment to deposits and other assets included in cost of revenues and reclassified $0.1 million to prepaid assets. The amount reclassified to prepaid assets related to prepaid royalties associated with expected 2019 revenue. There were no asset impairments other than to Goodwill in 2017 or 2016.

Indefinite-Lived Intangibles and Goodwill Assets

The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, ‘‘Business Combinations,’’ where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values. The purchase price is allocated using the information currently available, and may be adjusted, up to one year from acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates. The purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill.

2018 Annual Test. The Company tests for impairment of indefinite-lived intangibles and Goodwill in the second quarter of each year and whenever events or circumstances indicate that the carrying amount of Goodwill exceeds its fair value and may not be recoverable. The Company’s qualitative assessment for indefinite-lived assets at May 31, 2018, followed the guidance in ASC 350-30-35-18A and 18B.

Under current accounting guidance, CUI Global is not required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The guidance includes a number of factors to consider in conducting the qualitative assessment. The Company tests for goodwill impairment in the second quarter of each year and whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable.

As detailed in ASC 350-20-35-3A, in performing its testing for Goodwill as of May 31, 2018, management completed a qualitative analysis to determine whether it was more likely than not that the fair value of a reporting unit is less than its carrying amount, including Goodwill. To complete the qualitative review, management follows the steps in ASC 350-20-35-3C to evaluate the fair values of the Goodwill and considers all known events and circumstances that might trigger an impairment of Goodwill.

During our review of Goodwill as of May 31, 2018, the Company determined that there were indicators present to suggest that it was more likely than not that the fair value of the Orbital-UK reporting unit was less than its carrying amount.

The significant changes for the Orbital-UK reporting unit subsequent to the most recent impairment test performed as of December 31, 2017 included a decline in the 2018 actual revenue, operating income and cash flows compared to prior forecasts for the same period and a negative change in the 2018 forecasted revenue, operating income and cash flows for the remainder of the year due in part to the longer than expected temporary halt in shipping of its GasPT product to a major customer in Italy and market uncertainty due to the continuing effects of Brexit.

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To test the Orbital-UK reporting unit for impairment as of May 31, 2018, the Company used a quantitative test. The Company estimated the fair value of the Orbital-UK reporting unit using a blend of a market approach and an income approach, which was deemed to be the most indicative of fair value in an orderly transaction between market participants. Under the income approach, the Company determined fair value based on estimated future cash flows of the Orbital-UK reporting unit discounted by an estimated weighted-average cost of capital, reflecting the overall level of inherent risk of the Orbital-UK reporting unit and the rate of return an outside investor would expect to earn. The Company based its cash flow projections for the Orbital-UK reporting unit using a forecast of cash flows and a terminal value developed by capitalizing an assumed stabilized cash flow figure. The forecast and related assumptions were derived from an updated financial forecast prepared during the second quarter of 2018. At that time, a key assumption related to the recoverability of the Orbital-UK reporting unit Goodwill was the resumption of delivery of GasPT product to one of our major customers and continued strengthening of our integration revenues. Under the market approach, appropriate valuation multiples were derived from the historical operating data of selected guideline companies. The valuation multiples were evaluated and adjusted based on the strengths and weaknesses of the Company relative to the selected guideline companies and the multiple was then applied to the appropriate operating data of the Company to arrive at an indication of fair market value. As a result of the analysis, the Company concluded that the carrying value of the Orbital-UK reporting unit exceeded its estimated fair value. The quantitative test for the Orbital-UK reporting unit resulted in an impairment for the Orbital-UK reporting unit, and the Company recorded a Goodwill impairment charge of $1.3 million during the second quarter of 2018.

December 2018 Interim Test. During the fourth quarter of 2018, the Company determined that there were additional indicators present to suggest that it was more likely than not that the fair value of the Orbital-UK reporting unit was less than its carrying amount. The significant changes for the Orbital-UK reporting unit subsequent to the annual goodwill impairment test performed as of May 31, 2018 were driven by a slower recovery in the Energy segment than what was originally forecasted. Actual GasPT revenue continued to lag behind forecasted revenue as acceptance of the technology continued to be slower than anticipated and continued delays associated with existing customer contracts that have not yet resumed even though previously communicated issues had been resolved. This slower than expected recovery, led to lower 2018 Energy segment revenue, operating income and cash flows than originally forecasted.

To test the Orbital-UK reporting unit for impairment, the Company used a quantitative test similar to the one used in May 2018. The Company estimated the fair value of the Orbital-UK reporting unit using a blend of a market approach and an income approach, which was deemed to be the most indicative of fair value in an orderly transaction between market participants. Under the income approach, the Company determined fair value based on estimated future cash flows of the Orbital-UK reporting unit discounted by an estimated weighted-average cost of capital, reflecting the overall level of inherent risk of the Orbital-UK reporting unit and the rate of return an outside investor would expect to earn. The Company based its cash flow projections for the Orbital-UK reporting unit using a revised forecast of cash flows and a terminal value developed by capitalizing an assumed stabilized cash flow figure. The forecast and related assumptions were derived from an updated financial forecast prepared during the fourth quarter of 2018. Under the market approach, appropriate valuation multiples were derived from the historical operating data of selected guideline companies. The valuation multiples were evaluated and adjusted based on the strengths and weaknesses of the Company relative to the selected guideline companies and the multiple was then applied to the appropriate operating data of the Company to arrive at an indication of fair market value. As a result of the analysis, the Company concluded that the carrying value of the Orbital-UK reporting unit exceeded its estimated fair value. The quantitative test for the Orbital-UK reporting unit resulted in further impairment for the Orbital-UK reporting unit, and the Company recorded a goodwill impairment charge of $3.1 million during the fourth quarter of 2018, which was a write-off of the remaining Energy segment goodwill. In addition, the reporting units in the Power and Electromechanical segment were also tested for impairment due to the overall decrease in market capitalization experienced in 2018.

As of December 31, 2018, there was goodwill and indefinite lived assets remaining for CUI Inc., CUI-Canada and CUI-Japan reporting units, which are included in the Power and Electromechanical segment.

December 2017 Interim Test. During the fourth quarter of 2017, the Company determined that there were indicators present to suggest that it was more likely than not that the fair value of the Orbital-UK reporting unit was less than its carrying amount. The significant changes for the Orbital-UK reporting unit subsequent to the annual goodwill impairment test performed as of May 31, 2017 included a decline in the 2017 actual revenue, operating income and cash flows compared to previously forecasted results and a decline in the 2018 forecasted revenue, operating income and cash flows due in part to the longer than expected temporary halt in shipping of its GasPT product to a major customer in Italy and market uncertainty due to the continuing effects of Brexit.

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To test the Orbital-UK reporting unit for impairment, the Company used a quantitative test. The Company estimated the fair value of the Orbital-UK reporting unit using a blend of a market approach and an income approach, which was deemed to be the most indicative of fair value in an orderly transaction between market participants. Under the income approach, the Company determined fair value based on estimated future cash flows of the Orbital-UK reporting unit discounted by an estimated weighted-average cost of capital, reflecting the overall level of inherent risk of the Orbital-UK reporting unit and the rate of return an outside investor would expect to earn. The Company based its cash flow projections for the Orbital-UK reporting unit using a forecast of cash flows and a terminal value developed by capitalizing an assumed stabilized cash flow figure. The forecast and related assumptions were derived from an updated financial forecast prepared during the fourth quarter of 2017. Under the market approach, appropriate valuation multiples were derived from the historical operating data of selected guideline companies. The valuation multiples were evaluated and adjusted based on the strengths and weaknesses of the Company relative to the selected guideline companies and the multiple was then applied to the appropriate operating data of the Company to arrive at an indication of fair market value. As a result of the analysis, the Company concluded that the carrying value of the Orbital-UK reporting unit exceeded its estimated fair value. The quantitative test for the Orbital-UK reporting unit resulted in an impairment for the Orbital-UK reporting unit, and the Company recorded a goodwill impairment charge of $3.2 million during the fourth quarter of 2017.

2016 Annual Test. In 2016, the analysis, determined there was no impairment necessary to goodwill. Through these reviews, management concluded there were no events or circumstances that triggered an impairment (and there was no expectation that a reporting unit or a significant portion of a reporting unit would be sold or otherwise disposed of in the following year), therefore, no further analysis was necessary to prepare for goodwill impairment beyond the steps in 350-20-35-3C in accordance with current accounting guidance. In 2016, in addition to the qualitative analysis, we performed a quantitative analysis of goodwill impairment and concluded no impairment of goodwill was required.

Long-lived assets and finite lived intangible assets

Besides goodwill being tested for impairment, the Company also tested its long-lived assets and finite lived intangible assets for Orbital-UK. The result of the quantitative test of undiscounted cash flows, did not result in any impairment.

Stock-Based Compensation

The Company accounts for stock-based compensation using FASB Accounting Standards Codification No. 718 (‘‘FASB ASC 718’’), ‘‘Compensation – Stock Compensation.’’ FASB Codification No. 718 requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related vesting period.

Stock bonuses issued to employees are recorded at fair value using the market price of the stock on the date of grant and expensed over the vesting period or immediately if fully vested on date of issuance. Employee stock options are recorded at fair value using the Black-Scholes option pricing model. The underlying assumptions used in the Black-Scholes option pricing model by the Company are taken from publicly available sources including: (1) volatility, which is calculated using historic stock price information from online finance websites such as Google Finance and Yahoo Finance; (2) the stock price on the date of grant is obtained from online finance websites such as those previously noted; (3) the appropriate discount rates are obtained from the United States Federal Reserve economic research and data website; and (4) other inputs are determined based on previous experience and related estimates. With regards to expected volatility for determining the fair value of our stock options, the Company utilizes an appropriate period for historical share prices for CUI Global, Inc. that best reflects the expected weighted average lifespan of the options.

Valuation of Non-Cash Capital Stock Issuances

The Company values its stock transactions based upon the fair value of the equity instruments. Various methods can be used to determine the fair value of an equity instrument. The Company may use the fair value of the consideration received, the quoted market price of the stock or a contemporaneous cash sale of the common or preferred stock. Each of these methods may produce a different result. Management uses the method it determines most appropriately reflects the stock transaction. If a different method was used it could impact the expense and equity stock accounts. In 2018, 2017, and 2016, the Company used the quoted market price of the Company's common stock to estimate the fair value of stock transactions.

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Revenue Recognition

On January 1, 2018, we adopted the new accounting standard ASC 606, “Revenue from Contracts with Customers” and all the related amendments (“new revenue standard"), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. This guidance includes the required steps to achieve the core principle that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new revenue standard was applied using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to accumulated deficit as of January 1, 2018. As a result of the adoption of this standard, certain changes have been made to the condensed consolidated balance sheets. We expect the ongoing impact of the adoption of the new standard to primarily affect the timing of revenue recognition. The most significant impact was on Power and Electromechanical segment revenue with certain distribution customers that were previously recorded as “sell through." Under the new accounting guidance, we record the revenue upon sale to the distributor with an appropriate amount reserved for estimated returns and allowances as the Company recognizes revenue at the time the related performance obligation is satisfied by transferring a promised good or service to its customers. For the Power and Electromechanical segment, their revenue is based upon the transfer of goods and satisfaction of its performance obligations as of a point in time. During the transition this had the effect of having a certain amount of revenue not recorded as revenue but as part of the cumulative effect of the accounting change. For the majority of contracts in the Energy segment, revenue is still measured over time using the cost-to-cost method. The change that most affected the transition adjustment on Energy segment revenue was the requirement to limit revenue recognition on contracts without an enforceable right to payment for performance completed to date. Revenue on contracts without a specific enforceable right to payment on work performed to date was "clawed back" as part of the Company's transition adjustment. The cumulative effect adjustment recorded as of January 1, 2018 was a net $1.9 million decrease to accumulated deficit due to a $2.8 million transition adjustment from the Power and Electromechanical segment partially offset by a $(0.9) million transition adjustment from the Energy segment, net of deferred tax.

Power and Electromechanical Segment

The Power and Electromechanical segment generates its revenue from two categories of products: power supply solutions - including external and embedded ac-dc power supplies, dc-dc converters, basic digital point of load modules, ICE (Intelligent Control of Energy) products enabled by the VPS patented software system and offering a technology architecture that addresses power and related accessories; and components - including connectors, speakers, buzzers, and industrial control solutions including encoders and sensors. These offerings provide a technology architecture that addresses power and related accessories to industries as broadly ranging as telecommunications, consumer electronics, medical and defense, among others. The production and delivery of these products are considered single performance obligations. Revenue is recognized when we satisfy a performance obligation and this occurs upon shipment and ownership transfer of our products to our customers at a point in time.

Energy Segment

The Energy segment generates their revenue from a portfolio of products, services and resources that offer a diverse range of personalized gas engineering solutions to the gas utilities, power generation, petrochemical, emissions, manufacturing and automotive industries, among others.

Orbital accounts for a majority of its contract revenue proportionately over time. For our performance obligations satisfied over time, we recognize revenue by measuring the progress toward complete satisfaction of that performance obligation. The selection of the method to measure progress towards completion can be either an input method or an output method and requires judgment based on the nature of the goods or services to be provided.

For our construction contracts, revenue is generally recognized over time as our performance creates or enhances an asset that the customer controls. Our fixed price construction projects generally use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.

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The timing of revenue recognition for Energy products also depends on the payment terms of the contract, as our performance does not create an asset with an alternative use to us. For those contracts which we have a right to payment for performance completed to date at all times throughout our performance, inclusive of a cancellation, we recognize revenue over time. As discussed above, these performance obligations use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer. However, for those contracts for which we do not have a right, at all times, to payment for performance completed to date, we recognize revenue at the point in time when control is transferred to the customer.

For our services contracts, revenue is also generally recognized over time as the customer simultaneously receives and consumes the benefits of our performance as we perform the service. For our fixed price service contracts with specified service periods, revenue is generally recognized on a straight-line basis over such service period when our inputs are expended evenly, and the customer receives and consumes the benefits of our performance throughout the contract term.

For certain of our revenue streams, such as call-out repair and service work, outage services and training that are performed under time and materials contracts, our progress towards complete satisfaction of such performance obligations is measured using an output method as the customer receives and consumes the benefits of our performance completed to date.

Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicate a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident.

Product-type contracts (for example, sale of GasPT units) for which revenue does not qualify to be recognized over time are recognized at a point in time. Revenues from warranty and maintenance activities are recognized ratably over the term of the warranty and maintenance period.

Accounts Receivable, Contract Assets and Contract Liabilities

Accounts receivable are recognized in the period when our right to consideration is unconditional. Accounts receivable are recognized net of an allowance for doubtful accounts. A considerable amount of judgment is required in assessing the likelihood of realization of receivables.

The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from our construction projects when revenue recognized under the cost-to-cost measure of progress exceeds the amounts invoiced to our customers, as the amounts cannot be billed under the terms of our contracts. Such amounts are recoverable from our customers based upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of a contract. Also included in contract assets are amounts we seek or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders or modifications in dispute or unapproved as to both scope and/or price or other customer-related causes of unanticipated additional contract costs (claims and unapproved change orders). Our contract assets do not include capitalized costs to obtain and fulfill a contract. Contract assets are generally classified as current within the Consolidated Balance Sheets.

Contract liabilities from our construction contracts occur when amounts invoiced to our customers exceed revenues recognized under the cost-to-cost measure of progress. Contract liabilities additionally include advanced payments from our customers on certain contracts. Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation and are recorded as either current or long-term, depending upon when we expect to recognize such revenue.

Refund Liabilities and Corresponding Inventory Adjustment

Refund liabilities primarily represent estimated future new product introduction returns and estimated future scrap returns. Estimated future returns and allowances are reserved based on historical return rates. In addition to the refund liabilities recorded for future returns, the Company also records an adjustment to inventory and corresponding adjustment to cost of revenue for the Company's right to recover products from customers upon settling the refund liability.

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Performance Obligations

Remaining Performance Obligations

Remaining performance obligations represents the transaction price of firm orders for which work has not been performed and excludes unexercised contract options and potential orders under ordering-type contracts. As of December 31, 2018, the Company's remaining performance obligations are generally expected to be filled within the next 12 months.

Any adjustments to net revenues, cost of revenues, and the related impact to operating income are recognized as necessary in the period they become known. These adjustments may result from positive program performance, and may result in an increase in operating income during the performance of individual performance obligations, if we determine we will be successful in mitigating risks surrounding the technical, schedule and cost aspects of those performance obligations. Likewise, these adjustments may result in a decrease in operating income if we determine we will not be successful in mitigating these risks. Changes in estimates of net revenues, cost of revenues and the related impact to operating income are recognized on a cumulative catch-up basis in the period they become known, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation's percentage of completion. A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations. For separately priced extended warranty or product maintenance performance obligations, when estimates of total costs to be incurred on the performance obligation exceed total estimates of revenue to be earned, a provision for the entire loss on the performance obligation is recognized in the period the loss is determined.

Performance Obligations Satisfied Over Time

To determine the proper revenue recognition method for contracts for our Energy segment, we evaluate whether a single contract should be accounted for as more than one performance obligation. This evaluation requires significant judgment and the decision to separate the single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period.

For most of our contracts, the customer contracts with us to provide a significant service of integrating a complex set of tasks and components into a single project or capability (even if that single project results in the delivery of multiple units). Hence, the entire contract is accounted for as one performance obligation. Less commonly, however, we may promise to provide distinct goods or services within a contract in which case we separate the contract into more than one performance obligation. If a contract is separated into more than one performance obligation, we allocate the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. We infrequently sell standard products with observable standalone sales. In cases where we do, the observable standalone sales are used to determine the standalone selling price. More frequently, we sell a customized customer specific solution, and in these cases we typically use the expected cost plus a margin approach to estimate the standalone selling price of each performance obligation.

Performance Obligations Satisfied at a Point in Time.

Revenue from goods and services transferred to customers at a single point in time accounted for 84% of revenues for the year ended December 31, 2018. The majority of our revenue recognized at a point in time is in our Power and Electromechanical segment. Revenue on these contracts is recognized when the product is shipped and the customer takes ownership of the product. Determination of ownership and control transfer is determined by shipping terms delineated on the customer purchase orders.

Variable Consideration

The nature of our contracts gives rise to several types of variable consideration, including new product returns and scrap return allowances primarily in our Power and Electromechanical segment. In rare instances in our Energy segment, we include in our contract estimates, additional revenue for submitted contract modifications or claims against the customer when we believe we have an enforceable right to the modification or claim, the amount can be estimated reliably and its realization is probable. In evaluating these criteria, we consider the contractual/legal basis for the claim, the cause of any additional costs incurred, the reasonableness of those costs and the objective evidence available to support the claim. We include new product introduction and scrap return estimates in our calculation of net revenue when there is a basis to reasonably estimate the amount of the returns. These estimates are based on historical return experience, anticipated returns and our best judgment at the time. These amounts are included in our calculation of net revenue recorded for our contracts and the associated remaining performance obligations.

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Liquidity and Capital Resources

General

As of December 31, 2018, CUI Global held Cash and cash equivalents of $4.0 million. Operations, other intangible assets, and equipment have been funded through cash on hand and short-term credit facilities during the year ended December 31, 2018.

Cash used in Operations

There was a use of cash from operations of approximately $12.3 million during the year ended December 31, 2018. This was an increase from the use of cash from operations of approximately $9.4 million and approximately $0.6 million for the years ended December 31, 2017 and 2016, respectively. Overall, the change in cash used in operations is primarily the result of the net loss in 2018 before non-cash expenses affected by changes in assets and liabilities.

Cash used in operations of $12.3 million in 2018 was a $2.9 million increase in cash used compared to the amount used in operations in 2017. The year ended December 31, 2018 benefited from higher revenue and the related gross profit in the Power and Electromechanical segment resulting in cash provided by operating activities from this segment of $4.8 million. In 2018, cash used in operating activities by the Energy segment was approximately $11.1 million and cash used in operating activities by the Other category was approximately $6.0 million.

During 2018, in addition to the Company's net loss after non-cash items, significant factors affecting cash used in operating activities included the change in trade accounts receivable and inventories. The change in trade accounts receivable accounted for $3.8 million of cash used in operating activities and was due to higher fourth quarter revenues in both the Power and Electromechanical and Energy segments compared to the revenues in the fourth quarter of 2017. Increased cash usage of $2.2 million from change in inventories were due to a build-up of Power and Electromechanical inventories due to longer lead times for these products and timing related to customer order and delivery schedules, partially offset by positive changes to inventories in the Energy segment. Also contributing to the increased cash usage was a decrease in contract liabilities of $2.3 million. The increased cash usage was partially offset by a combined $3.4 million of cash provided by changes in accounts payable, accrued expenses and refund liabilities.

We believe cash used in operating activities will improve in the Energy segment in 2019, primarily due to the expected continued improvement in revenue from other integration related systems including biomethane to grid solutions. The Power & Electromechanical segment is expected to continue to provide cash from operations and we believe the cash usage rate in the other category will be flat to slightly lower due to cost-cutting initiatives put in place over the past year.

The cash from operations in 2017 compared to 2016 was negatively affected by a larger net loss attributable to the Energy segment and the timing of accounts receivable collections and accounts payable payments in both the Energy and Power and Electromechanical Segments.

During 2017, in addition to the change in trade accounts receivable and accounts payable, significant factors that impacted the cash used in operations included cash used for inventory purchases of approximately $0.4 million associated with timing of customer orders and ongoing projects, $0.5 million related to the change in deposits and other assets due to the increase in long-term prepaid royalties at Orbital-UK, $0.4 million use of cash related to changes in accrued expenses primarily due to a change in accrued compensation in the Energy segment and a $0.4 million use of cash from changes in prepaid assets that affected all three segments. Changes in the combined contract assets and contract liabilities were a combined approximate $2.8 million source of cash in the period related to billings on projects in the Energy segment and increases in deferred revenue from distributor activity within the Power and Electromechanical segment.

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On a segment basis, in 2017, the Power and Electromechanical segment contributed cash from operations of approximately $3.9 million while the Energy segment used cash of approximately $8.4 million and the Other category used cash of approximately $4.9 million. The Energy segment was hampered by the continued costs of building brand awareness in North America and a regulatory issue in Italy unrelated to the technology that has delayed the next phase of a significant GasPT project.

The use of cash from operations in 2016 was benefited by lower trade accounts receivable balances in both segments at December 31, 2016 compared to December 31, 2015 as a result of improved collections in both segments and the transition of Tectrol customers to CUI-Canada that delayed some payments at the end of 2015. CUI-Canada's and Orbital-UK's cash from operations improved significantly from 2015 while Orbital Gas Systems, North America, Inc. continued to use more cash than it produced due to the cost of establishing the Orbital brand in the U.S.

During 2016, in addition to the change in trade accounts receivable, significant factors that impacted the cash used in operations included cash used for inventory purchases that increased approximately $1.7 million associated with timing of customer orders and ongoing projects, and a use of cash from changes in contract assets of approximately $1.5 million. This was partially offset by cash provided by the change in contract liabilities of $1.4 million related to billings on projects in the Energy segment and increases in deferred revenue from distributor activity within the Power and Electromechanical segment.

During 2018, 2017 and 2016, the Company used stock and options as a form of payment to certain vendors, consultants, directors and employees. For years ended December 31, 2018, 2017 and 2016, the Company recorded a total of $0.2 million, $0.4 million and $0.7 million, respectively for share-based compensation related to equity given, or to be given, to employees, directors and consultants for services provided and as payment for royalties earned. The decreases in 2018 compared to 2017 and in 2017 compared to 2016 were due to lower stock-based bonuses, lower stock-based services, and lower stock option vesting expense as all remaining unvested stock options fully vested in 2016.

Proceeds from Sale of Building, Capital Expenditures and Investments

In December 2018, the Company completed the sale and leaseback of its Tualatin headquarters. The sale for $8.1 million generated net cash proceeds of $4.2 million after transaction related expenses and after paying off the mortgage on the building and related interest rate swap derivative. As part of the ten-year lease the Company signed on the building, the Company invested in a $0.4 million restricted certificate of deposit to serve as security on the lease, which is included in deposits and other assets on the balance sheet.

During the years ended 2018, 2017 and 2016, CUI Global invested $1.0 million, $0.9 million and $0.8 million, respectively, in fixed assets. These investments typically include additions to equipment for engineering and research and development, tooling for manufacturing, furniture, computer equipment for office personnel, facilities improvements and other fixed assets as needed for operations. The Company anticipates further investment in fixed assets during 2019 in support of its on-going business and continued development of product lines and technologies.

CUI Global invested $0.5 million, $0.6 million, and $0.9 million in other intangible assets during 2018, 2017 and 2016, respectively. These investments typically include product certifications, technology rights, capitalized website development, software for engineering and research and development and software upgrades for office personnel. Investments in 2018 and 2017 primarily related to product certifications in the Power and Electromechanical segment and investments in software in the Energy segment. The increased investments in 2016 were due to an increase in product certifications and an ERP software implementation at Orbital-UK that was completed in the early part of 2018. The Company expects its investment in other intangible assets will continue throughout 2019.

During 2018, CUI Global made investments of $0.7 million in convertible notes receivable with Virtual Power Systems (“VPS”) to support the two companies’ continued collaboration and development of industry transforming Software Defined Power technologies. The notes accrue interest at 2% per annum and the interest is compounded annually. Unless converted into shares earlier, principal and accrued interest will convert automatically on the maturity date (October 27, 2019) into shares of VPS common stock at the then current fair market value. If VPS receives gross proceeds greater than $3 million prior to the maturity date in a sale or series of sales of equity securities, the principal and unpaid accrued interest of the note will automatically convert into conversion shares at 80% of the price paid per share for equity securities by investors at that time. As the pioneer in virtualizing power, VPS and its Software Defined Power® (SDP) enables energy to be reallocated on-demand to data center racks, nodes, workloads or circuits using AI and machine learning to predict and respond to changes in power capacity and demand. SDP-enabled power components, including uninterruptible power systems, generators, power distribution units, battery backups, and power supply units, can react quickly and effectively to sudden shifts and surges in power usage patterns. VPS and CUI Global share the vision that the convergence of data center power infrastructure and software will dramatically improve how energy is provisioned, managed and utilized in modern data centers. Together, we've set an aggressive pace for advancing the pace of adoption and availability of Software Defined Power solutions.

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Investments made by the Company are subject to an investment policy, which limits our risk of loss exposure by setting appropriate credit quality requirements for investments held, limiting maturities to be one year or less, and setting appropriate concentration levels to prevent concentrations. This includes a requirement that no more than 3% of the portfolio, or $500,000, whichever is greater, may be invested in one particular issue. Since the investment in the VPS convertible note, is considered a strategic investment, the board and management reviewed and approved the investment above the board set limit for individual issuers.

Financing Activities

During the years ended December 31, 2018, 2017, and 2016, the Company issued payments of $3 thousand, $29 thousand and $41 thousand, respectively, against capital leases of motor vehicles and equipment. The Company paid $3.4 million, $89 thousand and $85 thousand against the mortgage note payable in 2018, 2017 and 2016, respectively, with the payoff coming in 2018 as part of the sale-leaseback of the Company's headquarters building. In addition, with the payoff of the mortgage on the Company's headquarters building, the Company also closed out its interest rate swap derivative with a payment of $0.2 million. Also in 2018, 2017, and 2016 the Company issued payments of $45 thousand, $61 thousand, and $59 thousand, respectively, toward the contingent liability associated with the Tectrol acquisition.

At December 31, 2018, the Company had a 1.5 million British pound sterling overdraft facility (approximately $1.9 million at December 31, 2018) and a $5.0 million revolving line of credit (LOC). For the year ended December 31, 2018, and 2017, the Company recorded proceeds of $19.5 million and $9.8 million, respectively, from the Company's overdraft facility in the U.K., and $20.0 million and $22.3 million, respectively, from the Company's line of credit. These proceeds were paid back during 2018 and 2017 except for balances of $1.3 million on the overdraft facility and $1.0 million on the line of credit facility at December 31, 2018.

During March 2019, CUI Global received a firm commitment from Bank of America for a new two-year credit facility for CUI Inc. and CUI-Canada, perfected by a first security lien on all assets of CUI Inc. and CUI-Canada. The facility would also include a $3 million sub-limit for use by CUI-Global non-loan party subsidiaries as a reserve under the borrowing base. The credit facility is to provide for working capital and general corporate purposes. The credit facility would provide up to $10,000,000 in a Revolving Line of Credit Facility (“Revolver”), including a sub-limit for letters of credit. Interest will be based upon Daily Floating LIBOR at LIBOR + 2.00%. The Company expects to close on the credit facility in April 2019.

S-3 registration

The Company filed an S-3 registration statement on March 14, 2017 containing a prospectus that was effective March 29, 2017. With this filing, CUI Global may from time to time issue various types of securities, including common stock, preferred stock, debt securities and/or warrants, up to an aggregate amount of $100 million.

On October 23, 2017, the Company closed on an underwritten public offering of 7,392,856 shares at a public offering price of $2.80 per share, including 964,285 shares sold at the public offering price pursuant to the underwriter's exercise in full of its option to purchase additional shares to cover over-allotments. The net proceeds to CUI Global (after deducting underwriting discount and other expenses payable by the Company) were approximately $18.9 million. The Company has used the net proceeds from the offering primarily for general corporate purposes, which includes operating expenses, working capital to improve and promote its commercially available products, advance product candidates, to expand international presence and commercialization, research and development, for general capital expenditures and for satisfaction of debt obligations.

As the Company focuses on strategic acquisitions, technology development, product line additions, and increasing Orbital Gas Systems market presence, it will fund these activities together with related sales and marketing efforts for its various product offerings with cash on hand, including proceeds from future issuances of equity through the S-3 registration statement, and available debt.

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CUI Global may raise additional capital needed to fund the further development and marketing of its products as well as payment of its debt obligations.

See the section entitled Recent Sales of Unregistered Securities for a complete listing of all unregistered securities transactions.

Financing activities – related party activity

During 2018, 2017 and 2016, $0.3 million, $0.3 million, and $0.3 million, respectively in interest payments were made in relation to the promissory notes issued to related party, IED, Inc. The promissory note terms include a due date of May 15, 2020 and an interest rate of 5% per annum, with interest payable monthly and the principal due as a balloon payment at maturity.

Please see Note 7 Notes Payable and Note 11 Related Party Transactions for further discussion of these transactions.

Recap of Liquidity and Capital Resources

During the year ended December 31, 2018, the Company continued to use cash in the Energy segment while the CUI-Canada operation was more fully integrated into the Company's Power and Electromechanical segment. As expected in the three years following two major additions, along with an ongoing focus on research and development and growth initiatives, cash usage was greater than what it will be when the businesses are fully mature. The net cash used in operating activities increased to $12.3 million from $9.4 million in 2017 with much of that due to the ongoing efforts to grow the current businesses as well as the effects of the delay in the major GasPT project in Italy and overall economic effects of Brexit and the transition in the UK, which has resulted in considerable delays in economic activities in the UK.

The Wells Fargo mortgage promissory note was paid off with cash generated from the sale and leaseback of the Company's headquarters building. See Note 7 Notes Payable for more information on this note.

The Company's wholly owned subsidiary, CUI Inc. has a revolving Line of Credit (LOC) with Wells Fargo Bank in the principal amount of $5.0 million line of credit, until June 1, 2019. On October 5, 2016, Orbital Gas Systems Ltd. signed a five-year agreement with the London branch of Wells Fargo Bank N.A. for a multi-currency variable rate overdraft facility with a facility limit of 1.5 million pounds sterling ($1.9 million at December 31, 2018) that expires on October 5, 2021. See Note 8 Working Capital Line of Credit and Overdraft Facility for more information on these two credit facilities.

At December 31, 2018, the Company had cash and cash equivalents balances of $4.0 million. At December 31, 2018 and 2017, the Company had $0.3 million and $0.9 million, respectively, of cash and cash equivalents balances at domestic financial institutions, which were covered under the FDIC insured deposits programs and $68 thousand and $0.2 million, respectively, at foreign financial institutions covered under the United Kingdom Financial Services Compensation (FSC) and the Canada Deposit Insurance Corporation (CDIC). At December 31, 2018 and 2017, the Company held $0.3 million and $0.1 million, respectively, in Japanese foreign bank accounts, $1 thousand and $0.1 million, respectively, in European foreign bank accounts and $67 thousand and $0.1 million, respectively, in Canadian bank accounts.

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The following tables present our contractual obligations as of December 31, 2018:

	Payments due by period
(In thousands)	Less than 1 year		1 to 3 years		3 to 5 years		After 5 years		Total
Capital lease obligations:
Minimum lease payments	$	4	$	5	$	—	$	—	$	9
Operating lease obligations:
Operating leases		1,482		2,160		1,618		3,307		8,567
Notes payable obligations:
Notes payable maturities		—		5,304		—		—		5,304
Interest on notes payable (1)		265		100		—		—		365
Total Obligations	$	1,751	$	7,569	$	1,618	$	3,307	$	14,245

⁽¹⁾ The interest on notes payable includes fixed interest on the related party note payable to IED, Inc. For further information regarding notes payable see Note 7 Notes Payable.

As of December 31, 2018, the Company had an accumulated deficit of $124.0 million.

The Company expects the revenues from its Power and Electromechanical and Energy Segments, cash on hand, and cash available from debt facilities, including the credit facility with Bank of America discussed above, to cover operating and other expenses for the next twelve months of operations. However, in the short-term, the Company expects its Orbital operations in Houston and the U.K. to continue to need cash support as the businesses increase their market positions and revenue. In the first 2 1/2 months of 2019, the Company supported the Energy segment businesses with $2.2 million in supplemental cash. Management expects the cash support for the Energy segment businesses to decline significantly from the second quarter onward. The CUI-Canada operation in the Power and Electromechanical segment will also continue to be near break even in the short-term. If revenues and other funds are not sufficient to cover all operating and other expenses, additional funding may be required. There is no assurance the Company will be able to raise such additional capital. The failure to raise capital or generate product sales in the expected time frame would have a material adverse effect on the Company. See Note 2 Summary of Significant Accounting Policies - Company Conditions, for additional discussion of the Company's financial condition and current liquidity.

Off-Balance Sheet Arrangements

As of December 31, 2018, the Company had no off-balance sheet arrangements.

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Results of Operations

The following tables set forth, for the periods indicated, certain financial information regarding revenue and costs by segment:

(Dollars in thousands)	For the Year Ended December 31, 2018
	Power and Electro - mechanical		Percent of Segment Revenues			Energy			Percent of Segment Revenues			Other			Percent of Segment Revenues			Total			Percent of Total Revenues
	$		%			$			%			$			%			$			%
Total revenues	$	76,447		100.0	%	$	20,342			100.0	%	$	—			—	%	$	96,789			100.0	%
Cost of revenues		50,096		65.5	%		17,783			87.4	%		—			—	%		67,879			70.1	%
Gross profit		26,351		34.5	%		2,559			12.6	%		—			—	%		28,910			29.9	%
Operating expenses:
Selling, general and administrative		17,712		23.2	%		13,687			67.3	%		4,942			—	%		36,341			37.5	%
Depreciation and amortization		627		0.8	%		1,525			7.5	%		—			—	%		2,152			2.2	%
Research and development		2,647		3.5	%		155			0.7	%		—			—	%		2,802			2.9	%
Provision for bad debt		20		—	%		13			0.1	%		—			—	%		33			0.1	%
Impairment of goodwill and intangible assets		—		—	%		4,347			21.4	%		—			—	%		4,347			4.5	%
Other operating expenses		13		—	%		—			—	%		—			—	%		13			—	%
Total operating expenses		21,019		27.5	%		19,727			97.0	%		4,942			—	%		45,688			47.2	%
Income (loss) from operations	$	5,332		7.0	%	$	(17,168	)		(84.4	)%	$	(4,942	)		—	%	$	(16,778	)		(17.3	)%

(Dollars in thousands)	For the Year Ended December 31, 2017
	Power and Electro - mechanical		Percent of Segment Revenues			Energy			Percent of Segment Revenues			Other			Percent of Segment Revenues			Total			Percent of Total Revenues
	$		%			$			%			$			%			$			%
Total revenues	$	64,432		100.0	%	$	18,843			100.0	%	$	—			—	%	$	83,275			100.0	%
Cost of revenues		42,493		66.0	%		12,913			68.5	%		—			—	%		55,406			66.5	%
Gross profit		21,939		34.0	%		5,930			31.5	%		—			—	%		27,869			33.5	%
Operating expenses:
Selling, general and administrative		16,415		25.5	%		12,588			66.8	%		4,918			—	%		33,921			40.7	%
Depreciation and amortization		818		1.2	%		1,345			7.2	%		—			—	%		2,163			2.6	%
Research and development		2,303		3.6	%		222			1.2	%		—			—	%		2,525			3.0	%
Provision (credit) for bad debt		3		—	%		(16	)		(0.1	)%		—			—	%		(13	)		—	%
Impairment of goodwill and intangible assets		3		—	%		3,152			16.7	%		—			—	%		3,155			3.8	%
Other operating expenses		42		0.1	%		5			—	%		—			—	%		47			0.1	%
Total operating expenses		19,584		30.4	%		17,296			91.8	%		4,918			—	%		41,798			50.2	%
Income (loss) from operations	$	2,355		3.6	%	$	(11,366	)		(60.3	)%	$	(4,918	)		—	%	$	(13,929	)		(16.7	)%

(Dollars in thousands)	For the Year Ended December 31, 2016
	Power and Electro - mechanical		Percent of Segment Revenues			Energy			Percent of Segment Revenues			Other			Percent of Segment Revenues			Total			Percent of Total Revenues
	$		%			$			%			$			%			$			%
Total revenues	$	58,403		100.0	%	$	28,058			100.0	%	$	—			—	%	$	86,461			100.0	%
Cost of revenues		38,059		65.2	%		16,141			57.5	%		—			—	%		54,200			62.7	%
Gross profit		20,344		34.8	%		11,917			42.5	%		—			—	%		32,261			37.3	%
Operating expenses:
Selling, general and administrative		16,756		28.7	%		12,006			42.8	%		5,477			—	%		34,239			39.6	%
Depreciation and amortization		963		1.6	%		1,401			5.0	%		2			—	%		2,366			2.7	%
Research and development		1,873		3.2	%		143			0.5	%		—			—	%		2,016			2.3	%
Provision for bad debt		49		0.1	%		44			0.2	%		—			—	%		93			0.1	%
Other operating expenses		58		0.1	%		(1	)		—	%		—			—	%		57			0.1	%
Total operating expenses		19,699		33.7	%		13,593			48.5	%		5,479			—	%		38,771			44.8	%
Income (loss) from operations	$	645		1.1	%	$	(1,676	)		(6.0	)%	$	(5,479	)		—	%	$	(6,510	)		(7.5	)%

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Revenue

	For the Years Ended December 31,
Revenues by Segment			Percent					Percent
(Dollars in thousands)	2018		Change			2017		Change			2016
Power and Electromechanical	$	76,447		18.6	%	$	64,432		10.3	%	$	58,403
Energy		20,342		8.0	%		18,843		(32.8	)%		28,058
Other		—		—	%		—		—	%		—
Total revenues	$	96,789		16.2	%	$	83,275		(3.7	)%	$	86,461

2018 compared to 2017

Revenues in 2018 are attributable to continued sales and marketing efforts, and sales through the distribution channel customers. Net revenues for the year ended December 31, 2018 were greater than in 2017 due to higher revenues in our Power and Electromechanical segment associated with the timing of customer project delivery schedules due to higher sales through our distribution customers and the revenue recognition accounting change while sales to direct customers were relatively flat. Higher revenue in the Energy segment in 2018 is associated with a strong fourth quarter for revenues due to the timing of customer project delivery schedules and despite the continued delay in shipment of GasPTs toward a significant project in Italy. Energy segment revenue was higher in both our UK and Houston facilities.

The customer orders related to the Power and Electromechanical segment are associated with the existing product offering, continued new product introductions, continued sales and marketing programs, new customer engagements, and distribution channel sales.

The Power and Electromechanical segment held a backlog of customer orders of approximately $21.8 million as of December 31, 2018 compared to a backlog of customer orders of approximately $20.2 million at December 31, 2017. At December 31, 2018, the Energy segment held a backlog of customer orders of approximately $15.7 million compared to approximately $12.6 million at December 31, 2017.

CUI Inc. introduced 1,268 new products during the year ended 2018 compared to 1,122 new products during the year ended 2017. The continued product expansion including ICE products, and our distribution sales channels are expected to continue to result in revenue growth in future periods as CUI’s sales group and support staff continues to reach new customers, further expand relationships with existing customers and continued new product introductions in efforts to have CUI products designed into new projects.

2017 compared to 2016

Revenues in 2017 were attributable to continued sales and marketing efforts, sales through the distribution channel customers, the CUI-Canada related product line, and the revenues generated since the January 2015 opening of Orbital Gas Systems, North America, Inc. Net revenues for the year ended December 31, 2017 were lower than in 2016 due to lower revenues in our Energy segment associated with the timing of customer project delivery schedules and a regulatory issue in Italy unrelated to the technology that delayed the next phase of that project as well as lower translated revenue at our UK operations due to the lower value British pound Sterling following Brexit. The value of the British pound Sterling began a slow recovery after bottoming out in the first quarter of 2017 and was no longer a negative factor in the fourth quarter of 2017 as compared to 2016. Partially offsetting the decrease in the Energy segment, was an increase in revenue in the Power and Electromechanical segment for the year ended December 31, 2017 due to the timing of customer delivery schedules and sell through activity at distributors under the revenue recognition standard in place at the time.

The Power and Electromechanical segment held a backlog of customer orders of approximately $20.2 million as of December 31, 2017 compared to a backlog of customer orders of approximately $18.1 million at December 31, 2016. At December 31, 2017, the Energy segment held a backlog of customer orders of approximately $12.6 million compared to approximately $12.1 million at December 31, 2016.

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CUI Inc. introduced 1,122 new products during the year ended 2017 compared to 968 new products during the year ended 2016.

Cost of Revenues

	For the Years Ended December 31,
Cost of Revenues by Segment			Percent					Percent
(Dollars in thousands)	2018		Change			2017		Change			2016
Power and Electromechanical	$	50,096		17.9	%	$	42,493		11.7	%	$	38,059
Energy		17,783		37.7	%		12,913		(20.0	)%		16,141
Other		—		—	%		—		—	%		—
Total cost of revenues	$	67,879		22.5	%	$	55,406		2.2	%	$	54,200

2018 compared to 2017

The cost of revenues as a percentage of revenue increased to 70% during the year ended December 31, 2018 from 67% during the year ended December 31, 2017. The increase in the cost of revenues as a percentage of revenue was due largely to an increase to inventory reserves of $1.4 million related to a write-down of inventory and a $1.5 million write down of long-term deposits and other assets that were prepaid within the Energy segment. Also contributing to the higher percentage was a less favorable revenue mix of integration projects in the Energy segment in 2018 offset by a slightly more favorable product mix in the Power and Electromechanical segment on greater volume. As a result of the impairments taken and the less favorable revenue mix in the Energy segment, for the year ended December 31, 2018, the cost of revenues as a percentage of revenue in the Energy segment increased 18 percentage points from 69% to 87%. The percentage of cost of revenues for the Power and Electromechanical segment decreased half a percentage point despite a significant royalty expense paid related to the revenues of the ICE switch recognized in the first quarter of 2018. The royalty rate is higher on the first $1.4 million of ICE product revenues. While the cost of revenues decreased as a percentage of sales, the total cost of revenues in the Power and Electromechanical segment increased due to higher sales volume in 2018 compared to 2017. The Company expects improved cost of revenues as a percentage of revenues in 2019 as a result of increased sales of higher margin products and better mix of integration and service projects.

2017 compared to 2016

The cost of revenues as a percentage of revenue increased to 67% during the year ended December 31, 2017 from 63% during the year ended December 31, 2016. The increase in the cost of revenues as a percentage of revenue was due to a less favorable product mix particularly in the Energy segment in 2017 including a decreased volume of higher margin GasPT sales. The Power and Electromechanical segment also had a slight decrease in its gross margin associated with product mix. As a result of the less favorable product mix in the Energy segment, for the year ended December 31, 2017, the cost of revenues as a percentage of revenue increased 11 percentage points from 58% to 69%. Cost of revenues in the Energy segment were lower in 2017 compared to 2016 due to lower sales volumes. The percentage of cost of revenues for the Power and Electromechanical segment increased from 65% to 66%. In addition to the increased cost of revenues percentage, costs of revenues in the Power and Electromechanical segment increased due to higher sales volume in 2017 compared to 2016.

Selling, General and Administrative Expense

	For the Years Ended December 31,
Selling, General, and Administrative Expense by Segment			Percent					Percent
(Dollars in thousands)	2018		Change			2017		Change			2016
Power and Electromechanical	$	17,712		7.9	%	$	16,415		(2.0	)%	$	16,756
Energy		13,687		8.7	%		12,588		4.8	%		12,006
Other		4,942		0.5	%		4,918		(10.2	)%		5,477
Total SG&A	$	36,341		7.1	%	$	33,921		(0.9	)%	$	34,239

Selling, General and Administrative (SG&A) expenses includes such items as wages, commissions, consulting, general office expenses, business promotion expenses and costs of being a public company including legal and accounting fees, insurance and investor relations. SG&A expenses are generally associated with the ongoing activities to reach new customers, promote new product lines including ICE, GasPT, VE, and new product introductions.

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2018 compared to 2017

During the year ended December 31, 2018, SG&A increased $2.4 million compared to the year ended December 31, 2017. The increase for the year is due to increased costs in both the Power and Electromechanical and Energy segments primarily due to higher selling expenses on the higher sales within both segments, higher professional fees in the Energy segment and higher SG&A expenses at the new Houston facility. Also contributing to the higher SG&A expenses in the Energy segment in 2018 were increased marketing expenses related to the World Gas Conference. SG&A decreased to 38% of total revenue in 2018 compared to 41% of total revenue during the year ended December 31, 2017 due to economies of scale on 16% higher consolidated revenues.

2017 compared to 2016

During the year ended December 31, 2017, SG&A decreased $0.3 million compared to the prior-year comparative period. The decrease for the year is largely due to $0.6 million in severance costs incurred in 2016 in the Power and Electromechanical segment for the transition of the R&D team to CUI-Canada and for various positions within the Energy segment during the year ended December 31, 2016 compared to severance costs in 2017 primarily in the Energy segment that were less than $0.3 million. The increase in the Energy segment is due to the severance costs at Orbital-UK and increased advertising expense in the Energy segment of $0.2 million. The remaining decreases in SG&A during the year ended December 31, 2017 were associated with various cost saving measures begun in the second quarter of 2017 and due to the lower sales volume in 2017 compared to 2016. SG&A increased to 41% of total revenue in 2017 compared to 40% of total revenue during the year ended December 31, 2016.

Depreciation and Amortization

	For the Years Ended December 31,
Depreciation and Amortization by Segment			Percent					Percent
(Dollars in thousands)	2018		Change			2017		Change			2016
Power and Electromechanical	$	1,480		(1.7	)%	$	1,505		4.2	%	$	1,445
Energy		1,525		13.4	%		1,345		(4.0	)%		1,401
Other		—		—	%		—		(100.0	)%		2
Total depreciation and amortization	$	3,005		5.4	%	$	2,850		0.1	%	$	2,848

The depreciation and amortization expenses are associated with depreciating buildings, furniture, vehicles, equipment, software and other intangible assets over the estimated useful lives of the related assets. The above table includes $0.9 million, $0.7 million, and $0.5 million of depreciation and amortization, in 2018, 2017 and 2016, respectively that was included in cost of revenues in the Power and Electromechanical segment. The increase in depreciation and amortization included in cost of revenues was due to increased allocation of depreciation and amortization to cost of revenues at CUI Inc. and CUI-Canada.

2018 compared to 2017

Depreciation and amortization increased slightly for the year ended December 31, 2018 compared to the comparable period in 2017. The decrease in depreciation and amortization at the Power and Electromechanical segment was due to the V-Infinity trademark becoming fully amortized in 2017 partially offset by higher product certification amortization in 2018 compared to 2017. The decrease in the Power and Electromechanical segment was more than offset by increased depreciation and amortization in the Energy segment due to generally increased foreign currency translation rates in 2018 compared to 2017 and increased software amortization due to Orbital's new ERP system going into service in 2018.

2017 compared to 2016

Depreciation and amortization increased slightly for the year ended December 31, 2017 compared to the comparable period in 2016. The increase in depreciation and amortization at the Power and Electromechanical segment was due to additional product certification investments in 2017, which was partially offset by decreased depreciation and amortization at Orbital-UK due to generally lower foreign currency rates in 2017 compared to 2016.

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Research and Development

	For the Years Ended December 31,
Research and Development by Segment			Percent					Percent
(Dollars in thousands)	2018		Change			2017		Change			2016
Power and Electromechanical	$	2,647		14.9	%	$	2,303		23.0	%	$	1,873
Energy		155		(30.2	)%		222		55.2	%		143
Other		—		—	%		—		—	%		—
Total research and development	$	2,802		11.0	%	$	2,525		25.2	%	$	2,016

Research and development costs are associated with the continued research and development of new and existing technologies including advanced power technologies, ICE, GasPT, VE Technology and other products. Research and development expense was down in the Energy segment and up in the Power and Electromechanical segment for year ended December 31, 2018 compared to the year ended December 31, 2017 and up in both segments in 2017 compared to 2016. Research and development activities were primarily focused on the ICE technology in Power and Electromechanical Segment and GasPT and VE technologies in the Energy segment.

Impairment Loss

As of December 31, 2018, management calculated an excess carrying amount for its Orbital-UK goodwill resulting in the remaining goodwill at Orbital-UK being written off, which was a $3.1 million impairment. As of May 31, 2018, management performed its annual assessment of goodwill impairment which resulted in a $1.3 million impairment. As of December 31, 2017, management calculated an excess carrying amount for its Orbital-UK goodwill resulting in a $3.2 million impairment. See Note 2 Summary of Significant Accounting Policies - Indefinite-Lived Intangibles and Goodwill Assets for information on the impairment to goodwill in 2018 and 2017.

Provision (Credit) for Bad Debt

	For the Years Ended December 31,
Provision (Credit) for Bad Debt by Segment			Percent						Percent
(Dollars in thousands)	2018		Change			2017			Change			2016
Power and Electromechanical	$	20		566.7	%	$	3			(93.9	)%	$	49
Energy		13		(181.3	)%		(16	)		(136.4	)%		44
Other		—		—	%		—			—	%		—
Total provision (credit) for bad debt	$	33		(353.8	)%	$	(13	)		(114.0	)%	$	93

Provision (credit) for bad debt in 2018, 2017 and 2016 represents less than ½% of total revenues and relates to miscellaneous receivables, which the Company has either recorded an allowance for doubtful collections of the receivable or for which the Company has determined the balance to be uncollectible. Credits to the provision for bad debt are generated when aged receivables are collected at a higher rate than was previously reserved. This results in the calculated reserve being reduced.

47

Other Income (Expense)

	For the Years Ended December 31,
(Dollars in thousands)	2018			Percent Change			2017		Percent Change			2016
Foreign exchange (loss) gain	$	(461	)		(768.1	)%	$	69		(116.3	)%	$	(423	)
Interest income		35			75.0	%		20		25.0	%		16
Non-cash gain and unrealized gain on derivative liability		129			16.2	%		111		(1.8	)%		113
Other, net		46			35.3	%		34		(20.9	)%		43
Total other (expense) income	$	(251	)		(207.3	)%	$	234		(193.2	)%	$	(251	)

Investment Income

During the three months ended March 31, 2016, the Company's investment in TPI was exchanged for a note receivable from TPI of $0.4 million, which was the carrying value of the investment, earning interest at 5% per annum, due June 30, 2019. The Company recorded interest income on the note of $17 thousand, $18 thousand and $19 thousand for the years ended December 31, 2018, 2017 and 2016, respectively. The interest receivable is settled on a quarterly basis via a non-cash offset against the finders-fee royalties earned by TPI on GasPT sales. Any remaining finders-fee royalties balance is offset against the note receivable quarterly. Management reviewed the note receivable for non-collectability as of December 31, 2018 and concluded that no allowance was necessary. For more information on this investment, see Note 2 Summary of Significant Accounting Policies - Investment and Note Receivable, to the Consolidated Financial Statements under Part II, Item 8, ‘‘Financial Statements and Supplementary Data.’’

Interest Expense

The Company incurred $0.5 million, $0.5 million, and $0.5 million of interest expense during 2018, 2017 and 2016, respectively. Interest expense is for interest on the secured note, secured promissory note, and line of credit and overdraft facility. The Company's secured note was repaid in December 2018 as part of the Company's sale-leaseback transaction.

Provision (benefit) for taxes

2018 compared to 2017

The Company is subject to taxation in the U.S., various state and foreign jurisdictions. We continue to record a full valuation allowance against the Company's U.S. net deferred tax assets as it is "not more likely than not," that the Company will realize a benefit from these assets in a future period. During 2018, the Company provided for a full valuation allowance against the Company’s U.K. net deferred tax assets as it is not “more likely than not,” that the Company will realize a benefit from these assets in a future period. In future periods, tax benefits and related deferred tax assets will be recognized when management concludes realization of such amounts is "more likely than not." In 2018, a net benefit of $0.2 million, was recorded to the income tax provision for the year ended December 31, 2018 resulting in an effective tax rate of 1.2% compared to a $1.6 million tax benefit for the year ended December 31, 2017 and an effective tax rate of 11.3%. For the year ended December 31, 2018, the income tax benefit primarily represents benefits from foreign net operating losses partially offset by state minimum taxes and taxes on profitable foreign jurisdictions. For the year ended December 31, 2017, the income tax benefit primarily represents benefits from foreign net operating losses and the $0.9 million benefit resulting from the rate changes passed in the December 2017 Tax Act, partially offset by state minimum taxes and taxes on a profitable foreign jurisdiction. As of December 31, 2018, we have federal, state and foreign net operating loss carry forwards of approximately $67.8 million, $62.8 million, and $2.2 million, respectively, and for which the federal and state net operating loss carry-forwards will expire between 2019 and 2038.

2017 compared to 2016

In 2017, a net benefit of $1.6 million, was recorded to the income tax provision for the year ended December 31, 2017 resulting in an effective tax rate of 11.3% compared to a $38 thousand tax expense for the year ended December 31, 2016 and an effective tax rate of (0.5)%. For the year ended December 31, 2017, the income tax benefit primarily represents benefits from foreign net operating losses and the $0.9 million benefit resulting from the rate changes passed in the December 2017 Tax Act, partially offset by state minimum taxes and taxes on a profitable foreign jurisdiction, whereas, for the year ended December 31, 2016, the income tax provision primarily represents state minimum taxes and taxes on a profitable foreign jurisdiction.

48

Consolidated Net Loss

2018 compared to 2017

The Company had a net loss of $17.3 million for the year ended December 31, 2018 compared to a net loss of $12.6 million for the year ended December 31, 2017. The increase in the consolidated net loss for 2018 was primarily the result of higher goodwill impairments, higher inventory reserves and impairment of deposits and other assets.

2017 compared to 2016

The Company had a net loss of $12.6 million for the year ended December 31, 2017 compared to a net loss of $7.3 million for the year ended December 31, 2016. The increase in the consolidated net loss for 2017 was primarily the result of lower revenues coupled with increased cost of revenues due to a less favorable product mix in 2017 compared to 2016, and an impairment to goodwill of $3.2 million.

Effect of Inflation and Changing Prices

The Company believes, that during fiscal years ended December 31, 2018, 2017 and 2016, the effect of a hypothetical 100 basis point shift in foreign currency exchange rates applicable to our business would not have had a material impact on our consolidated financial statements.

Recently Adopted and Recently Issued Accounting Standards

Information on recently adopted and recently issued accounting standards is included in Note 2 Summary of Significant Accounting Policies - Recent Accounting Pronouncements, to the Consolidated Financial Statements under Part II, Item 8, ‘‘Financial Statements and Supplementary Data.’’

Item 7A. Quantitative and Qualitative Disclosure about Market Risk

We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. This market risk exposure is primarily a result of fluctuations in foreign currency exchange rates and interest rates. The Company neither holds nor issues financial instruments for trading purposes.

The following sections provide quantitative information on the Company’s exposure to foreign currency exchange rate risk and stock price risk. The Company makes use of sensitivity analyses that are inherently limited in estimating actual losses in fair value that can occur from changes in market conditions.

Foreign Currency Exchange Rates

The Company conducts operations in four principal currencies: the U.S. dollar, the British pound sterling, the Canadian dollar and the Japanese yen. These currencies operate primarily as the functional currency for the Company’s U.S., UK, Canadian and Japanese operations, respectively. Cash is managed centrally within each of the four regions with net earnings invested in the U.S. and working capital requirements met from existing U.S. intercompany liquid funds.

Because of fluctuations in currency exchange rates, the Company is subject to currency translation exposure on the results of its operations. Foreign currency translation risk is the risk that exchange rate gains or losses arise from translating foreign entities’ statements of earnings and balance sheets from functional currency to the Company’s reporting currency, the U.S. dollar, for consolidation purposes. As currency exchange rates fluctuate, translation of our Statements of Operations into U.S. dollars affects the comparability of revenues and operating expenses between years.

Revenues and operating expenses are primarily denominated in the currencies of the countries in which our operations are located, the U.S., UK, Canada and Japan. Our consolidated results of operations and cash flows are, therefore, subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates.

49

The table below details the percentage of revenues and expenses by the four principal currencies for the fiscal years ended December 31, 2018, 2017 and 2016:

	U.S. Dollar			British Pound Sterling			Canadian Dollar			Japanese Yen
Fiscal year ended December 31, 2018
Revenues		82	%		16	%		—	%		2	%
Operating expenses		59	%		32	%		8	%		1	%
Fiscal year ended December 31, 2017
Revenues		80	%		19	%		—	%		1	%
Operating expenses		61	%		30	%		8	%		1	%
Fiscal year ended December 31, 2016
Revenues		72	%		27	%		—	%		1	%
Operating expenses		67	%		25	%		7	%		1	%

To date, we have not entered into any hedging arrangements with respect to foreign currency risk and have limited activity with forward foreign currency contracts or other similar derivative instruments.

Investment Risk

The Company has an Investment Policy that, inter alia, provides an internal control structure that takes into consideration safety (credit risk and interest rate risk), liquidity and yield. Our Investment officers, CEO and CFO, oversee the investment portfolio and compile a quarterly analysis of the investment portfolio when applicable for internal use.

Cash and cash equivalents are diversified and maintained with several financial institutions. Deposits held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and are maintained with financial institutions of reputable credit, therefore, bear minimal credit risk.

The Company has trade receivable and revenue concentrations with large customers, which include a large concentration of trade receivables and revenues in the United Kingdom.

50

Item 8.  Financial Statements and Supplementary Data

This item includes the following financial information:

	Page
Report of Independent Registered Public Accounting Firm	52
Consolidated Balance Sheets	53
Consolidated Statements of Operations	54
Consolidated Statements of Comprehensive Income and (Loss)	55
Consolidated Statements of Changes in Stockholders’ Equity	56
Consolidated Statements of Cash Flows	57
Notes to Consolidated Financial Statements	58 – 96
Quarterly Financial Data	97

51

Report of Independent Registered Public Accounting Firm

Stockholders and Board of Directors

CUI Global, Inc.

Tualatin, Oregon

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of CUI Global, Inc. and Subsidiaries (the “Company”) as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income and (loss), changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2018 and 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 with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 18, 2019 expressed an unqualified opinion thereon.

Adoption of New Accounting Standard

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method for the recognition, measurement, presentation and disclosure of revenue in the year ended December 31, 2018 due to the adoption of ASC 606, Revenue from Contracts with Customers.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws 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 audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

Our audits 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 regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Perkins & Company, P.C.

We have served as the Company's auditor since 2014.

Portland, Oregon

March 18, 2019

52

CUI Global, Inc.

Consolidated Balance Sheets

As of December 31, 2018 and 2017

	December 31,			December 31,
(In thousands, except share and per share data)	2018			2017
Assets:
Current Assets:
Cash and cash equivalents	$	3,979		$	12,646
Trade accounts receivable, net of allowance of $167 and $135, respectively		14,416			10,833
Inventories, net of allowance of $2,495 and $946, respectively		13,042			13,892
Contract assets		1,744			2,299
Note receivable, current portion		318			13
Prepaid expenses and other		1,982			1,593
Total current assets		35,481			41,276
Property and equipment, less accumulated depreciation of
$4,234 and $4,155, respectively		5,973			11,242
Goodwill		13,089			17,641
Other intangible assets, less accumulated amortization of $13,190 and $11,900, respectively		13,861			15,568
Restricted cash		523			—
Note receivable, less current portion		—			317
Convertible notes receivable		655			—
Deposits and other assets		585			1,865
Total assets	$	70,167		$	87,909
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable	$	6,480		$	5,110
Short-term overdraft facility		1,344			—
Line of credit		979			—
Mortgage note payable, current portion		—			94
Accrued expenses		4,851			4,186
Contract liabilities		2,226			8,829
Refund liabilities		2,417			695
Deferred gain on leaseback, current portion		289			—
Total current liabilities		18,586			18,914
Long term note payable, related party		5,304			5,304
Long term mortgage note payable, less current portion		—			3,256
Derivative liability		—			356
Deferred tax liabilities		1,922			2,414
Deferred gain on leaseback, less current portion		2,599			—
Other long-term liabilities		218			179
Total liabilities		28,629			30,423
Commitments and contingencies
Stockholders' Equity:
Preferred stock, par value $0.001; 10,000,000 shares authorized; no shares issued at December 31, 2018 or December 31, 2017		—			—
Common stock, par value $0.001; 325,000,000 shares authorized; 28,552,886 shares issued and outstanding at December 31, 2018 and 28,406,856 shares issued and outstanding at December 31, 2017		29			28
Additional paid-in capital		169,898			169,527
Accumulated deficit		(123,993	)		(108,559	)
Accumulated other comprehensive loss		(4,396	)		(3,510	)
Total stockholders' equity		41,538			57,486
Total liabilities and stockholders' equity	$	70,167		$	87,909

See accompanying notes to consolidated financial statements

53

CUI Global, Inc.

Consolidated Statements of Operations

For the Years Ended December 31, 2018, 2017 and 2016

(In thousands, except share and per share amounts)
	2018			2017			2016
Total revenues	$	96,789		$	83,275		$	86,461
Cost of revenues		67,879			55,406			54,200
Gross profit		28,910			27,869			32,261
Operating expenses:
Selling, general and administrative		36,341			33,921			34,239
Depreciation and amortization		2,152			2,163			2,366
Research and development		2,802			2,525			2,016
Provision (credit) for bad debt		33			(13	)		93
Impairment of goodwill and intangible assets		4,347			3,155			—
Other operating expenses		13			47			57
Total operating expenses		45,688			41,798			38,771
Loss from operations		(16,778	)		(13,929	)		(6,510	)
Other (expense) income		(251	)		234			(251	)
Interest expense		(502	)		(500	)		(467	)
Loss before taxes		(17,531	)		(14,195	)		(7,228	)
Income tax (benefit) expense		(206	)		(1,606	)		38
Net loss	$	(17,325	)	$	(12,589	)	$	(7,266	)
Basic and diluted weighted average number of shares outstanding		28,517,339			22,397,865			20,897,812
Basic and diluted loss per common share	$	(0.61	)	$	(0.56	)	$	(0.35	)

See accompanying notes to consolidated financial statements

54

CUI Global, Inc.

Consolidated Statements of Comprehensive Income and (Loss)

For the Years Ended December 31, 2018, 2017 and 2016

(in thousands)

	2018			2017			2016
Net loss	$	(17,325	)	$	(12,589	)	$	(7,266	)
Other comprehensive income (loss)
Foreign currency translation adjustment		(886	)		2,080			(4,150	)
Comprehensive loss	$	(18,211	)	$	(10,509	)	$	(11,416	)

See accompanying notes to consolidated financial statements

55

CUI Global, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

For the Years Ended December 31, 2018, 2017 and 2016

(In thousands, except share amounts)

					Additional					Accumulated Other			Total
	Common Stock				Paid-in		Accumulated			Comprehensive			Stockholders'
	Shares		Amount		Capital		Deficit			Income (Loss)			Equity
Balance, December 31, 2015		20,806,219	$	21	$	149,639	$	(88,704	)	$	(1,440	)	$	59,516
Options granted for services and compensation		—		—		227		—			—			227
Common stock issued for exercises of options		718		—		—		—			—			—
Common stock issued for compensation, royalties, and services payments		109,911		—		308		—			—			308
Net loss for the year ended December 31, 2016		—		—		—		(7,266	)		—			(7,266	)
Other comprehensive loss		—		—		—		—			(4,150	)		(4,150	)
Balance, December 31, 2016		20,916,848		21		150,174		(95,970	)		(5,590	)		48,635
Issuance of common stock, net		7,392,856		7		18,898		—			—			18,905
Common stock issued for exercises of options		245		—		—		—			—			—
Common stock issued for compensation, royalties, and services payments		96,907		—		455		—			—			455
Net loss for the year ended December 31, 2017		—		—		—		(12,589	)		—			(12,589	)
Other comprehensive income		—		—		—		—			2,080			2,080
Balance, December 31, 2017		28,406,856		28		169,527		(108,559	)		(3,510	)		57,486
Cumulative effect of accounting change		—		—		—		1,891			—			1,891
Balance, January 1, 2018, adjusted		28,406,856		28		169,527		(106,668	)		(3,510	)		59,377
Common stock issued for compensation, services, and royalty payments		146,030		1		371		—			—			372
Net loss for the year ended December 31, 2018		—		—		—		(17,325	)		—			(17,325	)
Other comprehensive loss		—		—		—		—			(886	)		(886	)
Balance, December 31, 2018		28,552,886	$	29	$	169,898	$	(123,993	)	$	(4,396	)	$	41,538

See accompanying notes to consolidated financial statements

56

CUI Global, Inc.

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2018, 2017 and 2016

 (In thousands)

	2018			2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(17,325	)	$	(12,589	)	$	(7,266	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation		1,103			1,009			925
Amortization of intangibles		1,902			1,841			1,923
Stock issued and stock to be issued for compensation, royalties and services		229			425			734
Non-cash gain and unrealized gain on derivative liability		(129	)		(111	)		(113	)
Non-cash royalties, net (see Note 2 - Investment and note receivable)		(7	)		(3	)		19
Provision (credit) for bad debt expense		33			(13	)		93
Deferred income taxes		(352	)		(1,767	)		(107	)
Non-cash unrealized foreign currency loss (gain)		246			(362	)		172
Impairment of goodwill and other intangible assets		4,347			3,155			—
Inventory reserves		1,592			138			312
Impairment of deposits and other assets		1,509			—			—
Loss on disposal of assets		13			47			57
(Increase) decrease in operating assets:
Trade accounts receivable		(3,841	)		(1,150	)		4,432
Inventories		(2,235	)		(411	)		(1,672	)
Contract assets		(61	)		591			(1,454	)
Prepaid expenses and other current assets		(392	)		(421	)		105
Deposits and other assets		(59	)		(506	)		(25	)
Increase (decrease) in operating liabilities:
Accounts payable		1,436			(1,163	)		495
Accrued expenses		1,116			(464	)		(518	)
Refund liabilities		852			130			(30	)
Contingent consideration		—			3			(54	)
Contract liabilities		(2,260	)		2,252			1,371
NET CASH USED IN OPERATING ACTIVITIES		(12,283	)		(9,369	)		(601	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds on sale of building, net		7,720			—			—
Payment for restricted investment		(400	)		—			—
Purchases of property and equipment		(1,042	)		(893	)		(824	)
Proceeds from sale of property and equipment		—			8			27
Investment in other intangible assets		(492	)		(638	)		(850	)
Investment in convertible notes receivable		(655	)		—			—
Proceeds from notes receivable		19			39			—
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		5,150			(1,484	)		(1,647	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from overdraft facility		19,532			9,782			—
Payments on overdraft facility		(18,122	)		(9,782	)		—
Proceeds from line of credit		19,955			22,332			—
Payments on line of credit		(18,976	)		(22,332	)		—
Payments on capital lease obligations		(3	)		(29	)		(41	)
Payments on mortgage note payable		(3,350	)		(89	)		(85	)
Payment to closeout derivative liability		(227	)		—			—
Payments on contingent consideration		(45	)		(61	)		(59	)
Proceeds from sales of common stock, net of offering costs		—			18,905			—
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES		(1,236	)		18,726			(185	)
Effect of exchange rate changes on cash		225			156			(217	)
Net (decrease) increase in cash, cash equivalents and restricted cash		(8,144	)		8,029			(2,650	)
Cash, cash equivalents and restricted cash at beginning of year		12,646			4,617			7,267
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR	$	4,502		$	12,646		$	4,617

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid	$	237	$	158	$	211
Interest paid, net of capitalized interest	$	520	$	500	$	469
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued and issuable for royalties payable pursuant to product agreements, related party	$	14	$	16	$	38
Common stock issued and to be issued for consulting services and compensation in common stock	$	358	$	439	$	270
Exchange of investment in TPI in return for note receivable (Note 2)	$	—	$	—	$	385
Accrued property and equipment purchases at December 31	$	8	$	27	$	45
Accrued investment in other intangible assets at December 31	$	55	$	15	$	48
Assets acquired via capital leases	$	—	$	—	$	19

See accompanying notes to consolidated financial statements

57

CUI Global, Inc.

Notes to Consolidated Financial Statements

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

CUI Global Inc. (CUI Global) is a platform company composed of two segments, the Power and Electromechanical segment and the Energy segment.

The Power and Electromechanical segment is made up of the wholly owned subsidiaries: CUI Inc. (CUI), based in Tualatin, Oregon; CUI Japan, based in Tokyo, Japan; and CUI-Canada, based in Toronto, Canada. All three subsidiaries are providers of power and electromechanical components including power supplies, transformers, converters, connectors and industrial controls for Original Equipment Manufacturers (OEMs).

The Power and Electromechanical segment defines its product offerings into two categories: power supply solutions, which consists of external and embedded ac-dc power supplies, dc-dc converters, and advanced power supply solutions including the ICE products, and components including connectors, speakers, buzzers, and control solutions including encoders and sensors. These offerings provide a technology architecture that addresses power and related accessories to industries as broadly ranging as consumer electronics, medical and defense, among others.

The Company’s Energy segment is made up of Orbital Gas Systems Ltd. (Orbital-UK) and Orbital Gas Systems, North America, Inc. (Orbital North America), collectively referred to as Orbital Gas Systems (Orbital). This business segment was formed when in April 2013, CUI Global acquired 100% of the capital stock of Orbital-UK, a United Kingdom-based provider of natural gas infrastructure and advanced technology, including metering, odorization, remote telemetry units (‘‘RTU’’) and a diverse range of personalized gas engineering solutions to the gas utilities, power generation, emissions, manufacturing and automotive industries. In January 2015, CUI Global formed and opened Orbital Gas Systems, North America, Inc. a wholly owned subsidiary, to represent the Energy segment in the North American market. GasPT® and VE® Technology products are sold through Orbital.

During the year ended December 31, 2018, total revenues at CUI Global consisted of 79% from the Power and Electromechanical segment and 21% from the Energy segment.

58

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to review the Company’s goodwill, impairments and estimations of long-lived assets, revenue recognition on cost-to-cost type contracts, allowances for uncollectible accounts, inventory valuation, warranty reserves, valuations of non-cash capital stock issuances and the valuation allowance on deferred tax assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Company Conditions

The continued delays in shipment of GasPTs on a significant project due to governmental delays and the related slower than expected acceptance of this new disruptive technology has caused a delay in our expected profitability.

The Company had losses of $17.3 million and cash used in operating activities of $12.3 million during the year ended December 31, 2018. As of December 31, 2018, our accumulated deficit is $124.0 million.

Management believes the Company's present cash flows will not enable it to meet its obligations for twelve months from the date these financial statements are available to be issued. However, management has developed a plan to address this issue. The plan included obtaining a new long-term financing in the form of a new line of credit, and utilizing the cash received from our recent sale/leaseback of our Tualatin headquarters. As part of this plan the Company has obtained a firm commitment from Bank of American for a $10.0 million credit facility. The new line of credit is expected to close in April of 2019. For more information on the Company's new line of credit, see Note 16 Subsequent Events. In addition, as of December 31, 2018, the Company has unused availability of $2.0 million on its current line of credit and unused availability of $0.6 million under its Overdraft Facility. However, our new credit facility will replace these facilities. Including our cash balance, we further have $16.9 million of positive working capital primarily related to trade accounts receivable and our inventory less current liabilities that we will manage in the next twelve months to create positive cash flow. Considering the above factors and the new line of credit, management believes it is probable that management’s plans will be achieved and will enable the Company to meet its obligations for the twelve-month period from the date the financial statements are available to be issued.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of CUI Global, Inc. and its wholly owned subsidiaries CUI Inc., CUI Japan, CUI-Canada, CUI Properties, LLC, Orbital Gas Systems, Ltd. and Orbital Gas Systems, North America, Inc. hereafter referred to as the ‘‘Company.’’ Significant intercompany accounts and transactions have been eliminated in consolidation.

Fair Value of Financial Instruments

Accounting Standards Codification (‘‘ASC’’) 820 ‘‘Fair Value Measurements and Disclosures’’ (‘‘ASC 820’’) defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles in the U.S., and enhances disclosures about fair value measurements. ASC 820 describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

• Level 1 – Pricing inputs are quoted prices available in active markets for identical assets or liabilities as of the reporting date.

• Level 2 – Pricing inputs are quoted for similar assets, or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data. Level 2 includes assets or liabilities valued at quoted prices adjusted for legal or contractual restrictions specific to these investments.

• Level 3 – Pricing inputs are unobservable for the assets or liabilities; that is, the inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability.

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The Company determines when a financial instrument transfers between levels based on management’s judgment of the significance of unobservable inputs used to calculate the fair value of the financial instrument.

Management believes the carrying amounts of the short-term financial instruments, including cash and cash equivalents, investment, note receivable, accounts receivable, contract assets, prepaid expense and other assets, accounts payable, accrued liabilities, contract liabilities, refund liabilities, and other liabilities reflected in the accompanying consolidated balance sheet approximate fair value at December 31, 2018 and 2017 due to the relatively short-term nature of these instruments. Mortgage debt and related notes payable approximate fair value based on current market conditions. The Company measures its derivative liability on a recurring basis using significant observable inputs (Level 2). The Company’s derivative liability is valued using a LIBOR swap curve. As of December 31, 2018, the mortgage debt and derivative liability were repaid and had zero balances.

Cash and Cash Equivalents

Cash includes deposits at financial institutions with maturities of three months or less. The Company at times has cash in banks in excess of FDIC insurance limits and places its temporary cash investments with high credit quality financial institutions. The Company considers all highly liquid marketable securities with maturities of 90 days or less at the date of acquisition to be cash equivalents. Cash equivalents include money market funds, certificates of deposit and commercial paper. At December 31, 2018 and 2017, the Company had $0.3 million and $0.9 million, respectively, of cash and cash equivalents balances at domestic financial institutions that were covered under the FDIC insured deposits programs and $68 thousand and $0.2 million, respectively, at foreign financial institutions covered under the United Kingdom Financial Services Compensation (FSC) and the Canada Deposit Insurance Corporation (CDIC). At December 31, 2018 and 2017, the Company held $0.3 million and $0.1 million, respectively, in Japanese foreign bank accounts and $1 thousand and $0.1 million, respectively, in European foreign bank accounts and $67 thousand and $0.1 million, respectively, in Canadian bank accounts. In addition to the Company's unrestricted cash and cash equivalents, the Company has $523 thousand of long-term restricted cash on its balance sheet related to a contract guarantee. The restricted cash is classified as long term in nature because the contract guarantee extends to the end of 2021. Restricted cash is combined with other cash and cash equivalents in reconciling the change in cash on the Company's Consolidated Statements of Cash Flows.

Investments and Notes Receivable

Test Products International, Inc. ("TPI") is a provider of handheld test and measurement equipment. Through the acquisition of CUI Inc., the Company obtained 352,589 common shares (representing an 8.94% interest from January 1 to March 31, 2014 and 8.5% thereafter). Through September 30, 2015, CUI Global enjoyed a close association with TPI through common related parties, IED, Inc. and James McKenzie as well as through participation that allowed for a significant amount of influence over TPI’s business decisions. Accordingly, through September 30, 2015, for financial statement purposes, the Company recognized its investment in TPI under the equity method. Following a determination of reduction in influence and control, the investment was recorded using the cost method.

During the first quarter of 2016, the investment in TPI was exchanged for a note receivable from TPI of $0.4 million, which was the carrying value of the investment, earning interest at 5% per annum, due June 30, 2019. The Company recorded interest income on the note of $17 thousand, $18 thousand and $19 thousand for the years ended December 31, 2018, 2017 and 2016, respectively. The interest receivable has been settled on a quarterly basis via a non-cash offset against the finders-fee royalties earned by TPI on GasPT sales. Finders-fee royalties of $10 thousand, $16 thousand and $37 thousand were earned by TPI in the years ended December 31, 2018, 2017 and 2016, respectively, and offset against the note receivable on a quarterly basis. Also, in 2018 and 2017, the Company received $19 thousand and $39 thousand, respectively, in cash payments against the note.  The balance on the note receivable at December 31, 2018 and 2017 was $318 thousand and $330 thousand, respectively. CUI Global reviewed the note receivable for non-collectability as of December 31, 2018 and concluded that no allowance was necessary.

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During 2018, the Company made two strategic investments in convertible notes receivable with Virtual Power Systems ("VPS") for a total of $655 thousand. CUI Inc. is the exclusive third-party design and development provider of VPS's ICE (Intelligent Control of Energy) products. See Note 3, Investments and Fair Value Measurements for more information on these convertible notes.

Accounts Receivable and Allowance for Uncollectible Accounts

Accounts receivable consist of the receivables associated with revenue derived from product sales including present amounts due to contracts accounted for under cost-to-cost method. An allowance for uncollectible accounts is recorded to allow for any amounts that may not be recoverable, based on an analysis of prior collection experience, customer credit worthiness and current economic trends. Based on management’s review of accounts receivable, an allowance for doubtful accounts of $0.2 million and $0.1 million at December 31, 2018 and 2017, respectively, is considered adequate. The reserve in both periods considers aged receivables that management believes should be specifically reserved for as well as historic experience with bad debts to determine the total reserve appropriate for each period. Receivables are determined to be past due based on the payment terms of original invoices. The Company grants credit to its customers, with standard terms of Net 30 days. The Company routinely assesses the financial strength of its customers and, therefore, believes that its accounts receivable credit risk exposure is limited. Additionally, the Company maintains a foreign credit receivables insurance policy that covers many of the CUI Inc. foreign customer receivable balances in an effort to further reduce credit risk exposure.

Activity in the allowance for doubtful accounts for the years ended December 31, 2018, 2017 and 2016 is as follows:

(In thousands)	For the Years ended December 31,
	2018			2017			2016
Allowance for doubtful accounts, beginning of year	$	135		$	151		$	90
Charge (credit) to costs and expenses		33			(13	)		93
Deductions		(1	)		(3	)		(32	)
Allowance for doubtful accounts, end of year	$	167		$	135		$	151

Inventories

Inventories consist of finished and unfinished products and are stated at the lower of cost or market through either the first-in, first-out (FIFO) method as a cost flow convention or through the moving average cost method.

At December 31, 2018, and 2017, inventory is presented on the balance sheet net of reserves. The Company provides reserves for inventories estimated to be excess, obsolete or unmarketable. The Company’s estimation process for assessing the net realizable value is based upon its known backlog, projected future demand, historical usage and expected market conditions. Manufactured inventory includes material, labor and overhead. Inventory by category consists of:

(In thousands)	As of December 31,
	2018			2017
Finished goods	$	10,143		$	10,792
Raw materials		4,200			3,287
Work-in-process		1,194			759
Inventory reserves		(2,495	)		(946	)
Total inventories	$	13,042		$	13,892

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Activity in inventory reserves is as follows:

(In thousands)	For the Years ended December 31,
	2018			2017		2016
Inventory reserves, beginning of year	$	946		$	774	$	483
Charge to costs and expenses		1,592			138		312
Other (deductions) additions		(43	)		34		(21	)
Inventory reserves, end of year	$	2,495		$	946	$	774

In the fourth quarter of 2018, the Company recorded an additional inventory reserve of $1.4 million related to slow-moving inventory in the Energy segment.

Land, Buildings, Improvements, Furniture, Vehicles, Equipment, and Leasehold Improvements

Land is recorded at cost and includes expenditures made to ready it for use. Land is considered to have an infinite useful life.

Buildings and improvements are recorded at cost.

Furniture, vehicles, and equipment are recorded at cost and include major expenditures, which increase productivity or substantially increase useful lives.

Leasehold improvements are recorded at cost and are depreciated over the lesser of the lease term, estimated useful life, or ten years.

The cost of buildings, improvements, furniture, vehicles, and equipment is depreciated over the estimated useful lives of the related assets.

Depreciation is computed using the straight-line method for financial reporting purposes. The estimated useful lives for buildings, improvements, furniture, vehicles, and equipment are as follows:

	Estimated Useful Life (years)
Buildings and improvements		5	to	39
Furniture and equipment		3	to	10
Vehicles		3	to	5

Maintenance, repairs and minor replacements are charged to expenses when incurred. When buildings, improvements, furniture, equipment and vehicles are sold or otherwise disposed of, the asset and related accumulated depreciation are removed from this account, and any gain or loss is included in the statement of operations or as a deferred gain liability on the balance sheets.

Long-Lived Assets

Long-lived assets including finite-lived intangible assets are periodically reviewed for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts may not be recoverable. In performing the review for recoverability, the future cash flows expected to result from the use of the asset and its eventual disposition are estimated. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the long-lived asset, an impairment loss is recognized as the excess of the carrying amount over the fair value. Otherwise, an impairment loss is not recognized. Management estimates the fair value and the estimated future cash flows expected. Any changes in these estimates could impact whether there was impairment and the amount of the impairment.

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In the fourth quarter of 2018, the Company determined that certain long-term prepaid assets classified on the balance sheet as deposits and other assets, which were reliant on future revenue within the Energy segment in order to be amortized to expense, did not have adequate forecasted revenue to justify the current valuation. This was primarily driven by the lack of substantial sales over the last two years within the Energy segment and uncertainty regarding the level of future sales. For that reason, the Company recorded a $1.5 million impairment to deposits and other assets and reclassified $0.1 million to prepaid assets. The amount reclassified to prepaid assets related to prepaid royalties associated with expected 2019 revenue.

In 2018, the Company also performed an undiscounted cash flows impairment analysis as prescribed under ASC 360 Property, Plant and Equipment on its long-lived fixed assets and its finite lived intangible assets at Orbital-UK due to an indication that the overall carrying value of the operating unit was not recoverable. Based upon that analysis, no impairment was identified for those assets. No impairments were recognized in 2017 or 2016.

Identifiable Intangible Assets

Intangible assets are stated at cost net of accumulated amortization and impairment. The fair value for intangible assets acquired through acquisitions is measured at the time of acquisition utilizing the following inputs, as needed:

1. Inputs used to measure fair value are unadjusted quote prices available in active markets for the identical assets or liabilities if available.

2. Inputs used to measure fair value, other than quoted prices included in 1, are either directly or indirectly observable as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in inactive markets. This includes assets and liabilities valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full life of the asset.

3.	Inputs used to measure fair value are unobservable inputs supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.
4.	Expert appraisal and fair value measurement as completed by third-party experts.

 The following are the estimated useful life for the intangible assets:

	Estimated
	Useful
	Life (years)
Finite-lived intangible assets
Order backlog			2
Trade name - Orbital			10
Trade name - V-Infinity			5
Trade name - CUI-Canada			3
Customer list - Orbital			10
Customer list - CUI-Canada			7
Technology rights			20 (1)
Technology-Based Asset - Know How			12
Technology-Based Asset - Software			10
Technology-Based Asset - Power			7
Software		3	to	5 (2)
Patents	See endnote (3)
Other intangible assets	See endnote (4)
Indefinite-lived intangible assets
Trade name - CUI	See endnote (5)
Customer list - CUI	See endnote (5)
Patents pending technology	See endnote (5)

(1) Technology rights are amortized over a 20-year life or the term of the rights agreement.

(2) Software assets are recorded at cost and include major expenditures, which increase productivity or substantially increase useful lives.

(3) Patents are amortized over the life of the patent. Any patents not approved will be expensed at that time.

(4) Other intangible assets are amortized over an appropriate useful life, as determined by management in relation to the other intangible asset characteristics.

(5) Indefinite-lived intangible assets are reviewed annually for impairment and when circumstances suggest.

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Indefinite-Lived Intangibles and Goodwill Assets

The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC 805, ‘‘Business Combinations,’’ where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values. The purchase price is allocated using the information currently available, and may be adjusted, up to one year from acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates. The purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill.

Annual Test. The Company tests for impairment of indefinite-lived intangibles and Goodwill in the second quarter of each year and whenever events or circumstances indicate that the carrying amount of Goodwill exceeds its fair value and may not be recoverable. The Company’s qualitative assessment for indefinite-lived assets at May 31, 2018, followed the guidance in ASC 350-30-35-18A and 18B.

Under current accounting guidance, CUI Global is not required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. The guidance includes a number of factors to consider in conducting the qualitative assessment. The Company tests for goodwill impairment in the second quarter of each year and whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its fair value and may not be recoverable.

As detailed in ASC 350-20-35-3A, in performing its testing for Goodwill as of May 31, 2018, management completed a qualitative analysis to determine whether it was more likely than not that the fair value of a reporting unit is less than its carrying amount, including Goodwill. To complete the qualitative review, management follows the steps in ASC 350-20-35-3C to evaluate the fair values of the Goodwill and considers all known events and circumstances that might trigger an impairment of Goodwill.

During our review of Goodwill as of May 31, 2018, the Company determined that there were indicators present to suggest that it was more likely than not that the fair value of the Orbital-UK reporting unit was less than its carrying amount.

The significant changes for the Orbital-UK reporting unit subsequent to the most recent impairment test performed as of December 31, 2017 included a decline in the 2018 actual revenue, operating income and cash flows compared to prior forecasts for the same period and a negative change in the 2018 forecasted revenue, operating income and cash flows for the remainder of the year due in part to the longer than expected temporary halt in shipping of its GasPT product to a major customer in Italy and market uncertainty due to the continuing effects of Brexit.

To test the Orbital-UK reporting unit for impairment as of May 31, 2018, the Company used a quantitative test. The Company estimated the fair value of the Orbital-UK reporting unit using a blend of a market approach and an income approach, which was deemed to be the most indicative of fair value in an orderly transaction between market participants. Under the income approach, the Company determined fair value based on estimated future cash flows of the Orbital-UK reporting unit discounted by an estimated weighted-average cost of capital, reflecting the overall level of inherent risk of the Orbital-UK reporting unit and the rate of return an outside investor would expect to earn. The Company based its cash flow projections for the Orbital-UK reporting unit using a forecast of cash flows and a terminal value developed by capitalizing an assumed stabilized cash flow figure. The forecast and related assumptions were derived from an updated financial forecast prepared during the second quarter of 2018. At that time, a key assumption related to the recoverability of the Orbital-UK reporting unit Goodwill was the resumption of delivery of GasPT product to one of our major customers and continued strengthening of our integration revenues. Under the market approach, appropriate valuation multiples were derived from the historical operating data of selected guideline companies. The valuation multiples were evaluated and adjusted based on the strengths and weaknesses of the Company relative to the selected guideline companies and the multiple was then applied to the appropriate operating data of the Company to arrive at an indication of fair market value. As a result of the analysis, the Company concluded that the carrying value of the Orbital-UK reporting unit exceeded its estimated fair value. The quantitative test for the Orbital-UK reporting unit resulted in an impairment for the Orbital-UK reporting unit, and the Company recorded a Goodwill impairment charge of $1.3 million during the second quarter of 2018.

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December 2018 Interim Test. During the fourth quarter of 2018, the Company determined there were indicators present to suggest that it was more likely than not that the fair value of the Orbital-UK reporting unit was less than its carrying amount. The significant changes for the Orbital-UK reporting unit subsequent to the annual goodwill impairment test performed as of May 31, 2018 were driven by a slower recovery in the Energy segment than originally forecasted. Actual GasPT revenue continued to lag behind forecasted revenue as acceptance of the technology continued to be slower than anticipated and delays associated with existing customer contracts that have not yet resumed. This slower than expected recovery, led to lower 2018 Energy segment revenue, operating income and cash flows than originally forecasted.

To test the Orbital-UK reporting unit for impairment, the Company used a quantitative test similar to the one used at May 31, 2018 with updated financial forecasts and assumptions based on the information available at December 31, 2018. As a result of the analysis, the Company concluded that the carrying value of the Orbital-UK reporting unit exceeded its estimated fair value. The quantitative test for the Orbital-UK reporting unit resulted in an impairment for the Orbital-UK reporting unit, and the Company recorded a goodwill impairment charge of $3.1 million during the fourth quarter of 2018, which was a write-off of the remaining Energy segment goodwill. In addition, the reporting units in the Power and Electromechanical segment were also tested for impairment due to the overall decrease in market capitalization experienced in 2018. 

As of December 31, 2018, there was goodwill remaining for CUI Inc., CUI-Canada and CUI-Japan reporting units, which are included in the Power and Electromechanical segment.

December 2017 Interim Test. During the fourth quarter of 2017, the Company determined that there were indicators present to suggest that it was more likely than not that the fair value of the Orbital-UK reporting unit was less than its carrying amount. The significant changes for the Orbital-UK reporting unit subsequent to the annual goodwill impairment test performed as of May 31, 2017 included a decline in the 2017 actual revenue, operating income and cash flows compared to previously forecasted results and a decline in the 2018 forecasted revenue, operating income and cash flows due in part to the longer than expected temporary halt in shipping of its GasPT product to a major customer in Italy and market uncertainty due to the continuing effects of Brexit.

To test the Orbital-UK reporting unit for impairment, the Company used a quantitative test. The Company estimated the fair value of the Orbital-UK reporting unit using a blend of a market approach and an income approach, which was deemed to be the most indicative of fair value in an orderly transaction between market participants. Under the income approach, the Company determined fair value based on estimated future cash flows of the Orbital-UK reporting unit discounted by an estimated weighted-average cost of capital, reflecting the overall level of inherent risk of the Orbital-UK reporting unit and the rate of return an outside investor would expect to earn. The Company based its cash flow projections for the Orbital-UK reporting unit using a forecast of cash flows and a terminal value developed by capitalizing an assumed stabilized cash flow figure. The forecast and related assumptions were derived from an updated financial forecast prepared during the fourth quarter of 2017. Under the market approach, appropriate valuation multiples were derived from the historical operating data of selected guideline companies. The valuation multiples were evaluated and adjusted based on the strengths and weaknesses of the Company relative to the selected guideline companies and the multiple was then applied to the appropriate operating data of the Company to arrive at an indication of fair market value. As a result of the analysis, the Company concluded that the carrying value of the Orbital-UK reporting unit exceeded its estimated fair value. The quantitative test for the Orbital-UK reporting unit resulted in an impairment for the Orbital-UK reporting unit, and the Company recorded a goodwill impairment charge of $3.2 million during the fourth quarter of 2017.

2016 Annual Test. In 2016, the analysis, determined there was no impairment necessary to goodwill. Through these reviews, management concluded there were no events or circumstances that triggered an impairment (and there was no expectation that a reporting unit or a significant portion of a reporting unit would be sold or otherwise disposed of in the following year), therefore, no further analysis was necessary to prepare for goodwill impairment beyond the steps in 350-20-35-3C in accordance with current accounting guidance. On a periodic basis, we will also perform a quantitative analysis of goodwill impairment and in 2016, in addition to the qualitative analysis, we performed a quantitative analysis of goodwill impairment and concluded no impairment of goodwill was required.

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Patent Costs

The Company estimates the patents it has filed have a future beneficial value; therefore it capitalizes the costs associated with filing for its patents. At the time the patent is approved, the patent costs associated with the patent are amortized over the useful life of the patent. If the patent is not approved, at that time the costs will be expensed.

Accrued expenses

Accrued expenses are liabilities that reflect expenses on the statement of operations that have not been paid or recorded in accounts payable at the end of the period. At December 31, 2018 and December 31, 2017, accrued expenses of $4.9 million and $4.2 million, respectively, included $1.7 million and $1.9 million, respectively, of accrued compensation and $1.7 million and $1.3 million, respectively, of accrued inventory payable.

Derivative instruments

The Company uses various derivative instruments including forward currency contracts, and interest rate swaps to manage certain exposures. These instruments are entered into under the Company’s corporate risk management policy to minimize exposure and are not for speculative trading purposes. The Company recognizes all derivatives as either assets or liabilities in the consolidated balance sheet and measures those instruments at fair value. Changes in the fair value of derivatives are recognized in earnings. The Company has limited involvement with derivative instruments and does not trade them. From time to time, the Company may enter into foreign currency exchange contracts to minimize the risk associated with foreign currency exchange rate exposure from expected future cash flows. The Company had entered into one interest rate swap, which had a maturity date of ten years from the date of inception, and was used to minimize the interest rate risk on the variable rate mortgage. During the years ended December 31, 2018, 2017 and 2016, the Company had a non-cash gain and unrealized gains of $129 thousand, $111 thousand, and $113 thousand, respectively, related to the derivative liabilities. During the year ended December 31, 2018, the Company paid $227 thousand to close out the interest rate swap in conjunction with the repayment of the related variable rate mortgage.

Derivative Liabilities

The Company evaluates embedded conversion features pursuant to FASB Accounting Standards Codification No. 815 (‘‘FASB ASC 815’’), ‘‘Derivatives and Hedging,’’ which requires a periodic valuation of the fair value of derivative instruments and a corresponding recognition of liabilities associated with such derivatives.

Stock-Based Compensation

The Company records its stock-based compensation expense under its stock option plans and also issues stock for services. The Company accounts for stock-based compensation using FASB Accounting Standards Codification No. 718 (‘‘FASB ASC 718’’), ‘‘Compensation – Stock Compensation.’’ FASB ASC 718 requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related vesting period.

Stock bonuses issued to employees are recorded at fair value using the market price of the stock on the date of grant and expensed over the vesting period or immediately if fully vested on date of issuance. Employee stock options are recorded at fair value using the Black-Scholes option pricing model. The underlying assumptions used in the Black-Scholes option pricing model by the Company are taken from publicly available sources including: (1) volatility, which is calculated using historic stock price information from online finance websites such as Google Finance and Yahoo Finance; (2) the stock price on the date of grant is obtained from online finance websites such as those previously noted; (3) the appropriate discount rates are obtained from the United States Federal Reserve economic research and data website; and (4) other inputs are determined based on previous experience and related estimates. With regards to expected volatility, the Company utilizes an appropriate period for historical share prices for CUI Global that best reflect the expected volatility for determining the fair value of its stock options.

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See Note 10 Stockholders' Equity for additional disclosure and discussion of the employee stock plan and activity.

Common stock, stock options and common stock warrants issued to other than employees or directors are also recorded on the basis of their fair value, as required by FASB ASC 505, which is measured as of the date required by FASB ASC 505, ‘‘Equity – Based Payments to Non-Employees.’’ In accordance with FASB ASC 505, the stock options or common stock warrants are valued using the Black-Scholes option pricing model on the basis of the market price of the underlying common stock on the ‘‘valuation date,’’ which for options and warrants related to contracts that have substantial disincentives to non-performance is the date of the contract, and for all other contracts is the performance completion date. Expense related to the options and warrants is recognized on a straight-line basis over the shorter of the period over which services are to be received or the vesting period. Where expense must be recognized prior to a valuation date, the expense is computed based off an estimate of the fair value of the stock award as valued under the Black-Scholes option pricing model on the basis of the market price of the underlying common stock at the end of the period, and any subsequent changes in the market price of the underlying common stock up through the valuation date is reflected in the expense recorded in the subsequent period in which that change occurs.

Common stock issued to other than employees or directors subject to performance (performance based awards) require interpretation to include ASC 505-50-30-13 as to when the counterparty’s performance is complete based on delivery, or other relevant performance criteria in accordance with the relevant agreement. When performance is complete, the common stock is issued and the expense recorded on the basis of their value as required by FASB ASC 505 on the date the performance requirement is achieved.

Defined Contribution Plans

The Company has a 401(k) retirement savings plan that allows employees to contribute to the plan after they have completed 60 days of service and are 18 years of age. The Company matches the employee's contribution up to 6% of total compensation. CUI Inc., Orbital Gas Systems, North America, Inc., and CUI Global made total employer contributions, net of forfeitures, of $0.5 million, $0.4 million, and $0.4 million for 2018, 2017 and 2016, respectively.

Orbital-UK operates a defined contribution retirement benefit plan for employees who have been employed with the company at least 12 months and who chose to enroll in the plan. Orbital-UK contributes to its plan the equivalent of 5% of the employee's salary and the employee has the option to contribute pre-tax earnings. Orbital-UK made total employer contributions of $0.3 million, $0.2 million and $0.3 million during 2018, 2017, and 2016, respectively.

Revenue Recognition

On January 1, 2018, we adopted the new accounting standard ASC 606, “Revenue from Contracts with Customers” and all the related amendments (“new revenue standard"), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. This guidance includes the required steps to achieve the core principle that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new revenue standard was applied using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to accumulated deficit as of January 1, 2018. As a result of the adoption of this standard, certain changes have been made to the consolidated balance sheets. We expect the ongoing impact of the adoption of the new standard to primarily affect the timing of revenue recognition. The most significant impact was on Power and Electromechanical segment revenue with certain distribution customers that was previously recorded as “sell through." Under the new accounting guidance, we record the revenue upon sale to the distributor with an appropriate amount reserved for estimated returns and allowances as the Company recognizes revenue at the time the related performance obligation is satisfied by transferring a promised good or service to its customers. For the Power and Electromechanical segment, their revenue is based upon the transfer of goods and satisfaction of its performance obligations as of a point in time. During the transition this had the effect of having a certain amount of revenue not recorded as revenue but as part of the cumulative effect of the accounting change. For the majority of contracts in the Energy segment, revenue is still measured over time using the cost-to-cost method. The change that most affected the transition adjustment on Energy segment revenue was the requirement to limit revenue recognition on contracts without an enforceable right to payment for performance completed to date. Revenue on contracts without a specific enforceable right to payment on work performed to date was "clawed back" as part of the Company's transition adjustment. The cumulative effect adjustment recorded as of January 1, 2018 was a net $1.9 million decrease to accumulated deficit due to a $2.8 million transition adjustment from the Power and Electromechanical segment partially offset by a $(0.9) million transition adjustment from the Energy segment, net of deferred tax.

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As a result of the adoption of ASC 606, the following items have been reclassified from the captions in the December 31, 2017 consolidated balance sheet included in our Form 10-K for the year ended December 31, 2017 to the captions in the December 31, 2017 consolidated balance sheet appearing herein:

Captions in December 31, 2017 consolidated balance sheet within Form 10-K	Reclassified to	Captions in December 31, 2017 consolidated balance sheet herein
Costs in excess of billings		Contract assets
Billings in excess of costs		Contract liabilities
Unearned revenue		Contract liabilities
Unearned revenue		Refund liabilities

Changes in these accounts as reclassified are reflected on the consolidated statement of cash flows for the years ended December 31, 2017 and 2016. As mentioned above, on January 1, 2018, we adopted ASC Topic 606 and the related amendments ("ASC 606") using the modified retrospective method applied to those contracts which were not completed as of December 31, 2017. Results for operating periods beginning after January 1, 2018 are presented under ASC 606, while comparative information has not been restated and continues to be reported in accordance with the accounting standards in effect for those periods. We recognized the cumulative effect of initially applying ASC 606 as an adjustment to accumulated deficit in the balance sheet as of January 1, 2018 as follows:

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(in thousands)	Balance at December 31, 2017			Adjustments Due to ASC 606			Balance at January 1, 2018
Balance Sheet
Assets:
Inventories	$	13,892		$	(1,064	)	$	12,828
Contract assets		2,299			(516	)		1,783
Total current assets		41,276			(1,580	)		39,696
Total assets	$	87,909		$	(1,580	)	$	86,329
Liabilities:
Contract liabilities	$	8,829		$	(4,168	)	$	4,661
Refund liabilities		695			870			1,565
Total current liabilities		18,914			(3,298	)		15,616
Deferred tax liabilities		2,414			(173	)		2,241
Total liabilities		30,423			(3,471	)		26,952
Stockholders' Equity:
Accumulated deficit		(108,559	)		1,891			(106,668	)
Total stockholders' equity		57,486			1,891			59,377
Total liabilities and stockholders' equity	$	87,909		$	(1,580	)	$	86,329

The impact of adoption on our consolidated balance sheet and consolidated statement of operations as of and for the year ended December 31, 2018 was as follows:

(In thousands, except per share amounts)	For the Year Ended December 31, 2018
	As Reported			Balances Without Adoption of ASC 606			Effect of Change Higher / (Lower)
Statement of Operations
Total revenues	$	96,789		$	91,417		$	5,372
Cost of revenues		67,879			64,495			3,384
Gross profit		28,910			26,922			1,988
Loss from operations		(16,778	)		(18,766	)		1,988
Loss before taxes		(17,531	)		(19,519	)		1,988
Income tax (benefit) expense		(206	)		(462	)		256
Net loss	$	(17,325	)	$	(19,057	)	$	1,732
Basic and diluted loss per common share	$	(0.61	)	$	(0.67	)	$	0.06

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(in thousands)	As of December 31, 2018
	As Reported			Balances Without Adoption of ASC 606			Effect of Change Higher / (Lower)
Balance Sheet
Assets:
Inventories	$	13,042		$	17,578		$	(4,536	)
Contract assets		1,744			2,109			(365	)
Total current assets		35,481			40,382			(4,901	)
Total assets	$	70,167		$	75,068		$	(4,901	)
Liabilities:
Contract liabilities	$	2,226		$	12,203		$	(9,977	)
Refund liabilities		2,417			1,063			1,354
Total current liabilities		18,586			27,209			(8,623	)
Deferred tax liabilities		1,922			1,823			99
Total liabilities		28,629			37,153			(8,524	)
Stockholders' Equity:
Accumulated deficit		(123,993	)		(127,616	)		3,623
Total stockholders' equity		41,538			37,915			3,623
Total liabilities and stockholders' equity	$	70,167		$	75,068		$	(4,901	)

The adoption of ASC 606 had no impact on the Company’s cash flows from operations.

Power and Electromechanical segment

The Power and Electromechanical segment generates its revenue from two categories of products: power supply solutions - including external and embedded ac-dc power supplies, dc-dc converters, basic digital point of load modules, ICE (Intelligent Control of Energy) products enabled by the VPS patented software system and offering a technology architecture that addresses power and related accessories; and components - including connectors, speakers, buzzers, and industrial control solutions including encoders and sensors. These offerings provide a technology architecture that addresses power and related accessories to industries as broadly ranging as telecommunications, consumer electronics, medical and defense, among others. The production and delivery of these products are considered single performance obligations. Revenue is recognized when we satisfy a performance obligation and this occurs upon shipment and ownership transfer of our products to our customers at a point in time.

Energy segment

The Energy segment subsidiaries, collectively referred to as Orbital Gas Systems (Orbital), generate their revenue from a portfolio of products, services and resources that offer a diverse range of personalized gas engineering solutions to the gas utilities, power generation, petrochemical, emissions, manufacturing and automotive industries, among others.

Orbital accounts for a majority of its contract revenue proportionately over time. For our performance obligations satisfied over time, we recognize revenue by measuring the progress toward complete satisfaction of that performance obligation. The selection of the method to measure progress towards completion can be either an input method or an output method and requires judgment based on the nature of the goods or services to be provided.

For our construction contracts, revenue is generally recognized over time as our performance creates or enhances an asset that the customer controls. Our fixed price construction projects generally use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.

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The timing of revenue recognition for Energy products also depends on the payment terms of the contract, as our performance does not create an asset with an alternative use to us. For those contracts which we have a right to payment for performance completed to date at all times throughout our performance, inclusive of a cancellation, we recognize revenue over time. As discussed above, these performance obligations use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer. However, for those contracts for which we do not have a right, at all times, to payment for performance completed to date, we recognize revenue at the point in time when control is transferred to the customer.

For our service contracts, revenue is also generally recognized over time as the customer simultaneously receives and consumes the benefits of our performance as we perform the service. For our fixed price service contracts with specified service periods, revenue is generally recognized on a straight-line basis over such service period when our inputs are expended evenly, and the customer receives and consumes the benefits of our performance throughout the contract term.

For certain of our revenue streams, such as call-out repair and service work, and outage services, that are performed under time and materials contracts, our progress towards complete satisfaction of such performance obligations is measured using an output method as the customer receives and consumes the benefits of our performance completed to date.

Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicate a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident.

Product-type contracts (for example, sale of GasPT units) for which revenue does not qualify to be recognized over time are recognized at a point in time. Revenues from warranty and maintenance activities are recognized ratably over the term of the warranty and maintenance period.

Accounts Receivable, Contract Assets and Contract Liabilities

Accounts receivable are recognized in the period when our right to consideration is unconditional. Accounts receivable are recognized net of an allowance for doubtful accounts. A considerable amount of judgment is required in assessing the likelihood of realization of receivables.

The timing of revenue recognition may differ from the timing of invoicing to customers. Contract assets include unbilled amounts from our construction projects when revenue recognized under the cost-to-cost measure of progress exceed the amounts invoiced to our customers, as the amounts cannot be billed under the terms of our contracts. Such amounts are recoverable from our customers based upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of a contract. Also included in contract assets are amounts we seek or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders or modifications in dispute or unapproved as to both scope and/or price or other customer-related causes of unanticipated additional contract costs (claims and unapproved change orders). Our contract assets do not include capitalized costs to obtain and fulfill a contract. Contract assets are generally classified as current within the Consolidated Balance Sheets.

Contract liabilities from our construction contracts occur when amounts invoiced to our customers exceed revenues recognized under the cost-to-cost measure of progress. Contract liabilities additionally include advanced payments from our customers on certain contracts. Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation and are recorded as either current or long-term, depending upon when we expect to recognize such revenue.

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Activity in the current contract liabilities for the year ended December 31, 2018 was as follows:

(In thousands)
Current contract liabilities - January 1, 2018	$	4,661
Long-term contract liabilities - January 1, 2018 (1)		84
Total contract liabilities - January 1, 2018	$	4,745
Total contract liabilities - January 1, 2018	$	4,745
Contract additions, net		2,168
Revenue recognized		(4,356	)
Translation		(202	)
Total contract liabilities - December 31, 2018	$	2,355
Current contract liabilities - December 31, 2018	$	2,226
Long-term contract liabilities - December 31, 2018 (1)		129
Total contract liabilities - December 31, 2018	$	2,355

⁽¹⁾ Long-term contract liabilities are included in Other long-term liabilities on the Consolidated Balance Sheets.

Refund Liabilities and Corresponding Inventory Adjustment

Refund liabilities primarily represent estimated future new product introduction returns and estimated future scrap returns. Estimated future returns and allowances are reserved based on historical return rates. In addition to the refund liabilities recorded for future returns, the Company also records an adjustment to inventory and corresponding adjustment to cost of revenue for the Company's right to recover products from customers upon settling the refund liability.

Performance Obligations

Remaining Performance Obligations

Remaining performance obligations, represents the transaction price of firm orders for which work has not been performed and excludes unexercised contract options and potential orders under ordering-type contracts. As of December 31, 2018, the Company's remaining performance obligations are generally expected to be filled within the next 12 months.

Any adjustments to net revenues, cost of revenues, and the related impact to operating income are recognized as necessary in the period they become known. These adjustments may result from positive program performance, and may result in an increase in operating income during the performance of individual performance obligations, if we determine we will be successful in mitigating risks surrounding the technical, schedule and cost aspects of those performance obligations. Likewise, these adjustments may result in a decrease in operating income if we determine we will not be successful in mitigating these risks. Changes in estimates of net revenues, cost of revenues and the related impact to operating income are recognized on a cumulative catch-up basis in the period they become known, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation's percentage of completion. A significant change in one or more of these estimates could affect the profitability of one or more of our performance obligations. For separately priced extended warranty or product maintenance performance obligations, when estimates of total costs to be incurred on the performance obligation exceed total estimates of revenue to be earned, a provision for the entire loss on the performance obligation is recognized in the period the loss is determined.

Performance Obligations Satisfied Over Time

To determine the proper revenue recognition method for contracts for our Energy segment, we evaluate whether a single contract should be accounted for as more than one performance obligation. This evaluation requires significant judgment and the decision to separate the single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period.

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For most of our contracts, the customer contracts with us to provide a significant service of integrating a complex set of tasks and components into a single project or capability (even if that single project results in the delivery of multiple units). Hence, the entire contract is accounted for as one performance obligation. Less commonly, however, we may promise to provide distinct goods or services within a contract in which case we separate the contract into more than one performance obligation. If a contract is separated into more than one performance obligation, we allocate the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. We infrequently sell standard products with observable standalone sales. In cases where we do, the observable standalone sales are used to determine the standalone selling price. More frequently, we sell a customized customer specific solution, and in these cases we typically use the expected cost plus a margin approach to estimate the standalone selling price of each performance obligation.

Performance Obligations Satisfied at a Point in Time.

Revenue from goods and services transferred to customers at a single point in time accounted for 84% of revenues for the year ended December 31, 2018. The majority of our revenue recognized at a point in time is in our Power and Electromechanical segment. Revenue on these contracts is recognized when the product is shipped and the customer takes ownership of the product. Determination of ownership and control transfer is determined by shipping terms delineated on the customer purchase orders.

Variable Consideration

The nature of our contracts gives rise to several types of variable consideration, including new product introduction returns and scrap return allowances primarily in our Power and Electromechanical segment. In rare instances in our Energy segment, we include in our contract estimates, additional revenue for submitted contract modifications or claims against the customer when we believe we have an enforceable right to the modification or claim, the amount can be estimated reliably and its realization is probable. In evaluating these criteria, we consider the contractual/legal basis for the claim, the cause of any additional costs incurred, the reasonableness of those costs and the objective evidence available to support the claim. We include new product introduction and scrap return estimates in our calculation of net revenue when there is a basis to reasonably estimate the amount of the returns. These estimates are based on historical return experience, anticipated returns and our best judgment at the time. These amounts are included in our calculation of net revenue recorded for our contracts and the associated remaining performance obligations.

The following table presents our revenues disaggregated by revenue source for the year ended December 31, 2018:

(In thousands)	Power and Electromechanical		Energy		Total
Distributor sales	$	43,795	$	—	$	43,795
Direct Sales		32,652		20,342		52,994
Total revenues	$	76,447	$	20,342	$	96,789

The following table presents our revenues disaggregated by timing of revenue recognition for the year ended December 31, 2018:

(In thousands)	Power and Electromechanical		Energy		Total
Revenues recognized at point in time	$	76,447	$	4,391	$	80,838
Revenues recognized over time		—		15,951		15,951
Total revenues	$	76,447	$	20,342	$	96,789

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The following table presents our revenues disaggregated by region for the year ended December 31, 2018:

(In thousands)	Power and Electromechanical		Energy		Total
North America	$	58,006	$	4,311	$	62,317
Europe		4,195		15,620		19,815
Asia		13,727		205		13,932
Other		519		206		725
Total revenues	$	76,447	$	20,342	$	96,789

Revenue Recognition - 2017 and 2016

As discussed above, ASC 606 was adopted on a modified retrospective basis and accordingly the 2017 and 2016 financial statements were not restated for ASC 606. For 2017 and 2016, revenue was recognized as follows.

Power and Electromechanical segment

Product revenue was recognized in the period when persuasive evidence of an arrangement with a customer existed, the products were shipped and title had transferred to the customer, the price was fixed or determinable, and collection was reasonably assured. The Company sells to distributors pursuant to distribution agreements that have certain terms and conditions such as the right of return and price protection, which inhibited revenue recognition unless they could be reasonably estimated as we could not assert the price was fixed and determinable and estimate returns. For one distributor that comprises 26% of consolidated revenue in 2017, we had such history and ability to estimate and therefore recognized revenue upon sale to the distributor and recorded a corresponding reserve for the estimated returns. For three other distributor arrangements that represented a combined 15% of revenue in 2017, we recognized revenue on a sell-through basis, and accordingly deferred revenue and the related costs until such time as the distributor resold the product.

Energy segment

For production-type contracts meeting the Company’s minimum threshold, revenues and related costs on these contracts were recognized using the ‘‘percentage of completion method’’ of accounting in accordance with ASC 605-35, Accounting for Performance of Construction-Type and Certain Production Type Contracts (‘‘ASC 605-35’’). Under this method, contract revenues and related expenses were recognized over the performance period of the contract in direct proportion to the costs incurred as a percentage of total estimated costs for the entirety of the contract. Costs included direct material, direct labor, subcontract labor and any allocable indirect costs. The Company captured certain job costs as work progressed, including labor, material and costs not invoiced. Margin adjustments were made as information pertaining to contracts changed. All un-allocable indirect costs and corporate general and administrative costs were charged to the periods as incurred. The amount of costs not invoiced were captured to ensure an estimated margin consistent with that expected at the completion of the project. In the event a loss on a contract was foreseen, the Company recognized the loss when it was determined. Contract costs plus recognized profits were accumulated as deferred assets, and billings and/or cash received were recorded to a deferred revenue liability account. The net of these two accounts for any individual project was presented as ‘‘Costs in excess of billings,’’ an asset account, or ‘‘Billings in excess of costs,’’ a liability account.

Production-type contracts that did not qualify for use of the percentage of completion method were accounted for using the ‘‘completed contract method’’ of accounting in accordance with ASC 605-35-25-57. Under this method, contract costs were accumulated as deferred assets, and billings and/or cash received was recorded to a deferred revenue liability account, during the periods of construction, but no revenues, costs, or profits were recognized in operations until the period within which completion of the contract occurred. A contract was considered complete when all costs except insignificant items were incurred; the equipment was operating according to specifications and was accepted by the customer.

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For product sales in the Energy segment, revenue was recognized in the period when persuasive evidence of an arrangement with a customer existed, the products were shipped and title had transferred to the customer, the price was fixed or determinable, and collection was reasonably assured.

Revenues from warranty and maintenance activities were recognized ratably over the term of the warranty and maintenance period and the unrecognized portion was recorded as deferred revenue.

Shipping and Handling Costs

Amounts billed to customers in sales transactions related to shipping and handling represent revenues earned for the goods provided and are included in sales, and were approximately $27 thousand, $17 thousand, and $23 thousand, for the years ended December 31, 2018, 2017 and 2016, respectively. The Company expenses inbound shipping and handling costs as cost of revenues.

Warranty Reserves

A warranty reserve liability is recorded based on estimates of future costs on sales recognized. At December 31, 2018 and 2017, the balance of approximately $37 thousand and $40 thousand, respectively, for warranty reserve liability is included in accrued expenses on the balance sheet.

Advertising

The costs incurred for producing and communicating advertising are charged to operations as incurred. Advertising expense for the years ended December 31, 2018, 2017 and 2016 were $2.0 million, $1.8 million, and $1.7 million, respectively. In addition to these advertising costs, the Company also incurs advertising related costs for advertising completed in partnership with its distributors. These costs are offset against revenues. During 2018, 2017 and 2016, the advertising costs offset against revenues were $0.6 million, $0.3 million, and $0.3 million, respectively.

Income Taxes

Income taxes are accounted for under the asset and liability method of FASB Accounting Standards Codification No. 740 (‘‘FASB ASC 740’’), ‘‘Income Taxes.’’ Under FASB ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance to the extent that management believes it is more likely than not that such deferred tax assets will not be realized.

Valuation allowances have been established against all domestic based deferred tax assets and U.K. based deferred tax assets due to uncertainties in the Company’s ability to generate sufficient taxable income in future periods to make realization of such assets more likely than not.  In future periods, tax benefits and related domestic and U.K. deferred tax assets will be recognized when management considers realization of such amounts to be more likely than not. The Company has not provided for valuation allowances on deferred tax assets in any other jurisdiction.

The Company recognizes interest and penalties, if any, related to its tax positions in income tax expense.

CUI Global files consolidated income tax returns with its U.S. based subsidiaries for federal and many state jurisdictions in addition to separate subsidiary income tax returns in Japan, the United Kingdom and Canada. As of December 31, 2018, the Company is not under examination by any income tax jurisdiction. The Company is no longer subject to USA examination for years prior to 2015.

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Net Loss per Share

In accordance with FASB Accounting Standards Codification No. 260 (‘‘FASB ASC 260’’), ‘‘Earnings per Share,’’ basic net loss per share is computed by dividing the net loss available to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of diluted shares outstanding during the period calculated using the treasury stock method. Due to the Company’s net loss in 2018, 2017 and 2016, the assumed exercise of stock options using the treasury stock method would have had an antidilutive effect and therefore all options for each of the three years were excluded from the calculation of diluted net loss per share. Accordingly, diluted net loss per share is the same as basic net loss per share for 2018, 2017 and 2016. The weighted average shares outstanding included 1,844; 63,602 and 25,811 of shares that are considered outstanding, but unissued as of December 31, 2018, 2017 and 2016, respectively, for shares to be issued in accordance with a royalty agreement pertaining to sales of the GasPT devices and unpaid equity share bonuses in 2017 and 2016.

The following table summarizes the number of stock options outstanding excluding amounts applicable to contingent conversion option, which may dilute future earnings per share:

	As of December 31,
	2018		2017		2016
Options, outstanding		923,898		964,180		966,681

Any common shares issued as a result of stock options would come from newly issued common shares as granted under our equity incentive plans.

The following is the calculation of basic and diluted earnings per share:

	For the Years Ended December 31,
(In thousands, except share and per share amounts)	2018			2017			2016
Net loss	$	(17,325	)	$	(12,589	)	$	(7,266	)
Basic and diluted weighted average number of shares outstanding		28,517,339			22,397,865			20,897,812
Basic loss per common share	$	(0.61	)	$	(0.56	)	$	(0.35	)
Diluted loss per common share	$	(0.61	)	$	(0.56	)	$	(0.35	)

Foreign Currency Translation

The financial statements of the Company's foreign offices have been translated into U.S. dollars in accordance with FASB ASC 830, ‘‘Foreign Currency Matters’’ (FASB ASC 830). All balance sheet accounts have been translated using the exchange rate in effect at the balance sheet date.  Statement of Operations amounts have been translated using an appropriately weighted average exchange rate for the year. The translation gains and losses resulting from the changes in exchange rates during 2018, 2017 and 2016 have been reported in accumulated other comprehensive income (loss), except for gains and losses resulting from the translation of intercompany receivables and payables, which are included in earnings for the period.

Segment Reporting

Operating segments are defined in accordance with ASC 280-10 as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The measurement basis of segment profit or loss is income (loss) from operations. Management has identified six operating segments based on the activities of the Company in accordance with ASC 280-10. These operating segments have been aggregated into three reportable segments. The three reportable segments are Power and Electromechanical, Energy and Other. The Power and Electromechanical segment is focused on the operations of CUI Inc., CUI-Canada, Inc. and CUI Japan for the sale of internal and external power supplies and related components and industrial controls. The Energy segment is focused on the operations of Orbital Gas Systems Ltd. and Orbital Gas Systems, North America, Inc. which includes gas related test and measurement systems, including the GasPT. The Other segment represents the remaining activities that are not included as part of the other reportable segments and represent primarily corporate activity.

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The following information represents segment activity as of and for the year ended December 31, 2018:

(In thousands)	Power and Electro- mechanical		Energy			Other			Total
Revenues from external customers	$	76,447	$	20,342		$	—		$	96,789
Depreciation and amortization (1)		1,480		1,525			—			3,005
Interest expense		221		23			258			502
Impairment of goodwill and other intangible assets		—		4,347			—			4,347
Income (loss) from operations		5,332		(17,168	)		(4,942	)		(16,778	)
Segment assets		45,553		19,034			5,580			70,167
Other intangibles assets, net		8,547		5,314			—			13,861
Goodwill		13,089		—			—			13,089
Expenditures for segment assets (2)		1,299		235			—			1,534

The following information represents segment activity as of and for the year ended December 31, 2017:

(In thousands)	Power and Electro- mechanical		Energy			Other			Total
Revenues from external customers	$	64,432	$	18,843		$	—		$	83,275
Depreciation and amortization (1)		1,505		1,345			—			2,850
Interest expense		249		1			250			500
Impairment of goodwill and other intangible assets		3		3,152			—			3,155
Income (loss) from operations		2,355		(11,366	)		(4,918	)		(13,929	)
Segment assets		49,392		26,512			12,005			87,909
Other intangibles assets, net		8,899		6,669			—			15,568
Goodwill		13,092		4,549			—			17,641
Expenditures for segment assets (2)		955		576			—			1,531

The following information represents segment activity as of and for the year ended December 31, 2016:

(In thousands)	Power and Electro- mechanical		Energy			Other			Total
Revenues from external customers	$	58,403	$	28,058		$	—		$	86,461
Depreciation and amortization (1)		1,445		1,401			2			2,848
Interest expense		221		6			240			467
Income (loss) from operations		645		(1,676	)		(5,479	)		(6,510	)
Segment assets		49,830		29,632			381			79,843
Other intangibles assets, net		9,262		6,939			—			16,201
Goodwill		13,083		7,042			—			20,125
Expenditures for segment assets (2)		1,032		642			—			1,674

(1) For the years ended December 31, 2018, 2017 and 2016, depreciation and amortization totals included $0.9 million, $0.7 million and $0.5 million, respectively that were classified as cost of revenues in the Consolidated Statements of Operations.

(2) Includes purchases of property, plant and equipment and investment in other intangible assets.

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The following information represents revenue by country:

	For the Years Ended December 31,
(In thousands)	2018					2017					2016
	Amount		%			Amount		%			Amount		%
USA	$	59,319		61	%	$	50,875		61	%	$	46,514		54	%
United Kingdom		15,185		16	%		14,522		17	%		17,337		20	%
China		5,463		6	%		5,381		7	%		5,930		7	%
All Others		16,822		17	%		12,497		15	%		16,680		19	%
Total	$	96,789		100	%	$	83,275		100	%	$	86,461		100	%

The following information represents long-lived assets (excluding deferred tax assets) by country:

	As of December 31,
(In thousands)	2018		2017
USA	$	23,544	$	27,662
United Kingdom		9,647		17,739
Other		1,495		1,232
	$	34,686	$	46,633

Reclassifications

Certain reclassifications have been made to the 2017 consolidated balance sheet, and 2017 and 2016 statements of operations and statements of cash flows in order to conform to the 2018 presentation.

Recent Accounting Pronouncements

In August 2018, the FASB issued Accounting Standards Update ("ASU") No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"). The amendments in ASU 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The guidance will be effective for the fiscal year beginning after December 15, 2019, including interim periods within that year. The Company is currently assessing the impact of this ASU on its consolidated financial statements and will adopt the standard in 2020.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, including requiring the disclosure of the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The guidance will be effective for the fiscal year beginning after December 15, 2019, including interim periods within that year. The Company is currently assessing the impact of this ASU on its consolidated financial statements and will adopt the standard in 2020.

In June 2018, the FASB issued ASU No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting ("ASU 2018-07"). These amendments expand the scope of Topic 718, Compensation—Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The guidance will be effective for the fiscal year beginning after December 15, 2018, including interim periods within that year. The Company does not expect there to be a material impact of this ASU on its consolidated financial statements and will adopt the standard in 2019.

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In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 is intended to provide financial statement users with more useful information about expected credit losses on financial assets held by a reporting entity at each reporting date. The new standard replaces the existing incurred loss impairment methodology with a methodology that requires consideration of a broader range of reasonable and supportable forward-looking information to estimate all expected credit losses. This ASU is effective for fiscal years and interim periods within those years beginning after December 15, 2019 and early adoption is permitted for fiscal years and interim periods within those years beginning after December 15, 2018. The Company is currently assessing the impact of this ASU on its consolidated financial statements and will adopt the standard in 2020.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (‘‘ASU 2016-02’’). ASU 2016-02 requires lessees to present right-of-use assets and lease liabilities on the balance sheet. The new guidance will be effective for public business entities for fiscal years beginning after December 15, 2018 including interim periods within that fiscal year. We will adopt the standard in the first quarter of 2019. As part of the transition, we will utilize the effective date method of implementation. Under the effective date method, we will include the new required disclosures for the current period and provide the disclosures required by the previous guidance found in ASC 840 for the prior year comparative periods. In addition, we will elect to utilize the package of practical expedients permitted under the transition guidance within the new standard, which among other things, will allow us to carry forward the historical lease classifications and allow us to exclude leases with an initial term of 12 months or less from being recorded on the Company's balance sheet; we will recognize lease expense for these short-term leases on a straight-line basis over the lease term.

Upon adoption, we expect to record a right-of-use asset and a corresponding lease liability for the Company's operating leases where the Company is the lessee. The potential effect on the Company's consolidated financial statements is largely based on the present value of future minimum lease payments, the amount of which will depend upon the population of leases in effect at the date of adoption. The present value of future minimum lease payments totaled $7.8 million as of December 31, 2018. In addition, we will have a $2.9 million adjustment to retained earnings at January 1, 2019 as a result of recognizing the gain on the sale-leaseback transaction. We do not expect material changes to the recognition of operating lease expense in the Company's consolidated statements of operation.

3.      INVESTMENTS AND FAIR VALUE MEASUREMENTS

The Company’s fair value hierarchy for its cash equivalents, marketable securities and derivative instruments as of December 31, 2018 and December 31, 2017, respectively, was as follows:

(In thousands)
December 31, 2018	Level 1		Level 2		Level 3		Total
Money market securities	$	16	$	—	$	—	$	16
Certificate of deposit - restricted cash		523		—		—		523
Certificate of deposit - restricted investment (1)		400		—		—		400
Convertible notes receivable		—		—		655		655
Total assets	$	939	$	—	$	655	$	1,594

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December 31, 2017	Level 1		Level 2		Level 3		Total
Money market securities	$	16	$	—	$	—	$	16
Total assets	$	16	$	—	$	—	$	16
Derivative instrument payable	$	—	$	356	$	—	$	356
Contingent consideration		—		—		45		45
Total liabilities	$	—	$	356	$	45	$	401

(1) Investment is a 12-month certificate of deposit classified as available for sale and included in Deposits and other assets on the balance sheet.

Fair Value Measurements

Using Significant Unobservable Inputs (Level 3 - recurring basis)

(In thousands)	Contingent			Convertible Notes
	Consideration			Receivable
Balance at December 31, 2017	$	45		$	—
Payments		(45	)		—
Investments		—			655
Fair value adjustments		—			—
Balance at December 31, 2018	$	—		$	655

There were no transfers between Level 3 and Level 2 in 2018 as determined at the end of the reporting period. The convertible notes receivable balance is with Virtual Power Systems ("VPS"). The convertible notes receivable are considered a restricted security. The fair value measurement of a restricted security includes consideration of whether the restriction would be factored in by market participants in pricing the asset. The fair value of a restricted security could be based on the quoted price for an otherwise identical unrestricted security of the same issuer that trades in a public market, adjusted to reflect the effect of the restriction. The adjustment would reflect the amount market participants would demand because of the risk relating to the inability to access a public market for the security for the specified period. The Company concluded based on the history of VPS having raised substantial funds under its bridge loan/purchase agreement prior to and subsequent to CUI’s investments, that the value of the notes have neither increased significantly or decreased significantly. While VPS continues to grow and continues to develop and sell its products, it is reasonable to conclude that the value of VPS is increasing. However, since VPS continues to sell restricted convertible notes, it is also a consideration that the value per note has been diluted somewhat as well. We have concluded that any dilution has been offset by the increased value of VPS. This is evidenced by the fact that VPS continues to be able to market and sell its restricted securities at the same terms as CUI had participated previously in. Since there are not unrestricted securities with similar terms to the restricted ones that CUI has invested in, we have concluded, that the fair value of CUI’s convertible notes receivable with VPS remain the face value of the initial investments of $500,000 and $155,000 plus the accrued interest earned through December 31, 2018.

The contingent consideration liability was associated with the acquisition of Tectrol in March 2015 and represented the present value of the expected future contingent payments based on revenue projections of select Tectrol legacy products. The inputs used to measure the convertible notes receivable and the contingent consideration are classified as Level 3 within the valuation hierarchy. These valuations are not supported by market criteria.

The Company's valuation of the contingent consideration reflected the Company’s internal revenue forecasts. Since the valuation was not supported by market criteria, the valuation was completely dependent on unobservable inputs. During quarterly updates of the valuation, the calculation of the value was based on actual and reasonably estimated future revenues. The contingent consideration was fully satisfied in 2018.

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The fair values of the reporting units subject to the Company’s quantitative impairment analysis were determined utilizing a blend of a market and an income approach to determine the estimated fair values of the reporting units, as discussed in Note 2. The fair value measurements and models were classified as non-recurring Level 3 measurements.

4.             PROPERTY AND EQUIPMENT, NET

Property and equipment is summarized as follows:

	At December 31,
(In thousands)	2018			2017
Land	$	382		$	1,205
Buildings and improvements		4,085			8,476
Equipment		5,740			5,716
Property and equipment, gross		10,207			15,397
Less accumulated depreciation		(4,234	)		(4,155	)
Property and equipment, net	$	5,973		$	11,242

Depreciation expense for the years ended December 31, 2018, 2017 and 2016 was $1.1 million, $1.0 million, and $0.9 million, respectively.

During the year ended December 31, 2018, the Company disposed of $5.7 million of property and equipment with an accumulated depreciation at disposal of $0.9 million. Included in disposals in 2018, was the sale of the Company's headquarters building. The building sale was for $8.1 million with a ten-year lease back and, accordingly, included a deferred gain of $2.9 million that was net of $0.4 million of sale-related expenses.

During the year ended December 31, 2017, the Company disposed of $0.3 million of property and equipment with an accumulated depreciation at disposal of $0.3 million.

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5.             GOODWILL AND OTHER INTANGIBLE ASSETS

At December 31, 2018 and 2017, the gross carrying amount and accumulated amortization of intangible assets, other than goodwill, are as follows:

				December 31, 2018					Identifiable Intangible		December 31, 2017					Identifiable Intangible
(In thousands)	*Estimated			Gross					Assets, less		Gross					Assets, less
	Useful			Carrying		Accumulated			Accumulated		Carrying		Accumulated			Accumulated
	Life (years)			Amount		Amortization			Amortization		Amount		Amortization			Amortization
Finite-lived intangible assets
Power and Electromechanical Segment:
Trademark and trade name - V-Infinity		5		$	1,095	$	(1,095	)	$	—	$	1,095	$	(1,095	)	$	—
Trademark and trade name - AMP Group		3			28		(28	)		—		27		(23	)		4
Trademark and trade name - CUI-Canada		3			128		(128	)		—		128		(121	)		7
Technology rights	7	and	20**		1,291		(746	)		545		1,291		(578	)		713
Computer software	3	to	5		956		(857	)		99		971		(850	)		121
Product certifications		3			1,667		(1,187	)		480		1,412		(820	)		592
Customer relationships - CUI-Canada		7			267		(146	)		121		267		(108	)		159
Other intangible assets		***			114		(114	)		—		114		(113	)		1
Total Power and Electromechanical Segment					5,546		(4,301	)		1,245		5,305		(3,708	)		1,597
Energy Segment:
Order backlog		2			2,837		(2,837	)		—		3,006		(3,006	)		—
Trade name - Orbital-UK		10			1,526		(877	)		649		1,616		(768	)		848
Customer list - Orbital-UK		10			5,931		(3,411	)		2,520		6,284		(2,985	)		3,299
Technology rights		20			318		(173	)		145		337		(150	)		187
Technology-Based Asset - Know How		12			2,403		(1,151	)		1,252		2,546		(1,008	)		1,538
Technology-Based Asset - Software		10			521		(300	)		221		552		(262	)		290
Computer software	3	to	5		667		(140	)		527		520		(13	)		507
Other intangible assets		***			—		—			—		—		—			—
Total Energy Segment					14,203		(8,889	)		5,314		14,861		(8,192	)		6,669
Indefinite-lived intangible assets
Power and Electromechanical Segment:
Trade mark and trade name - CUI Inc.					4,893		—			4,893		4,893		—			4,893
Customer list - CUI Inc.					1,857		—			1,857		1,857		—			1,857
Patents pending - Technology					552		—			552		552		—			552
					7,302		—			7,302		7,302		—			7,302
Total Identifiable other intangible assets				$	27,051	$	(13,190	)	$	13,861	$	27,468	$	(11,900	)	$	15,568

* All intangibles are reviewed annually for impairment, or sooner if circumstances change.

** Technology rights include $1.0 million of capitalized costs that are related to our CUI-Canada acquisition in March 2015. The CUI-Canada technology rights are amortized over a 7-year life. The rest of the technology rights are amortized over a 20-year life.

*** Other intangible assets are amortized over an appropriate useful life, as determined by management in relation to the other intangible asset characteristics.

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Intangible asset amortization by category was as follows:

	For the Years Ended December 31,
(In thousands)	2018		2017		2016
Trademarks and trade name		172		316		434
Customer lists/relationships		660		638		669
Technology rights		201		198		193
Technology-based assets		264		255		269
Computer software		191		83		76
Product certifications		413		343		260
Other intangibles		1		8		22
Total amortization	$	1,902	$	1,841	$	1,923

Estimated future amortization by category of finite-lived intangible assets at December 31, 2018 was as follows:

	For the Years Ending December 31,
(In thousands)	2019		2020		2021		2022		2023		2024 and thereafter		Totals
Trademarks and trade name	$	153	$	153	$	153	$	153	$	37	$	—	$	649
Customer lists/relationships		631		631		631		600		148		—		2,641
Technology rights		191		183		183		65		28		40		690
Technology-based assets		252		252		252		252		214		251		1,473
Computer software		222		197		110		77		20		—		626
Product certifications		287		154		39		—		—		—		480
Other intangibles		—		—		—		—		—		—		—
Total amortization	$	1,736	$	1,570	$	1,368	$	1,147	$	447	$	291	$	6,559

Management reviews other intangible assets for impairment when facts or circumstances suggest. As of December 31, 2018, management has evaluated the finite-lived and indefinite-lived intangible assets and believes no impairment exists.

The following table reflects the carrying amount of goodwill as of December 31, 2018 and 2017, and the 2018 and 2017 activity:

(In thousands)	Power and Electro - mechanical			Energy			Other		Total
Balance, December 31, 2016	$	13,083		$	7,042		$	—	$	20,125
Currency translation adjustments		9			659			—		668
Goodwill impairment		—			(3,152	)		—		(3,152	)
Balance, December 31, 2017		13,092			4,549			—		17,641
Currency translation adjustments		(3	)		(202	)		—		(205	)
Goodwill impairment		—			(4,347	)		—	$	(4,347	)
Balance, December 31, 2018	$	13,089		$	—		$	—	$	13,089

See Note 2 Summary of Significant Accounting Policies - Indefinite-Lived Intangibles and Goodwill Assets for information on the impairment to goodwill in 2018 and 2017.

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6.          INSTRUMENTS AND RISK MANAGEMENT

The Company has limited involvement with derivative instruments and does not trade them. The Company does use derivatives to manage certain interest rate and foreign currency exchange rate exposures.

At December 31, 2018 and 2017, the Company had no derivative instruments designated as effective hedges.

From time to time, to minimize risk associated with foreign currency exposures on receivables for sales denominated in foreign currencies, the Company enters into various foreign currency forward exchange contracts, which are intended to minimize the currency exchange rate exposure from expected future cash flows. The forward currency contracts have maturity dates of up to one year at the date of inception. At December 31, 2018 and 2017, no foreign currency forward exchange contracts were outstanding.

In conjunction with the mortgage note payable for the purchase of the headquarters facility completed in 2013, the Company entered into a Swap Transaction Confirmation agreement effective October 1, 2013, which had a maturity date of ten years incorporating the terms and definitions of the International Swaps and Derivatives Association, Inc. (ISDA) that effectively fixed our effective annual interest rate at 6.27%.

In December 2018, the Company closed out the swap upon the sale and leaseback of the Company's headquarters since the underlying mortgage note payable was paid off.

The amount of gain recognized in income on the statement of operations is summarized below:

	Location of Gain
	Recognized in Income	For the Years Ended December 31,
(In thousands)		2018		2017		2016
Interest rate swap:	Other income (expense)	$	129	$	111	$	113

7.          NOTES PAYABLE

Notes payable is summarized as follows:

	As of December 31,
(In thousands)	2018		2017
(a) Mortgage note payable	$	—	$	3,350
(b) Acquisition Note Payable - related party		5,304		5,304
Ending balance	$	5,304	$	8,654

(a) On October 1, 2013, the funding of the purchase of the Company’s Tualatin, Oregon corporate offices from Barakel, LLC was completed. The purchase price for this asset was $5.1 million. The purchase was funded, in part, by a promissory note payable to Wells Fargo Bank in the amount of $3.7 million plus interest at the rate of 2% above LIBOR, payable over ten years with a balloon payment due at maturity. It was secured by a deed of trust on the purchased property, which was executed by CUI Properties, LLC and guaranteed by CUI Global, Inc. During 2018 and 2017, the Company made principal payments of approximately $3.4 million and $89 thousand, respectively, against the mortgage promissory note payable. In December 2018, this note was paid off as part of a sale-leaseback transaction. At December 31, 2017, the balance owed on the mortgage promissory note payable was $3.4 million of which $94 thousand and $3.3 million were in current and long-term liabilities, respectively.

(b) The note payable to International Electronic Devices, Inc. (IED) (formerly CUI Inc.) is associated with the acquisition of CUI Inc. The promissory note is due May 15, 2020 and includes a 5% interest rate per annum, with interest payable monthly and the principal due as a balloon payment at maturity. The note contains a contingent conversion feature, such that in the event of default on the note the holder of the note can, at the holder’s option, convert the note principal into common stock at $0.001 per share. As of December 31, 2018, the Company is in compliance with all terms of this promissory note and the conversion feature is not effective.

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The following table details the maturity of the notes payable for CUI Global, Inc.:

(In thousands)
	As of December 31, 2018
2019	$	—
2020		5,304
2021		—
2022		—
2023		—
Thereafter		—
Total	$	5,304

8.          WORKING CAPITAL LINE OF CREDIT AND OVERDRAFT FACILITY

On October 5, 2016, Orbital Gas Systems Ltd. signed a five-year agreement with the London branch of Wells Fargo Bank N.A. for a multi-currency variable rate overdraft facility with the following terms:

(In thousands)
Credit Limit	December 31, 2018 Balance		Expiration Date	Interest rate
£1,500 pounds sterling ($1,910 at December 31, 2018)	$	1,344	October 5, 2021	Base rate plus a 2.25% margin (2.5% as of December 31, 2018).

The London branch of Wells Fargo Bank N.A. can demand repayment of amounts on overdraft at any time. The overdraft facility is primarily secured by land, equipment, intellectual property rights, and rights to potential future insurance proceeds held by Orbital Gas Systems, Ltd.

CUI, Inc. and CUI-Canada have a line of credit (LOC) whose terms with Wells Fargo Bank are as follows:

(In thousands)
Credit Limit			December 31, 2018 balance			Expiration Date	Interest rate
$	5,000	(1)	$	979	(2)	June 1, 2019	Fixed rate at 2.25% above the LIBOR in effect on the first day of the applicable fixed-rate term, or variable rate at 2.25% above the daily one-month LIBOR rate.

(1) $2 million of the line of credit is reserved to guarantee the obligation of Orbital Gas Systems, Ltd. under its Overdraft Facility.

(2) As a result of the Company’s cash management system, checks issued but not presented to the bank for payment may create negative book cash balances. When those checks are presented for payment if there isn't sufficient cash in the bank account, the checks would be honored by the bank with a corresponding increase to CUI Inc's draw on its line of credit. The balance shown above includes the effect of a $27 thousand negative book cash balance at CUI Inc. as of December 31, 2018.

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At December 31, 2018, the LOC is secured by the following collateral via a security agreement on CUI Inc. and CUI-Canada:

(In thousands)
CUI Inc. and CUI-Canada General intangibles, net	$	8,546
CUI Inc. and CUI-Canada Accounts receivable, net		9,102
CUI Inc. and CUI-Canada Inventory, net		11,403
CUI Inc. and CUI-Canada Equipment, net		1,438

CUI Global, Inc., the parent company, is a payment guarantor of the LOC. Other terms included in this revolving line of credit for CUI Inc./CUI-Canada limit capital expenditures by CUI Inc. and CUI-Canada to $1.75 million in any fiscal year. The LOC is supported by a single long-term note that does not require repayment until maturity although the Company at its option can repay and re-borrow amounts up to the LOC limit. Since the maturity date is June 1, 2019, which is less than one year in the future, the LOC is classified as short term.

The LOC contains certain financial covenants. Under the terms of CUI Inc./CUI-Canada's credit agreement with Wells Fargo Bank, the Company incurred a specified default limited to the breach of the EBITDA financial covenant of CUI Global as the guarantor for the fiscal quarter ended December 31, 2018. CUI Inc./CUI-Canada has received a forbearance of this event of default through April 30, 2019, subject to certain terms and conditions. Under the terms of the forbearance, CUI Inc./CUI-Canada has agreed to terminate the Orbital Gas Systems Ltd. overdraft facility with Wells Fargo Bank’s London branch by April 30, 2019. In efforts to replace the Wells Fargo Bank credit facilities, on March 13, 2019, CUI Inc. and CUI-Canada entered into and signed a firm commitment letter received from Bank of America for a new two-year credit facility for CUI Inc. and CUI-Canada, perfected by a first security lien on all assets of CUI Inc. and CUI-Canada. The facility would also include a $3 million sub-limit for use by CUI-Global non-loan party subsidiaries as a reserve under the borrowing base. The credit facility is to provide for working capital and general corporate purposes. The credit facility would provide up to $10 million in a Revolving Line of Credit Facility (“Revolver”), including a sub-limit for letters of credit. Interest will be based upon Daily Floating LIBOR at LIBOR + 2.00%. The Company expects to close on the credit agreement in April 2019.

9.          COMMITMENTS AND CONTINGENCIES

Legal Matters

The Company may be involved in certain legal actions arising from the ordinary course of business. While it is not feasible to predict or determine the outcome of these matters, we do not anticipate that any of these matters, or these matters in the aggregate, will have a material adverse effect on the financial position or results of operations.

Commissions, Royalty and License Fee Agreements

The Company has minimum commitments under certain royalty agreements. Royalty and license fees are paid in accordance with their related agreements, either on a monthly or quarterly basis. We deal with a number of independent licensors for whose intellectual property we compete with other manufacturers. Rights to such intellectual property, when acquired by us, are usually exclusive and the agreements require us to pay the licensor a royalty on our net sales of the item. These license agreements, in some cases, also provide for advance royalties and minimum guarantees in order to maintain technical rights and exclusivity. As of December 31, 2018 and 2017, $17 thousand and $36 thousand, respectively, was accrued for royalty and license fees payable in accrued expenses.

External Sales Representative Commissions

Commissions to external sales representatives are paid in accordance with their related agreements, either on a monthly or annual basis. As of December 31, 2018 and 2017, $0.3 million and $0.3 million, respectively, was accrued for commissions to external sales representatives, and is reported as a current liability in accrued expenses.

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Employment Agreements

As of the year ended December 31, 2018, the following employment agreements were in place:

William J. Clough, President/Chief Executive Officer and General Counsel of CUI Global, Inc., Chief Executive Officer of all CUI Global subsidiaries

Mr. Clough is employed under a multi-year employment contract with the Company, which became effective July 1, 2013, and which was recently extended to run to and through December 31, 2019. Said contract provides, in relevant part, for salary in 2018 of $560 thousand, and includes bonus provisions for each calendar year up to one hundred twenty-five percent of base salary to be based on performance objectives, goals and milestones for each calendar year including revenue performance and entitles Mr. Clough to a two-year severance package and an annual 4% cost of living adjustment. Bonuses are approved quarterly based on various performance-related factors and an evaluation of current performance and includes a discretionary bonus of up to twenty-five percent of salary based upon the reasonable judgment of the compensation committee. Employee has the ability to earn a larger bonus based on the performance criteria set forth and the reasonable judgment and discretion of the compensation committee. All such bonus payments shall be paid to Mr. Clough in equal monthly installments following the period in which the bonus is earned and shall be paid on the 15th day of each month. At December 31, 2018, 2017, and 2016, there was an accrual of $30 thousand, $33 thousand, and $29 thousand, respectively, for compensation owed to Mr. Clough.

Daniel N. Ford, Chief Financial Officer of CUI Global Inc. and Subsidiaries, Chief Operating Officer of the Energy Division

Mr. Ford is employed under a multi-year employment contract with the Company, which became effective July 1, 2013 and which was extended to run to and through December 31, 2019. Said contract provides, in relevant part, for salary in 2018 of $350 thousand, an annual 4% cost of living adjustment, an eighteen-month severance package and bonus provisions up to one hundred twenty-five percent of base salary to be based on performance objectives, goals and milestones for each calendar year including revenue performance. The bonus includes a discretionary bonus of up to twenty-five percent of salary based upon the reasonable judgment of the compensation committee. Employee has the ability to earn a larger bonus based on the performance criteria set forth and the reasonable judgment and discretion of the compensation committee. Bonuses are approved quarterly based on the above factors and an evaluation of current performance. All such bonus payments shall be paid to Mr. Ford in equal monthly installments following the period in which the bonus is earned and shall be paid on the 15th day of each month. At December 31, 2018, 2017, and 2016, there was an accrual of $21 thousand, $22 thousand, and $19 thousand, respectively, for compensation owed to Mr. Ford.

Matthew M. McKenzie, President of CUI Inc., Chief Operating Officer of the Power and Electromechanical Division and Corporate Secretary of CUI Global, Inc.

Mr. McKenzie is employed under a multi-year employment contract with the Company, which became effective July 1, 2013 and which was extended to run to and through December 31, 2019. Said contract provides, in relevant part, for salary in 2018 of $320 thousand, an annual 4% cost of living adjustment, an eighteen-month severance package and bonus provisions up to one hundred twenty-five percent of base salary to be based on performance objectives, goals, and milestones for each calendar year, including revenue performance in the Power and Electromechanical segment. The bonus includes a discretionary bonus of up to twenty-five percent of salary based upon the reasonable judgment of the compensation committee. Employee has the ability to earn a larger bonus based on the performance criteria set forth and the reasonable judgment and discretion of the compensation committee. Bonuses are approved quarterly based on the above factors and an evaluation of current performance. All such bonus payments shall be paid to Mr. McKenzie in equal monthly installments following the period in which the bonus is earned and shall be paid on the 15th day of each month. At December 31, 2018, 2017, and 2016, there was an accrual of $18 thousand, $12 thousand, and $5 thousand, respectively, for compensation owed to Mr. McKenzie.

Paul D. White, President of Orbital Gas Systems, Limited

Mr. White is employed under a three-year employment contract with the Company through December 1, 2020 and provides, in relevant part, for an initial annual salary of $225 thousand in year 1 along with a $30 thousand one-time signing bonus, and increases to $250 thousand and $275 thousand in years 2 and 3, respectively, a severance of the Executive’s salary for the remainder of his severance term upon termination, bonus provisions to be based on performance objectives, goals, and milestones for each calendar year, including revenue performance at Orbital-UK. Mr. White served as President of Orbital Gas Systems, Ltd. since July 2017, initially in a consulting role. Upon accepting the permanent role of President of Orbital Gas Systems, Ltd. effective December 1, 2017, Mr. White ceased to be independent as a director of the Company. The bonus includes a discretionary bonus of up to twenty-five percent of salary based upon the reasonable judgment of the compensation committee. Employee has the ability to earn a larger bonus based on the performance criteria set forth and the reasonable judgment and discretion of the compensation committee. Bonuses are approved on an ongoing basis based on the above factors and an evaluation of current performance. All such bonus payments shall be paid to Mr. White following the period in which the bonus is earned. At December 31, 2018 and 2017, there was an accrual of $155 thousand, and $40 thousand, respectively, for compensation owed to Mr. White.

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Leases

CUI executed a sale-leaseback transaction of its Tualatin, OR headquarters facility in December of 2018. There was $16 thousand of rent expense associated with this lease in 2018, and monthly rent expense in 2019 will be approximately $51 thousand per month.

Orbital-UK has a number of leases, on vehicles, equipment, and on accommodations for visiting personnel. During the year ended December 31, 2018, the total monthly rent on these leases was approximately $32 thousand.

In January 2015, the Company rented office and warehouse space in Houston, TX for its Orbital North America operations. During the year ended December 31, 2017, the monthly rent of this lease, which terminated in January 2018, was approximately $10 thousand. In November 2017, the Company relocated to another rented office and warehouse space in Houston, TX. Rent expense on this lease is approximately $30 thousand per month.

In March 2015, as part of the Tectrol acquisition, the Company leased the Toronto facility. During the year ended December 31, 2018, the monthly rent of this lease was approximately $34 thousand dollars per month.

Additionally, CUI Japan leases office space. During the year ended December 31, 2018, the monthly base rent of this lease was approximately $3 thousand.

Rental expense was $1.2 million, $0.9 million, and $0.8 million in 2018, 2017 and 2016, respectively, and is included in selling, general and administrative on the statement of operations.

Future minimum operating lease obligations are as follows:

(In thousands)	As of December 31, 2018
2019	$	1,482
2020		1,129
2021		1,031
2022		1,013
2023		605
Thereafter		3,307
Total	$	8,567

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10.          STOCKHOLDERS’ EQUITY

Common Stock Dividend Restrictions

As of December 31, 2018, there are no restrictions on common stock dividends. Also, at December 31, 2018 and 2017, retained earnings were not restricted upon involuntary liquidation.

Common Stock Issuances

(Dollars in thousands)
Date of issuance	Type of issuance	Expense/ Prepaid/ Cash	Stock issuance recipient	Reason for issuance	Total no. of shares		Grant date fair value or net proceeds recorded at issuance
January, April, July and October 2018	Vested restricted common stock	Expense	Four board members	Director compensation		72,157	$	175
January and July 2018	Common stock	Expense	Three Employees	Approved bonuses		68,118		183	(1)
July and December 2018	Common stock	Expense	Related Party, James McKenzie	Pursuant to royalty agreement		5,755		14	(1)
Total 2018 issuances						146,030	$	372	(2) (3)
									(11)
January, April, August and October 2017	Vested restricted common stock	Expense	Four board members	Director compensation		49,980	$	200
January, February and June 2017	Common stock	Expense	Three Employees	Approved bonuses		28,634		182	(4)
January and December 2017	Common stock	Expense	Related party, James McKenzie	Pursuant to royalty agreement		3,293		16	(4)
January and February 2017	Common stock	Expense	Two Employees	Cashless stock option exercises		245		—	(5)
May 2017	Common stock	Prepaid expense/expense	Third-party consultant	Strategic investor marketing services		15,000		57	(6)
October 2017	Common stock	Cash	Various third-party shareholders	Equity raise		7,392,856		18,905
Total 2017 issuances						7,490,008	$	19,360	(7)
January, April, July and October 2016	Vested restricted common stock	Expense	Five board members	Director compensation		46,854	$	267	(8)
January and July 2016	Vested restricted common stock	Expense	Four Employees	Approved bonuses		56,782		381	(9)
January, March September and December 2016	Common stock	Expense	Related party, James McKenzie	Pursuant to royalty agreement		6,275		38
February and April 2016	Common stock	Expense	Three Employees	Cashless stock option exercise		718		—	(5)
Total 2016 issuances						110,629	$	686	(10)

(1)	Includes bonus and royalty of $170 thousand that was accrued and expensed in 2017.
(2)	Total excludes $3 thousand of stock compensation related to royalties that were recorded as expense but not issued and outstanding as of December 31, 2018.

(3)	Excludes $24 thousand of stock compensation for stock issued in 2017 that was amortized from prepaid expense in 2018.
(4)	Includes bonuses and royalty of $176 thousand that were accrued and expensed in 2016.
(5)	The Company received $0 for the issuance in the cashless option exercises.
(6)	Amount includes $24 thousand that was included in prepaid expense at December 31, 2017.

(7)	Does not include stock expense of $170 thousand included in accrued liabilities at December 31, 2017 for unissued stock.
(8)	Includes $38 thousand of stock-based expense related to 2015 director fees accrued and expensed in the fourth quarter of 2015.

(9) Bonuses of $366 thousand were accrued and expensed in the fourth quarter of 2015.

(10) Does not include stock expense of $176 thousand included in accrued liabilities at December 31, 2016.

(11) The second phase of a 2014 consulting agreement could result in up to an additional 150,000 shares of common stock being granted subject to sales related performance criteria being achieved. At December 31, 2018, those criteria have not been achieved and no shares have been granted for the second phase of the agreement.

89

S-3 registration

The Company filed an S-3 registration statement on March 14, 2017 containing a prospectus that was effective March 29, 2017. With this filing, CUI Global may from time to time issue various types of securities, including common stock, preferred stock, debt securities and/or warrants, up to an aggregate amount of $100 million.

On October 23, 2017, the Company closed on an underwritten public offering of 7,392,856 shares at a public offering price of $2.80 per share, including 964,285 shares sold at the public offering price pursuant to the underwriter's exercise in full of its option to purchase additional shares to cover over-allotments. The net proceeds to CUI Global (after deducting underwriting discount and other expenses payable by the Company) were approximately $18.9 million. The Company has used the net proceeds from the offering primarily for general corporate purposes, which includes operating expenses, working capital to improve and promote its commercially available products, advance product candidates, to expand international presence and commercialization.

Employee Stock Options

All options issued are presented at post reverse quantities.

On May 16, 2008 the Company’s board of directors adopted the Waytronx, Inc. 2008 Equity Incentive Plan (the ‘‘Equity Incentive Plan’’) and authorized 1,500,000 shares of Common Stock to fund the Plan. At the 2008 Annual Meeting of Shareholders held on September 15, 2008, the Equity Incentive Plan was approved by the Company shareholders. At the 2009 Annual Meeting of Shareholders held on September 29, 2009, the shareholders approved an amendment to the 2008 Equity Incentive Plan to increase the number of common shares issuable under the plan from 1,500,000 to 3,000,000. All of these shares have been registered under Form S-8.

The 2008 Equity Incentive Plan is intended to: (a) provide incentive to employees of the Company and its affiliates to stimulate their efforts toward the continued success of the Company and to operate and manage the business in a manner that will provide for the long-term growth and profitability of the Company; (b) encourage stock ownership by employees, directors and independent contractors by providing them with a means to acquire a proprietary interest in the Company by acquiring shares of stock or to receive compensation, which is based upon appreciation in the value of Stock; and (c) provide a means of obtaining and rewarding employees, directors, independent contractors and advisors.

The 2008 Equity Incentive Plan provides for the issuance of incentive stock options (ISOs) and Non-Statutory Options (NSOs) to employees, directors and independent contractors of the Company. The Board shall determine the exercise price per share in the case of an ISO at the time an option is granted and such price shall be not less than the fair market value or 110% of fair market value in the case of a ten percent or greater stockholder. In the case of an NSO, the exercise price shall not be less than the fair market value of one share of stock on the date the option is granted. Unless otherwise determined by the Board, ISOs and NSOs granted under both plans have a maximum duration of ten years.

On January 5, 2009 the Company board of directors received and approved a written report and recommendations of the Compensation Committee, which included a detailed executive equity compensation report and market analysis and the recommendations of Compensia, Inc., a management consulting firm that provides executive compensation advisory services to compensation committees and senior management of knowledge-based companies. The Compensation Committee used the report and analysis as a basis for its formal written recommendation to the board. Pursuant to a January 8, 2009 board resolution the 2009 Equity Incentive Plan (Executive), a Non-Qualified Stock Option Plan, was created and funded with 4,200,000 shares of $0.001 par value common stock. The Compensation Committee was appointed as the Plan Administrator to manage the plan. On October 11, 2010, CUI Global authorized an additional 3,060,382 options under the 2009 Equity Incentive Plan (Executive). On September 21, 2012, CUI Global authorized an additional 330,000 options under the 2009 Equity Incentive Plan (Executive).

The 2009 Equity Incentive Plan (Executive) provides for the issuance of Incentive Non Statutory Options to attract, retain and motivate executive and management employees and directors and to encourage these individuals to acquire an equity interest in the Company, to make monetary payments to certain management employees and directors based upon the value of the Company’s stock and to provide these individuals with an incentive to maximize the success of the Company and further the interest of the shareholders. The Administrator of the plan is authorized to determine the exercise price per share at the time the option is granted, but the exercise price shall not be less than the fair market value on the date the option is granted. Stock options granted under the 2009 Plan have a maximum duration of ten years.

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During the years ended 2018, 2017 and 2016, the Company recorded expense for services and compensation in the amount of $0, $0 and $0.2 million, respectively, for stock options that the requisite service was performed during the year. The compensation expense was recorded over the vesting period based upon fair market value of the options using the Black-Scholes option model in accordance with FASB ASC 718 as discussed in section Employee Stock Options.

All expense related to option awards was fully recognized as of December 31, 2016.

A summary of the options issued to employees and directors and changes during the years are presented below:

	For the Year Ended December 31, 2016
	Number of Options			Weighted Average Exercise Price ($)		Weighted Average Remaining Contract Life (years)	Aggregate Intrinsic Value ($ '000)
Balance at beginning of year		970,847		$	6.32	6.54	$	850
Exercised		(2,333	)		5.46			4
Expired		(1,833	)		5.40
Balance at end of year		966,681		$	6.32	5.55		751
Exercisable		966,681		$	6.32	5.55		751

	For the Year Ended December 31, 2017
	Number of Options			Weighted Average Exercise Price ($)		Weighted Average Remaining Contract Life (years)	Aggregate Intrinsic Value ($ '000)
Balance at beginning of year		966,681		$	6.32	5.55	$	751
Exercised		(2,001	)		5.70
Expired		(500	)		4.58
Balance at end of year		964,180		$	6.32	4.56		—
Exercisable		964,180		$	6.32	4.56		—

	For the Year Ended December 31, 2018
	Number of Options			Weighted Average Exercise Price ($)		Weighted Average Remaining Contract Life (years)	Aggregate Intrinsic Value ($ '000)
Balance at beginning of year		964,180		$	6.32	4.56	$	—
Expired		(40,282	)		6.47
Balance at end of year		923,898		$	6.32	3.64		—
Exercisable		923,898		$	6.32	3.64		—

As of December 31, 2018 and 2017, and 2016 all issued and outstanding stock options were fully vested. There were no options granted during 2018, 2017 or 2016. As of December 31, 2018, there are no remaining shares available to grant under these equity incentive plans.

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11.      RELATED PARTY TRANSACTIONS

The Company has a $0.3 million short-term note receivable related to a former ownership interest in Test Products International (‘‘TPI’’). For further details regarding TPI, see Note 2 discussion - Investment and Note Receivable.

During 2018, 2017 and 2016, $0.3 million, $0.3 million and $0.3 million, respectively in interest payments were made in relation to the promissory notes issued to related party, IED, see Note 7 Notes Payable, for further details.

Chief Executive Officer, and Chairman of the Board of Directors, William J. Clough’s son Nicholas J. Clough, serves as President at Orbital Gas Systems, North America, Inc., a wholly owned subsidiary of the Company, and as Chief Sales Officer for the Energy Division. In 2018, 2017, and 2016, Mr. Clough received an aggregate salary of $213 thousand, $200 thousand, and $188 thousand, respectively, and received a cash bonus of $150 thousand, $150 thousand and $113 thousand in fiscal 2018, 2017, and 2016, respectively. He also received stock compensation in 2016 valued at $50 thousand, and other benefits valued at $49 thousand, $41 thousand and $30 thousand in 2018, 2017 and 2016, respectively. As of December 31, 2018 and 2017, there was an accrual of $13 thousand and $13 thousand, respectively, for compensation accrued to Nicholas Clough. Nicholas Clough does not report to the Chief Executive Officer nor does the Chief Executive Officer have input regarding Mr. Clough’s salary, bonus, or performance. Mr. Clough’s salary and bonus is set by his direct supervisor and relevant market conditions, while his performance is evaluated and monitored by his direct supervisor. In addition, pursuant to Company policy, any related-party bonus and/or salary change in excess of $50,000 is independently reviewed and approved by the Company’s Compensation Committee, comprised of independent members of the Company’s Board of Directors.

Orbital employs three owners of EnDet, Ltd. from which the Company licenses its VE Technology. See Note 9 - Commitments and Contingencies - Commissions, Royalty and License Fee Agreements for more information on license fee agreements.

12.     ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of accumulated other comprehensive loss are as follows:

(In thousands)	As of December 31,
	2018			2017			2016
Foreign currency translation adjustment	$	(4,396	)	$	(3,510	)	$	(5,590	)
Accumulated other comprehensive loss	$	(4,396	)	$	(3,510	)	$	(5,590	)

13.      CAPITALIZED INTEREST

The cost of constructing facilities, equipment and project assets includes interest costs incurred during the assets’ construction period. The components of interest expense and capitalized interest are as follows:

(In thousands)	For the Years Ended December 31,
	2018			2017			2016
Interest cost incurred	$	511		$	521		$	492
Interest cost capitalized - property and equipment		(9	)		(21	)		(25	)
Interest expense, net	$	502		$	500		$	467

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14.      INCOME TAXES

Consolidated loss before income taxes consisted of the following:

(In thousands)	For the Years Ended December 31,
	2018			2017			2016
U.S. operations	$	(5,187	)	$	(7,420	)	$	(8,442	)
Foreign operations		(12,344	)		(6,775	)		1,214
(Loss) before income taxes	$	(17,531	)	$	(14,195	)	$	(7,228	)

The income tax (benefit) expense consisted of the following:

(In thousands)	For the Years Ended December 31,
	2018			2017			2016
Current:
Federal	$	—		$	—		$	—
State and local		81			60			81
Foreign		65			101			64
Total current provision		146			161			145
Deferred:
Federal		—			(887	)		—
State and local		—			—			—
Foreign		(352	)		(880	)		(107	)
Total deferred (benefit)		(352	)		(1,767	)		(107	)
Total income tax (benefit) expense	$	(206	)	$	(1,606	)	$	38

The following table provides a reconciliation of the federal statutory tax rate to the recorded tax provision (benefit):

(In thousands)	For the Years Ended December 31,
	2018			2017			2016
Computed federal income taxes at the statutory rate (benefit)	$	(3,681	)	$	(4,826	)	$	(2,457	)
State income taxes (net of federal benefit)		63			39			53
Permanent tax differences		(122	)		(262	)		(415	)
Foreign tax rates and tax credits differing from USA		763			887			4
Purchased goodwill impairment		828			1,072			—
Research and development credits		(202	)		—			—
Net operating loss and other adjustment		(717	)		(256	)		216
Change in enacted tax rates applied to foreign deferred taxes		242			122			(38	)
Change in valuation allowance		2,620			2,505			2,675
Change in enacted tax rates applied to USA deferred taxes		—			(887	)		—
Total income tax (benefit) provision	$	(206	)	$	(1,606	)	$	38

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The Company accounts for income taxes under the asset-liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Valuation allowances are provided when it is ‘‘more likely than not’’ that the benefits of existing deferred tax assets will not be realized in a future period. Significant components of the Company’s deferred tax assets and liabilities are as follows:

(In thousands)	As of December 31,
	2018			2017
Deferred tax assets:
Net operating loss carryforwards	$	19,754		$	16,905
Contribution and other carryforwards		197			218
Inventory and accounts receivable reserves		668			549
Other		578			676
Valuation allowance		(20,281	)		(17,662	)
Deferred tax assets after valuation allowance		916			686
Deferred tax liabilities
Intangible assets		(2,765	)		(2,914	)
Property, plant and equipment		(73	)		(186	)
Total deferred tax liabilities		(2,838	)		(3,100	)
Net deferred tax liabilities	$	(1,922	)	$	(2,414	)

The Company adopted the provisions of ASU 2015-17 in 2015. ASU 2015-17 requires that all deferred tax assets and liabilities be classified as noncurrent on the balance sheet. The net deferred tax liability is recorded as follows:

(In thousands)	As of December 31,
	2018			2017
Noncurrent deferred tax assets	$	—		$	—
Noncurrent deferred tax liability		(1,922	)		(2,414	)
Net deferred tax liability	$	(1,922	)	$	(2,414	)

The Company’s consolidated gross deferred tax liability relates to intangibles recorded in connection with prior acquisitions. As of December 31, 2018, approximately $1.9 million of the liability relates to indefinite-lived intangibles, which will only reverse at the time of ultimate sale or impairment of the underlying intangible assets. Additionally, $0.8 million of the deferred tax liability relates to finite-lived intangibles as a result of a foreign acquisition, which reverses as the intangibles are amortized.

As of December 31, 2018 and 2017, the Company recorded a consolidated valuation allowance of $20.3 million and $17.7 million, respectively. During the years ended December 31, 2018, 2017 and 2016, the Company recorded an increase in valuation allowance of $2.6 million, a decrease in valuation allowance of $5.8 million, and an increase in valuation allowance of $2.7 million, respectively. The Company has provided for a full valuation on existing deferred tax assets in the United States and United Kingdom. Prior to 2018, the valuation allowance was on the deferred tax assets of the United States only. As of December 31, 2018, the Company has available federal, state and foreign net operating loss carry forwards of approximately $67.8 million, $62.8 million, and $2.2 million respectively, which the federal and state net operating loss carry-forwards will expire between 2019 and 2038. Our ability to utilize federal net operating loss (NOL) carry-forwards to reduce future taxable income may be limited under Section 382 of the Internal Revenue Code if certain ownership changes in our company occur during a rolling three-year period.  If such ownership changes by 5-percent-shareholders result in aggregate increases that exceed 50 percentage points during the three-year period, then Section 382 imposes an annual limitation on the amount of our taxable income that may be offset by the federal NOL carry forwards or tax credit carry-forwards at the time of ownership change.

CUI Global files consolidated income tax returns with its domestic subsidiaries for federal and many state jurisdictions in addition to separate subsidiary income tax returns in Canada, Japan, and the United Kingdom. As of December 31, 2018, the Company is not under examination by any income tax jurisdiction. The Company is no longer subject to examination in the USA for years prior to 2015.

The Company accounts for income tax uncertainties using a threshold of ‘‘more-likely-than-not’’ in accordance with the provisions of ASC Topic 740, Income Taxes (‘‘ASC 740’’). As of December 31, 2018, the Company has reviewed all of its tax filings and positions taken on its returns and has not identified any material current or future effect on its consolidated results of operations, cash flows or financial position. As such, the Company has not recorded any tax, penalties or interest on tax uncertainties. It is Company policy to record any interest on tax uncertainties as a component of income tax expense.

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On December 22, 2017, the USA passed sweeping tax legislation, which reduced the federal corporate tax rate for years beginning after December 31, 2017 to a flat 21% (with an approximate 5% state tax effect) in addition to requiring the deemed repatriation of all foreign undistributed earnings. As such, as of December 22, 2017, the Company restated existing USA deferred tax assets and liabilities to 26% resulting in a net income tax benefit of approximately $887 thousand. As of December 31, 2017, the Company does not have any undistributed foreign earnings subject to deemed repatriation. The Company has no plans to repatriate any excess cash balances which may be available from its foreign subsidiaries in the foreseeable future. The new tax provisions surrounding the repatriation of foreign earnings are extremely complex and may require further evaluation to determine the correct reporting and inclusion for USA purposes. The Company does not anticipate any material changes to the amounts determined as of December 31, 2017.

The Company adopted ASU 2016-09, Compensation - Stock Compensation (Topic 718) effective January 1, 2017 on a modified retrospective basis, whereby a cumulative-effect adjustment to equity as of the beginning of the period is required. Upon evaluation, no adjustment was required as of January 1, 2017.

15.      CONCENTRATIONS

During 2018, 36% of revenues were derived from two customers that individually had over 10% of our total revenues: Digi-Key Electronics with 24% and Future Electronics with 12% in the Power and Electromechanical segment. During 2017, 36% of revenues were derived from two customers that individually had over 10% of our total revenues: Digi-Key Electronics with 26% and Future Electronics with 10%. During 2016, 19% of revenues were derived from one customer that individually had over 10% of our total revenues: Digi-Key Electronics.

The Company’s major product lines in 2018, 2017 and 2016 were power and electromechanical products and natural gas infrastructure and high-tech solutions.

At December 31, 2018, of the gross trade accounts receivable totaling approximately $14.6 million, there were no individual customers that made up greater than 10% of the Company's total trade accounts receivable. At December 31, 2017, of the gross trade accounts receivable totaling approximately $11.0 million, approximately 21% was due from two customers: GL Industrial Services UK Ltd. in the Energy segment at 11% and Digi-Key Electronics in the Power and Electromechanical segment at 10%.

There was one supplier that supplied 12% of our purchases in 2017 from a vendor in the Power and Electromechanical segment and no supplier concentration greater than 10% in 2018 or 2016.

With the United Kingdom operations of Orbital, the Company also has foreign revenue and trade accounts receivable concentrations in the United Kingdom of 16% and 29%, respectively for the year ended and at December 31, 2018. In 2017, the Company had foreign revenue and trade accounts receivable in the United Kingdom of 17% and 28%, respectively. In 2016, the Company had foreign revenue and trade accounts receivable in the United Kingdom of 20% and 27%, respectively. Additionally, at December 31, 2017 the Company had accounts receivable concentrations of 11% in Canada and at December 31, 2016, the Company had accounts receivable concentrations of 11% in China and 10% in Italy.

Currently, 20% of our total labor force and 55% of our labor force in Canada is subject to a collective bargaining agreement.

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16.      SUBSEQUENT EVENTS

Management has reviewed for subsequent events and identified the following:

Stock Issuances in 2019

On January 14, 2019, pursuant to board service agreements, three independent board members were issued a total of 29,067 shares of common stock with a grant date fair value of $38 thousand for first quarter 2019 board fees.

On March 13, 2019, CUI Inc. and CUI-Canada received and signed a firm commitment letter from Bank of America for a new two-year credit facility, perfected by a first security lien on all assets of CUI Inc. and CUI-Canada. The facility would also include a $3 million sub-limit for use by CUI-Global non-loan party subsidiaries as a reserve under the borrowing base. The credit facility is to provide for working capital and general corporate purposes. The credit facility would provide up to $10 million in a Revolving Line of Credit Facility (“Revolver”), including a sub-limit for letters of credit. Interest will be based upon Daily Floating LIBOR at LIBOR + 2.00%. The Company expects to close on the credit agreement in April 2019.

Also, during March 2019, CUI Global agreed to terms with Virtual Power Systems (“VPS”) for an approximate 20% equity interest in VPS. In exchange for the equity interest, CUI will invest another $345 thousand into VPS, convert its $655 thousand of convertible notes receivable to equity, contribute ICE related inventory, lab equipment, certifications, intellectual property and other related assets to VPS. In conjunction with the equity position in VPS, CUI will receive a board seat and also place an observational non-voting advisor to the VPS board. 

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QUARTERLY FINANCIAL DATA - UNAUDITED

CUI Global, Inc.

(In thousands, except share and per share information)

	March 31			June 30			September 30			December 31 (1)
Quarter ended:
2018
Total revenue	$	21,966		$	23,127		$	24,744		$	26,952
Total cost of revenue		15,389			15,492			16,482			20,516
Gross profit		6,577			7,635			8,262			6,436
Gross profit percent		30	%		33	%		33	%		24	%
Selling, general and administrative		9,201			9,245			8,499			9,396
Depreciation and amortization		529			553			535			535
Research and development		620			783			685			714
Bad debt		6			(40	)		24			43
Impairment of goodwill		—			1,263			—			3,084
Other operating expenses		—			—			3			10
Operating loss		(3,779	)		(4,169	)		(1,484	)		(7,346	)
Net loss	$	(3,261	)	$	(4,765	)	$	(1,534	)	$	(7,765	)
Loss per common share:								.
Basic and diluted loss per common share	$	(0.11	)	$	(0.17	)	$	(0.05	)	$	(0.27	)
Basic and diluted weighted average common shares outstanding		28,488,032			28,506,154			28,527,234			28,547,149

Quarter ended:
2017
Total revenue	$	17,844		$	22,500		$	21,796		$	21,135
Total cost of revenue		12,160			14,276			14,356			14,614
Gross profit		5,684			8,224			7,440			6,521
Gross profit percent		32	%		37	%		34	%		31	%
Selling, general and administrative		8,554			8,712			8,212			8,443
Depreciation and amortization		552			564			521			526
Research and development		610			614			696			605
Bad debt		(27	)		(23	)		30			7
Impairment of goodwill and intangible assets		—			3			—			3,152
Other operating expenses		5			4			—			38
Operating loss		(4,010	)		(1,650	)		(2,019	)		(6,250	)
Net loss	$	(3,854	)	$	(1,568	)	$	(1,902	)	$	(5,265	)
Loss per common share:
Basic and diluted loss per common share	$	(0.18	)	$	(0.07	)	$	(0.09	)	$	(0.20	)
Basic and diluted weighted average common shares outstanding		20,949,251			20,967,957			20,991,534			26,635,684

(1) Total cost of revenue for the fourth quarter of 2018 includes a $1.4 million adjustment to inventory reserve and a $1.5 million impairment of Deposits and other assets in the Energy segment. Net loss for the fourth quarter of 2017 includes a discrete income tax benefit of $887 thousand associated with the USA Tax Cut and Jobs Act enacted in December 2017.

Item 9.     Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

None.

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Item 9A.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company's management, with the participation of the Company's Chief Executive Officer and its Chief Financial Officer, evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this annual report. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply their judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based upon that evaluation, the Company's management, including the CEO and the CFO, concluded that, as of December 31, 2018, the Company’s disclosure controls and procedures were effective.

Management's Annual Report on Internal Control over Financial Reporting

Management of CUI Global, Inc. is responsible for establishing and maintaining effective internal control over financial reporting. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP and that receipts and expenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company assets that could have a material effect on the financial statements.

Internal control over financial reporting, no matter how well designed, has inherent limitations. Because of such inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2018, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (“2013 framework”). Based on this evaluation, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2018.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended December 31, 2018 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Registered Public Accounting Firm’s Report on Internal Control over Financial Reporting

Perkins & Company, P.C., an independent registered public accounting firm, has audited CUI Global, Inc.’s and subsidiaries internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

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Report of Independent Registered Public Accounting Firm

Stockholders and Board of Directors

CUI Global, Inc.

Tualatin, Oregon

Opinion on Internal Control over Financial Reporting

We have audited CUI Global, Inc. and Subsidiaries’ (the “Company’s”) internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 31, 2018 and 2017, the related consolidated statements of operations, comprehensive income and (loss), changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and our report dated March 18, 2019 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible 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 Item 9A, Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

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 reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely 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 of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Perkins & Company, P.C.

Portland, Oregon

March 18, 2019

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Item 9B.  Other Information

There are no matters to be reported under this Item.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Our bylaws permit the number of directors to be fixed by resolution of the board of directors, but to be no less than one. The board of directors has set the maximum number of members to no more than eight members. Directors are elected by a majority of the votes cast by the stockholders and serve a one-year term or until their successors have been elected and qualified or their earlier resignation or removal. At December 31, 2018, we have five directors, three of whom are ‘‘independent’’ in accordance with applicable rules promulgated by the Securities and Exchange Commission and within the meaning of Rule 5605(a)(2) of the NASDAQ Stock Market.

The board of directors has four standing committees: Audit Committee, Disclosure Committee, Compensation Committee and Nomination Committee, each of which has a written charter and/or statement of policy approved by our board. Our board currently appoints the members of each committee. Copies of the current committee charters and/or statement of policy for each committee are posted on our website at www.CUIGlobal.com. Except for two separate instances by two different directors, all directors attended, either in person or electronically, all of the meetings held by the committees on which such director served.

The following are officers and directors of the Company with their ages as of December 31, 2018, and a list of the members of our four standing committees: Audit Committee, Disclosure Committee, Compensation Committee and Nomination Committee.

William J. Clough, Esq., President/Chief Executive Officer, and General Counsel of CUI Global, Inc. Mr. Clough is also a Director and Chairman of the Company’s board of directors, as well as Chief Executive Officer of all of the Company’s wholly owned subsidiaries, age 67 (Seat 1)

Mr. Clough has served on the board of directors since 2006. Mr. Clough was reelected at the 2018 Annual Meeting of Shareholders to serve a one-year term.

During his tenure, he has led several strategic initiatives, including the Company’s acquisition of Orbital Gas Systems Limited and the Company’s natural gas technology line; the opening of Orbital Gas Systems, North America, Inc.; the successful award by Snam Rete Gas of the ~€60,000,000 re-metering project to Orbital-UK; in addition, Mr. Clough steered the Company through its 2012, 2013, and 2017 equity raises and its listing on the Nasdaq Capital Market in 2012.

Before joining the Company, Clough, an attorney, operated his own law firm for 14 years, with offices in Los Angeles, San Francisco and Honolulu. In that capacity, he successfully represented leading movie studios and media conglomerates.

Mr. Clough received his Juris Doctorate, cum laude, from Hastings College of the Law in 1990. He obtained one of the largest ever non-wrongful death jury verdicts in Los Angeles County Superior Court in 2000 and successfully represented parties in multi-million dollar cases throughout the United States. Mr. Clough is certified to practice law in state and federal courts in California, Illinois, Hawaii, and before the United States Supreme Court. Mr. Clough worked as a police officer for 16 years at the local, state, and federal level including as a Federal Air Marshall flying in Southern Europe and the Middle East.

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C. Stephen Cochennet, Director, age 62 (Seat 2)

Mr. Cochennet was appointed to the CUI Global Board of Directors at its December 1, 2017 annual meeting to fill a director vacancy on the board of directors. Mr. Cochennet is an independent director within the meaning of Rule 5605(a)(2) of The NASDAQ Stock Market and, as such, will serve as the third independent director on the nominating committee along with Messrs. Rooney and Lambrecht. Mr. Cochennet was elected at the 2018 Annual Meeting of Shareholders to serve a one-year term.

Mr. Cochennet has served as CEO/President, of Kansas Resource Development Company, a private oil and gas exploration company since 2011. From 2011 through 2015 he was also the CEO and president of Guardian 8 Corporation. From 2005 to 2010 Mr. Cochennet was the Chairman, President, and Chief Executive Officer of EnerJex Resources, Inc., a publicly traded SEC registered Oil and Gas Company. Prior to joining EnerJex, Mr. Cochennet was President of CSC Group, LLC. in which he supported several Fortune 500 corporations, international companies, and natural gas/electric utilities, as well as various startup organizations. The services provided included strategic planning, capital formation, corporate development, executive networking and transaction structuring. From 1985 to 2002, he held several executive positions with UtiliCorp United Inc. (Aquila) in Kansas City, Missouri. His responsibilities included finance, administration, operations, human resources, corporate development, natural gas/energy marketing, and managing several new startup operations. Prior to his experience at Aquila Mr. Cochennet served 6 years with the Federal Reserve System managing problem and failed banking institutions primarily within the oil and gas markets.

Mr. Cochennet graduated from the University of Nebraska with a B.A. in Finance and Economics.

Sean P. Rooney, Director, age 47 (Seat 3)

Mr. Rooney was elected to serve as a director at the 2008 Annual Meeting of Shareholders and continues to serve on the board of directors as an independent director within the meaning of Rule 5605(a)(2) of The NASDAQ Stock Market. Mr. Rooney was reelected at the 2018 Annual Meeting of Shareholders to serve a one-year term.

Mr. Rooney is a veteran of the financial markets and has served on the board of CUI Global since 2008. He brings over 20 years of financial management experience to the board of directors. Mr. Rooney currently is a Financial Advisor at the Pinnacle Financial Group, which is part of LPL Financial, the largest independent broker dealer in the United States. Prior to working with LPL, Mr. Rooney served as Senior Director of Investments at Oppenheimer & Co., a full-service investment banking, securities and wealth management firm. He has also worked in similar capacity at Investec Ernst & Company, an international specialist bank headquartered in South Africa and the U.K. Mr. Rooney currently advises a clientele of high net worth investors, institutions and foundations. He is an active member of various industry and charitable organizations.

Mr. Rooney graduated from C.W. Post University in 1993 with a Bachelor of Arts degree in Business Administration and holds Series 7 (General Securities Representative), Series 63 (Uniform Securities Law), Series 24 (General Securities Principal) and Series 65 (Uniform Investment Adviser) licenses.

Paul D. White, President of Orbital Gas Systems, Ltd. and Director, age 57 (Seat 4)

Mr. White was appointed in April 2014 as a director to fill a vacancy and continues to serve on the board of directors. Mr. White was reelected at the 2018 Annual Meeting of Shareholders to serve a one-year term.

Mr. White is a graduate of Humboldt State University and brings to the CUI Global board over 25 years of upper-level business management skills. Prior to being appointed President of Orbital Gas Systems, Ltd., Mr. White served as Vice President of the Healthcare Division for North America of a global security company. His responsibilities included direct responsibility for profit and loss statements with approximately $120 million in revenues, along with management, control, and supervision of approximately 3,000 employees working at 44 Medical Centers & Hospitals and over 600 Medical Office Buildings throughout the United States. He previously served in the Office of the General Counsel and Risk Services, as an Environmental Risk Consultant with Sutter Health Support Services - Corporate Services. His key responsibilities included: formulating best practice solutions to minimize/eliminate existing and potential employee health & safety and security exposures as well as consultations of state, federal, and professional standards for Risk Control/Environmental Health & Safety programs such as OSHA, TJC, DHS, EPA, NFPA, and DOT.

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As a results-oriented business leader, Mr. White has skills in developing, managing and expanding business portfolios. Mr. White has senior management experience in contract management, public relations, program strategy and design and has been consistently recognized for effective financial management, leadership, integrity, team-building, and program management skills.

Corey A. Lambrecht, Director, age 49 (Seat 5)

Mr. Lambrecht was elected to serve as a director at the 2007 Annual Meeting of Shareholders and continues to serve on the board of directors as an independent director within the meaning of Rule 5605(a)(2) of The NASDAQ Stock Market. Mr. Lambrecht was reelected at the 2018 Annual Meeting of Shareholders to serve a one-year term.

Mr. Lambrecht is a 20+ year public company executive with broad experience in strategic acquisitions, corporate turnarounds, new business development, pioneering consumer products, corporate licensing, and interactive technology services.  In addition, Mr. Lambrecht has held public company executive roles with responsibilities including day-to-day business operations, management, raising capital, board communication and investor relations.  Mr. Lambrecht holds a certificate as a Certified Director from the UCLA Anderson Graduate School of Management Accredited Directors program.

Mr. Lambrecht is a director of ORHub, a SaaS company as well as a strategic consultant for American Rebel Holdings, Inc.  He served as Director of Sales for Leveraged Marketing Associates, the worldwide leader in licensed brand extension strategies.  While Executive Vice President for Smith & Wesson Holding Corporation, he was responsible for Smith & Wesson Licensing, Advanced Technologies and Interactive Marketing divisions.  Previously, Mr. Lambrecht served as an independent director of Guardian 8 Holdings.  He was the former President of A For Effort, an interactive database marketing company specializing in online content (advergaming) for clients such as the National Hockey League.  Mr. Lambrecht's prior experience also includes Pre-IPO founder for Premium Cigars International and VP Sales/Marketing for ProductExpress.com.

Matthew M. McKenzie, President of CUI Inc., Chief Operating Officer of the Power and Electromechanical

Division, Corporate Secretary of CUI Global, Inc., age 38

Mr. McKenzie was elected to the board of directors at the 2008 Annual Meeting of Shareholders and served on the board of directors until July 2018. Mr. McKenzie stepped aside as Director, effective July 1, 2018, in order to maintain an independent director majority on the CUI Global, Inc. five-member board in accordance with applicable rules promulgated by the Securities and Exchange Commission and within the meaning of Rule 5605(a)(2) of the NASDAQ Stock Market. Mr. McKenzie will continue his service as president of CUI, Inc., a wholly owned subsidiary and as Corporate Secretary in which capacity he will attend board meetings as a nonvoting observer.

Mr. McKenzie has been working in various functions for CUI for over 15 years (including serving as president for 10 years), gaining him intimate knowledge of the business, its operations and its opportunities for growth.

Over the past several years, Mr. McKenzie has worked to position CUI for growth through sales and operation expansion as well as channel development. Among many other things, he has facilitated ISO 9001 certification, a quality management system, provided structure to global logistics, expanded the distribution channel, and implemented CUI’s ERP system, which allows for more visibility and analysis opportunities. Currently, Mr. McKenzie spearheads the research, development, and implementation of the advanced power products including the ICE technology products.

Mr. McKenzie brings a background in leadership from a variety of fields, giving him valuable insight into leadership in the 21st century. He also brings an MBA from George Fox University, a program that is diverse and well-connected to the community.

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Daniel N. Ford, Chief Financial Officer of CUI Global Inc. and Subsidiaries and Chief Operating Officer of the Energy Division, age 39

With a background in the big 4 accounting firms, including KPMG, Mr. Ford brings a large company perspective to a small company with big potential. As CFO of CUI, Mr. Ford has consistently moved CUI into a position of profitability, efficiency, and forward thinking, transforming many of CUI's accounting, inventory management, and vendor relations processes.

Mr. Ford has implemented improved ERP systems, was instrumental in financing CUI Inc.’s move into its current 62,380 square foot facility, worked in conjunction with Mr. Clough on the 2012, 2013 and 2017 equity raises and listing onto the Nasdaq Capital Market, as well as worked to facilitate the acquisitions of Orbital Gas Systems Ltd. and CUI-Canada.

Mr. Ford earned his B.B.A with a double major in Finance and Accounting from the University of Portland and holds an MBA from George Fox University.

Corporate Governance and Board of Directors Matters

We are committed to maintaining the highest standards of business conduct and corporate governance, which we believe are essential to running our business efficiently, serving our stockholders well and maintaining our integrity in the marketplace. We have adopted a Corporate Code of Ethics and Business Conduct, a code of business conduct and ethics for employees, directors and officers (including our principal executive officer and principal financial and accounting officer). We have also adopted the following governance guides: Charter of the Audit Committee, Charter of the Compensation Committee, policy for Director Independence, Charter of the Nominating Committee, Disclosure Committee Charter, and Whistleblower Policy, all of which, in conjunction with our certificate of incorporation and bylaws, form the framework for our corporate governance. These corporate governance documents are available on the Internet at our website www.CUIGlobal.com.

Our Corporate Governance Practices

We have always believed in strong and effective corporate governance procedures and practices. In that spirit, we have summarized several of our corporate governance practices below.

The Board of Director’s Role in Risk Oversight

The board of directors and its committees have an important role in the Company’s risk oversight, management and assessment process. The board regularly reviews with management the Company’s financial and business strategies, which include a discussion of relevant material risks as appropriate. The board discusses with the Company’s outside general counsel, as appropriate, its risk oversight and assessment as well as any material risks to the Company. In addition, the board delegates risk management responsibilities to the Audit Committee and Compensation Committee, which committees are each comprised of independent directors. The Audit Committee, as part of its charter, oversees the Company’s risk oversight, management and assessment of the Company and oversees and assesses the risks associated with the corporate governance and ethics of the Company. Risk considerations are a material aspect of the Compensation Committee. The Compensation Committee is responsible for overseeing the management of risks relating to executive compensation. In addition, the Compensation Committee also, as appropriate, assesses the risks relating to the Company’s overall compensation programs. While the Audit Committee and Compensation Committee oversee the management of the risk areas identified above, the entire board is regularly informed through committee reports about such risks. This enables the board and its committees to coordinate the risk management, assessment and oversight roles.

Adopting Governance Guidelines

Our board of directors has adopted a set of corporate governance guidelines to establish a framework within which it will conduct its business and to guide management in its running of the Company. The governance guidelines can be found on our website at www.CUIGlobal.com and are summarized below.

Monitoring Board Effectiveness

It is important that our board of directors and its committees are performing effectively and in the best interest of the Company and its stockholders. The board of directors and each committee are responsible for annually assessing their effectiveness in fulfilling their obligations.

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Conducting Formal Independent Director Sessions

On a regular basis, at the conclusion of regularly scheduled board meetings, the independent directors are encouraged to meet privately, without our management or any non-independent directors.

Hiring Outside Advisors

The board and each of its committees may retain outside advisors and consultants of their choosing at our expense, without management's consent.

Avoiding Conflicts of Interest

We expect our directors, executives and employees to conduct themselves with the highest degree of integrity, ethics and honesty. Our credibility and reputation depend upon the good judgment, ethical standards and personal integrity of each director, executive and employee. In order to provide assurances to the Company and its stockholders, we have implemented standards of business conduct, which provide clear conflict of interest guidelines to its employees and directors, as well as an explanation of reporting and investigatory procedures.

Providing Transparency

We believe that it is important that stockholders understand our governance practices. In order to help ensure transparency of our practices, we have posted information regarding our corporate governance procedures on our website at www.CUIGlobal.com.

Whistleblower Policy

In furtherance of our governance transparency and ethical standards, we adopted a comprehensive Whistleblower Policy that encourages employees to report to proper authorities incorrect financial reporting, unlawful activity, activities that are not in line with the CUI Global Code of Business Conduct or activities, which otherwise amount to serious improper conduct. Our Whistleblower Policy is posted on our website at www.CUIGlobal.com.

Accuracy of All Public Disclosure

It is the Company's policy that all public disclosure made by the Company should be accurate and complete, fairly present, in all material respects, the Company's financial condition and results of operations, and be made on a timely basis as required by applicable laws and securities exchange requirements. In order to oversee this policy, a Disclosure Committee Charter has been adopted by the Chief Executive Officer and Chief Financial Officer and ratified by our Audit Committee. You can view a copy of this document on our website at www.CUIGlobal.com or obtain a copy by making a written request to the Company at CUI Global, Inc., 20050 SW 112th Avenue, Tualatin, Oregon 97062.

Communications with the Board of Directors

Stockholders may communicate with the board of directors by writing to the Company at CUI Global, Inc., 20050 SW 112th Avenue, Tualatin, Oregon 97062, or via phone (503) 612-2300. Stockholders who would like their submission directed to a member of the board may so specify and the communication will be forwarded as appropriate.

Standards of Business Conduct

The board of directors has adopted a Code of Ethics and Business Conduct for all our employees and directors, including the Company's principal executive and senior financial officers. You can obtain a copy of these documents on our website at www.CUIGlobal.com or by making a written request to the Company at CUI Global, Inc., 20050 SW 112th Avenue, Tualatin, Oregon 97062. We will disclose any amendments to the Code of Ethics and Business Conduct or waiver of a provision therefrom on our website at www.CUIGlobal.com.

Ensuring Auditor Independence

We have taken several steps to ensure the continued independence of our independent registered public accounting firm. That firm reports directly to the Audit Committee, which also has the ability to pre-approve or reject any non-audit services proposed to be conducted by our independent registered public accounting firm.

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Committees of the Board and Meetings

At December 31, 2018, our board of directors consists of five directors. Three of our five directors are ‘‘independent’’ as defined in Rule 5605(a)(2) of The NASDAQ Stock Market. Our board of directors has the following standing committees: Audit Committee, Nominating Committee, Compensation Committee and Disclosure Committee. Each of the committees operates under a written charter adopted by the board of directors. All committee charters are available on our website at www.CUIGlobal.com.

Audit Committee

The Audit Committee is established pursuant to the Sarbanes-Oxley Act of 2002 for the purposes of overseeing the company’s accounts and financial reporting processes and audits of its financial statements. The Audit Committee reviews the financial information that will be provided to the stockholders and others, the systems of internal controls established by management and the board and the independence and performance of the Company’s audit process. The Audit Committee is directly responsible for, among other things, the appointment, compensation, retention and oversight of our independent registered public accounting firm, review of financial reporting, internal company processes of business/financial risk and applicable legal, ethical and regulatory requirements. During 2018, the Audit Committee held six formal meetings.

At December 31, 2018, the Audit Committee is comprised of Sean P. Rooney, Chairman, C. Stephen Cochennet, and Corey A. Lambrecht. Messrs. Rooney, Cochennet, and Lambrecht are independent in accordance with Rule 10A-3 under the Securities Exchange Act of 1934 and Rule 5605(a)(2) of The NASDAQ Stock Market.

Audit Committee Report

THE FOLLOWING REPORT OF THE AUDIT COMMITTEE DOES NOT CONSTITUTE SOLICITING MATERIAL AND SHOULD NOT BE DEEMED FILED OR INCORPORATED BY REFERENCE INTO ANY OTHER COMPANY FILING UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934, EXCEPT TO THE EXTENT THE COMPANY SPECIFICALLY INCORPORATES THIS REPORT BY REFERENCE THEREIN.

Audit Committee Report

The Audit Committee reviews the financial information that will be provided to the stockholders and others, the systems of internal controls established by management and the board and the independence and performance of the Company’s audit process.

The Audit Committee has:

• reviewed and discussed with management the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K and the most recent Quarterly Report on Form 10-Q;

• discussed with Perkins & Company, P.C., the Company’s independent registered public accounting firm, the matters required to be discussed by General Auditing Standard 1301: Communications with Audit Committees as adopted by the Public Company Accounting Oversight Board; and

• received the written disclosures and letter from Perkins & Company, P.C. as required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence and has discussed with Perkins & Company, P.C. its independence from CUI Global.

Based on these reviews and discussions, the Audit Committee has recommended that the audited consolidated financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The Audit Committee has also considered whether the amount and nature of non-audit services provided by Perkins & Company, P.C. is compatible with the auditor’s independence and determined that it is compatible.

Submitted by: Audit Committee by

Sean P. Rooney

C. Stephen Cochennet

Corey A. Lambrecht

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Nominating Committee

The nominating committee consists of all of the members of the board of directors who are ‘‘independent directors’’ within the meaning of Rule 5605(a)(2) of The NASDAQ Stock Market. The nominating committee is responsible for the evaluation of nominees for election as director, the nomination of director candidates for election by the stockholders and evaluation of sitting directors. The board has developed a formal policy for the identification and evaluation of nominees, Charter of the Nominating Committee of the Board of Directors, which can be reviewed on our website at www.CUIGlobal.com. In general, when the board determines that expansion of the board or replacement of a director is necessary or appropriate, the nominating committee will review, through candidate interviews with members of the board and management, consultation with the candidate's associates and through other means, a candidate's honesty, integrity, reputation in and commitment to the community, judgment, personality and thinking style, willingness to invest in the Company, residence, willingness to devote the necessary time, potential conflicts of interest, independence, understanding of financial statements and issues, and the willingness and ability to engage in meaningful and constructive discussion regarding Company issues. The committee reviews any special expertise, for example, that qualifies a person as an audit committee financial expert, membership or influence in a geographic or business target market, or other relevant business experience. To date the Company has not paid any fee to any third party to identify or evaluate, or to assist it in identifying or evaluating, potential director candidates.

The nominating committee considers director candidates nominated by stockholders during such times as the Company is actively considering obtaining new directors. Candidates recommended by stockholders will be evaluated based on the same criteria described above. Stockholders desiring to suggest a candidate for consideration should send a letter to the Company's secretary and include: (a) a statement that the writer is a shareholder (providing evidence if the person's shares are held in street name) and is proposing a candidate for consideration; (b) the name and contact information for the candidate; (c) a statement of the candidate's business and educational experience; (d) information regarding the candidate's qualifications to be director, including but not limited to an evaluation of the factors discussed above which the board would consider in evaluating a candidate; (e) information regarding any relationship or understanding between the proposing shareholder and the candidate; (f) information regarding potential conflicts of interest and (g) a statement that the candidate is willing to be considered and willing to serve as director if nominated and elected. Because of the small size of the Company and the limited need to seek additional directors, there is no assurance that all shareholder proposed candidates will be fully considered, that all candidates will be considered equally or that the proponent of any candidate or the proposed candidate will be contacted by the Company or the board and no undertaking to do so is implied by the willingness to consider candidates proposed by stockholders.

Disclosure Committee

We have formed a Disclosure Committee, which has been adopted by our CEO and CFO (‘‘Principal Officers’’) and ratified by our Audit Committee. The Disclosure Committee assists our Principal Officers in fulfilling their responsibility for oversight of the accuracy, completeness and timeliness of our public disclosures including, but not limited to our SEC filings, press releases, correspondence disseminated to security holders, presentations to analysts and release of financial information or earnings guidance to security holders or the investment community. The Disclosure Committee consists of our Principal Officers, the individual or representative of the firm primarily charged with investor/public relations, the Audit Committee Chairman and outside SEC counsel. Our CEO is Chairman of the committee. Our Senior Officers may replace or add new members from time to time. Our Senior Officers have the option to assume all the responsibilities of this committee or designate a committee member, who shall be a person with expertise in SEC and SRO rules and regulations with respect to disclosure, who shall have the power, acting together with our Senior Officers, to review and approve disclosure statements when time or other circumstances do not permit the full committee to meet. You may review the full text of our Disclosure Committee Charter on our website, www.CUIGlobal.com, under the link, governance.

Generally, the committee serves as a central point to which material information should be directed and a resource for people who have questions regarding materiality and the requirement to disclose. In discharging its duties, the committee has full access to all Company books, records, facilities and personnel, including the board of directors, Audit Committee, independent public accountants and outside counsel.

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Compensation Committee

The Compensation Committee discharges the board’s responsibilities relating to general compensation policies and practices and to compensation of our executives. In discharging its responsibilities, the Compensation Committee establishes principles and procedures in order to ensure to the board and the shareholders that the compensation practices of the Company are appropriately designed and implemented to attract, retain and reward high quality executives and are in accordance with all applicable legal and regulatory requirements. In this context, the Compensation Committee’s authority, duties and responsibilities are:

• To annually review the Company’s philosophy regarding executive compensation.

• To periodically review market and industry data to assess the Company’s competitive position, and to retain any compensation consultant to be used to assist in the evaluation of directors’ and executive officers’ compensation.

• To establish and approve the Company goals and objectives, and associated measurement metrics relevant to compensation of the Company’s executive officers.

• To establish and approve incentive levels and targets relevant to compensation of the executive officers.

• To annually review and make recommendations to the board to approve, for all principal executives and officers, the base and incentive compensation, taking into consideration the judgment and recommendation of the Chief Executive Officer for the compensation of the principal executives and officers.

• To separately review, determine and approve the Chief Executive Officer’s applicable compensation levels based on the Committee’s evaluation of the Chief Executive Officer’s performance considering the Company’s and the individual goals and objectives.

• To review for any related party employee situations, to ensure appropriate controls are implemented surrounding compensation changes, bonuses and performance reviews of the related party employee, and to participate in such controls as appropriate.

• To periodically review and make recommendations to the board with respect to the compensation of directors, including board and committee retainers, meeting fees, equity-based compensation and such other forms of compensation as the Compensation Committee may consider appropriate.

• To administer and annually review the Company’s incentive compensation plans and equity-based plans.

• To review and make recommendations to the board regarding any executive employment agreements, any proposed severance arrangements or change in control and similar agreements/provisions, and any amendments, supplements or waivers to the foregoing agreements, and any perquisites, special or supplemental benefits.

• To review and discuss with management, the Compensation Discussion and Analysis (CD&A), and determine the Committee’s recommendation for the CD&A’s inclusion in the Company’s annual report filed with the SEC on Form 10-K and proxy statement on Schedule 14A.

• The Committee may, in its sole discretion, retain or obtain the advice of a compensation consultant, legal counsel or other adviser.

• The Committee shall be directly responsible for the appointment, compensation and oversight of the work of any compensation consultant, legal counsel and other adviser retained by the Committee. The Company must provide for appropriate funding, as determined by the Committee, for payment of reasonable compensation to a compensation consultant, legal counsel or any other adviser retained by the Committee.

• The Committee may select, or receive advice from, a compensation consultant, legal counsel or other adviser to the Committee, other than in-house legal counsel, only after taking into consideration the following factors:

(i)	the provision of other services to the Company by the person that employs the compensation consultant, legal counsel or other adviser;
(ii)	the amount of fees received from the Company by the person that employs the compensation consultant, legal counsel or other adviser, as a percentage of the total revenue of the person that employs the compensation consultant, legal counsel or other adviser;

(iii)	the policies and procedures of the person that employs the compensation consultant, legal counsel or other adviser that are designed to prevent conflicts of interest;
(iv)	any business or personal relationship of the compensation consultant, legal counsel or other adviser with a member of the Committee;

(v) any stock of the Company owned by the compensation consultant, legal counsel or other adviser; and

(vi) any business or personal relationship of the compensation consultant, legal counsel, other adviser or the person employing the adviser with an executive officer of the Company.

• The Committee is not required to implement or act consistently with the advice or recommendations of the compensation consultant, legal counsel or other adviser to the Committee.

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Compensation Committee Members

The Compensation Committee of the board of directors is appointed by the board of directors to discharge the board’s responsibilities with respect to all forms of compensation of the Company’s executive officers, to administer the Company’s equity incentive plans and to produce an annual report on executive compensation for use in the Company’s Form 10-K and the proxy statement on Schedule 14A. At December 31, 2018, the Compensation Committee consists of two independent members of the board of directors, Messrs. Corey A. Lambrecht, and C. Stephen Cochennet, both of whom are ‘‘independent directors’’ within the meaning of Rule 5605(a) (2) of the NASDAQ Stock Market.

Committee Meetings

Our Compensation Committee meets formally and informally as often as necessary to perform its duties and responsibilities. The Compensation Committee held one formal meeting during fiscal 2018. On an as requested basis, our Compensation Committee receives and reviews materials prepared by management, consultants or committee members, in advance of each meeting. Depending on the agenda for the particular meeting, these materials may include, among other factors:

• minutes and materials from the previous meeting(s);

• reports on year-to-date Company financial performance versus budget;

• reports on progress and levels of performance of individual and Company performance objectives;

• reports on the Company’s financial and stock performance versus a peer group of companies;

• reports from the Committee’s compensation consultant regarding market and industry data relevant to executive officer compensation;

• reports and executive compensation summary worksheets, which sets forth for each executive officer: current total compensation and incentive compensation target percentages, current equity ownership holdings and general partner ownership interest and current and projected value of each and all such compensation elements, including distributions and dividends therefrom, over a five-year period.

Compensation Committee Charter

Our Compensation Committee Charter is posted on our website at www.CUIGlobal.com.

Compensation Committee Interlocks and Insider Participation

None of the members of the Company’s Compensation Committee is or has at any time during the last completed fiscal year been an officer or employee of the Company. None of the Company’s executive officers has served as a member of the board of directors, or as a member of the compensation or similar committee, of any entity that has one or more executive officers who served on the Company’s board of directors or Compensation Committee during the last completed fiscal year.

Compensation Committee Report

We have reviewed and discussed the Compensation Discussion and Analysis with management and based on our review and discussion with management, we have recommended to the board of directors that the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 and the proxy statement on Schedule 14A for the 2019 Annual Meeting of Shareholders.

Submitted by:	Compensation Committee by
	Corey A. Lambrecht, Chairman
	C. Stephen Cochennet

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Item 11.      Executive Compensation

Compensation Discussion and Analysis

General Philosophy

Our compensation philosophy is based on the premise of attracting, retaining and motivating exceptional leaders, setting high goals, working toward the common objectives of meeting the expectations of customers and stockholders and rewarding outstanding performance. Following this philosophy, in determining executive compensation, we consider all relevant factors, such as the competition for talent, our desire to link pay with performance, the use of equity to align executive interests with those of our stockholders, individual contributions, teamwork and performance, each executive’s total compensation package and internal pay equity. We strive to accomplish these objectives by compensating all employees with total compensation packages consisting of a combination of competitive base salary and incentive compensation.

Pay for Performance

At the core of our compensation philosophy is our strong belief that pay should be directly linked to performance. We believe in a pay for performance culture that places a significant portion of executive officer total compensation as contingent upon, or variable with, individual performance, Company performance and achievement of strategic goals including increasing shareholder value.

The performance based compensation for our executives may be in the form of (i) annual cash incentives to promote achievement of, and accountability for, shorter term performance plans and strategic goals and (ii) equity grants, designed to align the long-term interests of our executive officers with those of our shareholders, by creating a strong and direct link between executive compensation and shareholder return over a multiple year performance cycle. Long-term incentive equity awards are typically granted in restricted stock or stock options. These awards generally vest over a two to four-year period. This opportunity for share ownership was to provide incentive and retain key employees and align their interests with our long-term strategic goals.

Base Compensation to be Competitive within Industry

A key component of an executive’s total compensation base salary is designed to compensate executives commensurate with their respective level of experience, scope of responsibilities, sustained individual performance and future potential. The goal has been to provide for base salaries that are sufficiently competitive with other similar-sized companies, both regionally and nationally, to attract and retain talented leaders.

Compensation Setting Process

Management’s Role in the Compensation Setting Process

Management plays a significant role in the compensation-setting process. The most significant aspects of management’s role are:

• assisting in establishing business performance goals and objectives;

• evaluating employee and Company performance;

• CEO recommending compensation levels and awards for executive officers;

• implementing the board approved compensation plans; and

• assistance in preparing agenda and materials for the Committee meetings.

The Chief Executive Officer generally attends the Committee meetings; however, the Committee also regularly meets in executive session. The Chief Executive Officer makes recommendations with respect to financial and corporate goals and objectives and makes non-CEO executive compensation recommendations to the Compensation Committee based on Company performance, individual performance and the peer group compensation market analysis. The Compensation Committee considers and deliberates on this information and in turn makes recommendations to the board of directors, for the board’s determination and approval of the executives’ and other members of senior management’s compensation, as necessary, including base compensation, short-term cash incentives and long-term equity incentives. For related party employee matters, appropriate personnel meet with the Compensation Committee to determine compensation and incentives and to review ongoing performance of the employee. The Chief Executive Officer’s performance and compensation is reviewed, evaluated and established separately by the Compensation Committee and ratified and approved by the board of directors.

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Setting Compensation Levels

To evaluate whether total compensation is competitive and provides appropriate rewards to attract and retain talented leaders, as discussed above, we may rely on analyses of peer companies performed by independent compensation consultants and on other industry and occupation specific survey data available. Our general benchmark is to establish both base salary and total compensation for the executive officers at or near the compensation of peer group data, recognizing that a significant portion of executive officer total compensation should be contingent upon, or variable with, achievement of individual and Company performance objectives and strategic goals, as well as being variable with stockholder value. Further, while the objective for base salary is at that of peer group data, executives’ base salaries are designed to reward core competencies and contributions to the Company and may be increased above this general benchmark based on (i) the individual’s increased contribution over the preceding year; (ii) the individual’s increased responsibilities over the preceding year; and (iii) any increase in median competitive pay levels.

Setting Performance Objectives

The Company’s business plans and strategic objectives are generally presented by management annually and as needed to the board of directors. The board engages in an active discussion concerning the financial targets, the appropriateness of the strategic objectives and the difficulty in achieving the same. In establishing the compensation plan, our Compensation Committee then utilizes the primary financial objectives from the adopted business plan and operating cash flow as the primary targets for determining the executive officers’ short-term cash incentives and long-term equity incentive compensation. The Committee also establishes additional non-financial performance goals and objectives, the achievement of which is required for funding of a significant portion, approximately twenty five percent, of the executive officers’ incentive compensation. In 2018, these non-financial performance goals and objectives included among other factors, the continued growth of the Orbital Gas Systems, North America operations; continued integration of CUI-Canada; continued expansion within the global natural gas market, expansion of distribution and direct customer relationships through CUI Inc.; continued product development and new product introductions including the ICE technology and various VE technology-based sample systems; and general and administrative management responsibilities. In addition, such factors as revenue growth; new product adoption; market penetration; M&A activities; and investment banking transactions were and are considered in setting compensation levels.

Annual Evaluation

The Chief Executive Officer recommends the actual incentive award amounts for all other executives based on actual Company performance relative to the targets set as well as on individual performance and recommends the executives’ base salary levels. The Compensation Committee considers these recommendations generally following the end of each fiscal year in determining its recommendations to the board of directors for the final short-term cash incentive and long-term equity award amounts for each executive. Executive base salary levels are reviewed in accordance with their respective employment agreements. The actual incentive amounts awarded to each executive are ultimately subject to the discretion of the Compensation Committee and the board of directors.

Voting Results on Executive Compensation (Say-on-Pay) Advisory Vote

As required by Section 14A of the Exchange Act, under the Dodd–Frank Wall Street Reform and Consumer Protection Act, the Compensation Committee considers the prior year shareholder advisory vote on the compensation of the Named Executive Officers as appropriate for making compensation decisions. At the annual meeting of shareholders held December 3, 2018, 46% percent of the shareholders present and voting on the proposal approved, on an advisory basis, the compensation disclosed in the Company’s proxy statement for the meeting filed with the Securities and Exchange Commission on October 5, 2018. As a result, the Compensation Committee concluded that the Company's shareholders were not supportive of the Company's executive compensation philosophy, policies and programs and the Compensation Committee will continue to reach out to shareholders regarding compensation matters. The Compensation Committee determined to review such philosophy, policies and programs, with such updates and modifications as appropriate for changing circumstances.

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Special Evaluation

Additional equity-based awards may also be granted to executives, as well as other employees, upon commencement of employment, promotions, for special performance recognition or for retention purposes, based on the recommendation of the Chief Executive Officer or Chief Financial Officer. In determining whether to recommend additional grants to an executive, the Chief Executive Officer typically considers the individual’s performance and any planned change in functional responsibility.

Elements of Executive Compensation

Total Compensation

Total compensation for our executives consists of three elements: (i) base salary; (ii) incentive cash award based on achieving specific performance targets as measured by revenues, cash flow and other objectives and (iii) equity incentive award, which is also performance based and may be paid out over a future period in the form of stock, restricted stock or stock purchase options. Base salaries are the value upon which both the incentive compensation percentage targets are measured against. For evaluation and comparison of overall compensation of the executives and to assist it in making its compensation decisions, the Compensation Committee reviews an executive compensation summary, which sets forth for each executive: current compensation and current equity ownership holdings as well as the projected value of each and all such compensation elements, including distributions and dividends therefrom. Also included in the summary are comparative performance numbers, specific milestones, strategic objectives, and other elements used to measure each executive's individual performance.

Base Salaries

Base salaries are designed to compensate executives commensurate with their respective level of experience, scope of responsibilities and to reward sustained individual performance and future potential. The goal has been to provide for base salaries that are sufficiently competitive with other similar-sized companies, both regionally and nationally, to attract and retain talented leaders.

Incentive Compensation

Incentive compensation is intended to align compensation with business objectives and performance and enable the Company to attract, retain and reward high quality executive officers whose contributions are critical to both the short and long-term success of the Company. The executives’ incentive awards are based upon three key performance metrics: (i) the Company’s earnings before interest, depreciation, taxes and amortization (EBIDTA); (ii) achievement of agreed-upon strategic and corporate performance goals; and/or (iii) existing Employment Agreement.

The strategic and corporate performance goals are not intended to be a specific agreed-upon goal, but rather a general objective. Management and the board of directors discuss these factors and set objectives that are dynamic and change periodically. In setting these periodic goals, the board of directors discusses with management the nature of the objective and management’s proposed method of achieving the goal. These goals change throughout the operational process because of changing dynamics such as economic conditions, current success of marketing, availability of materials, availability of funding and overall momentum toward achieving the goal.

Incentive Plan Compensation

Incentive awards are typically paid out in cash, restricted common stock or option awards. The incentive award targets for the executives are established at the beginning of the year, generally, as a percentage of their base salary and the actual awards are determined in the following year at a board of directors’ meetings based on actual Company performance relative to established goals and objectives, as well as on evaluation of the executive’s relevant departmental and individual performance during the past year. In many instances the award of restricted common stock and stock options vests over a multi-year term in equal periodic tranches. The award of restricted common stock purchased through options generally, although not in every instance, vests immediately upon exercise of the option and generally has a validity of up to ten years and a per share purchase price of no less than the fair market value of our common stock on the date of grant. The awards are intended to serve as a means of incentive compensation for performance.

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Retirement Plans

Our wholly owned subsidiaries, CUI Inc. and Orbital Gas Systems, North America, Inc. maintain a 401(k) plan. The Company 401(k) retirement savings plan allows employees to contribute to the plan after they have completed 60 days of service and are 18 years of age. The Company matches the employee’s contribution up to 6% of total compensation. Total employer contributions, net of forfeitures were $0.5 million, $0.4 million, and $0.4 million for 2018, 2017 and 2016, respectively.

Our wholly owned subsidiary, Orbital Gas Systems Ltd., operates a defined contribution retirement benefit plan for employees who have been employed with the company at least 12 months and who chose to enroll in the plan. Orbital contributes to its plan the equivalent of 5% of the employee’s salary and the employee has the option to contribute pre-tax earnings. Orbital made total employer contributions of $0.3 million, $0.2million and $0.3 million during 2018, 2017 and 2016, respectively.

Change in Control Agreements

Our executives are awarded protection upon a change in control as specifically provided in their employment contracts. The Chief Executive Officer contract includes a provision for a two-year severance package upon termination. The Chief Financial Officer and Chief Operations Officer, Power and Electromechanical division contracts include a provision for an eighteen-month severance package upon termination.

Perquisites

The Company does not provide for any perquisites or any other benefits for its senior executives that are not generally available to all employees.

Employment Agreements

During fiscal year 2018, four executive officers were employed under employment agreements. Those executive officers are:

• Chief Executive Officer and General Counsel;

• Chief Financial Officer of CUI Global, Inc. and Chief Operating Officer of the Energy Division;

• President of CUI Inc., and Chief Operating Officer of the Power and Electromechanical Division; and

• President of Orbital Gas Systems Ltd.

To see the material terms of each named executive officer’s employment agreement, please see the footnotes to the Summary Compensation Table.

Executive Salary and Bonus Performance Assessment Considerations

Bonuses for certain executive officers and employees of CUI Global and subsidiaries are calculated based on historical financial and non-financial information and accomplishments based on an ongoing review and approval by the Compensation Committee and the Chief Executive Officer. Accordingly, the Company accrues bonuses through components calculated on prior data. This review also considers ongoing performance and incentives for those officers and employees to increase their performance. As such, bonuses calculated based on fiscal 2018 data are not necessarily earned or owed to the employees as of December 31, 2018 and there is no legal right by the employees to receive such bonuses upon either termination by the Company or voluntary termination, unless they have been approved based on the subsequent review of subjective items.

The performance assessment considerations for William J. Clough, Esq. in his capacity as President, Chief Executive Off☒cer and General Counsel of CUI Global, Inc. and subsidiaries, include his successful management and implementation of acquisition and growth strategy, both domestically and internationally, that resulted in the March 2015 asset acquisition of Tectrol, Inc., a Canadian electronics company by CUI Inc. and the highly lucrative February 2016 purchase order from Europe’s largest natural gas transmission company for our GasPT product. This purchase order culminates several years of Mr. Clough’s personal effort. The Tectrol asset purchase entailed complex labor union negotiations and ongoing management support. Mr. Clough continues to expand new technology development, implementation, branding and sales by strategically expanding the VE Technology product recognition through adoption of mercury sampling and thermowells. As a primary initiator of the Company’s growth strategy, he engineered the Company’s launch of Orbital Gas Systems, North America, Inc. as a unified international GasPT and VE Technology sales headquarters. Mr. Clough continues to expand investor relations and strengthen investment banking relationships through regular investor meetings and conferences. In addition, Mr. Clough is the point-person for the Company's mergers and acquisition (M&A) strategy. He provides insight, tactics, targets, and potential relationships to expand the Company's opportunities through strategic partnerships and acquisitions. Mr. Clough's efforts have included strategic relationships with SAMSON AG, Socrate S.p.A., Daily Thermetrics, and others, along with various acquisition opportunities currently being explored by the Company. As Corporate General Counsel, he is “hands on” in his management of corporate governance and legal issues, addressing employee concerns, providing personal direction and oversight of drafting revised and restated corporate bylaws and regularly communicating with the directors pertaining to various corporate matters as they arise.

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During 2018, Mr. Clough’s employment contract was extended through December 31, 2019 and allows for performance and discretionary bonuses. During 2018, he earned a performance and discretionary cash bonus of one hundred percent (100%) of his annual base salary based on 2017 performance metrics.

The performance assessment considerations for Daniel N. Ford, Chief Financial Officer of CUI Global, Inc. and subsidiaries and Chief Operating Officer of the Energy Division include his successful management of financial resources for CUI Global and subsidiaries including investments, corporate portfolio, cash and debt positions. Mr. Ford’s daily duties include ongoing development and oversight of global banking relationships and overall financial performance oversight and management of the accounting staff of CUI Global, Inc. and all subsidiaries. In 2016, Mr. Ford added the responsibility of Chief Operating Officer for the Energy Division including direct management of the Division's leadership teams as well as coordinating ongoing activities, planning and initiatives to continue growth within this division on a global basis. Mr. Ford efficiently communicates with the board pertaining to company activities, audit results and findings, growth and acquisition strategy and investment tactics. Mr. Ford oversees SEC filing compliance, internal reporting matters, and works directly with internal and external audit and tax firms. As an integral part of this management, it is necessary that he continue to be up to date on all current accounting and SEC regulatory standards such as ICFR and SOX. Mr. Ford works closely with Mr. Clough regarding financial reporting, the Energy Division activities, investor management and investor relations activities. Mr. Ford is integral to the M&A efforts and assists Mr. Clough with analysis and identification of specific strategic partnerships and acquisitions. Mr. Ford has been particularly involved in the integration of Tectrol (CUI-Canada), Orbital-UK, and Orbital North America into the CUI Global portfolio. During 2018, Mr. Ford’s employment contract was extended through December 31, 2019 and allows for performance and discretionary bonuses. During 2018, he earned a performance and discretionary cash bonus of ninety percent (90%) of his annual base salary based on 2017 performance metrics.

The performance assessment considerations for Matthew M. McKenzie, President of CUI Inc. are directed toward corporate operations for the Power and Electromechanical Division. Mr. McKenzie manages the daily operations of CUI Inc., CUI Japan, and CUI-Canada, Inc., the entity that received the assets purchased from Tectrol in March 2015. He continues to direct and manage the integration of CUI-Canada and has been instrumental in the acquisition and development of the ICE technology. Mr. McKenzie handles distributor contract procurement and contract management and oversight of key contracts with Digi-Key Electronics, Future Electronics, Mouser Electronics, Arrow Electronics and many others. Through Mr. McKenzie’s efforts and oversight, CUI Inc.’s power and electromechanical product sales, bookings, deliveries and revenue continue to perform and are well set for growth opportunities. The Power and Electromechanical Division that Mr. McKenzie manages requires his oversight of employees, hiring specialized technical individuals and applicable job descriptions. Mr. McKenzie successfully managed the construction of our research and development facility and implementation of our ICE product development project. Mr. McKenzie is also quite involved in the Company's recent investment in Virtual Power Systems ("VPS") (the owner of the VPS software that empowers our ICE hardware) and in the Company's efforts to expand and strengthen its relationship with VPS. During 2018, Mr. McKenzie’s employment contract was extended through December 31, 2019 and allows for performance and discretionary bonuses. During 2018, he earned a performance and discretionary cash bonus of fifty percent (50%) of his annual base salary based on 2017 performance metrics.

The performance assessment considerations for Paul D. White, President of Orbital Gas Systems, Limited are directed toward corporate operations for the Energy Division. In 2017, Mr. White went from serving as one of the Company’s independent directors to serving as president of one of the Company’s key subsidiaries, Orbital-UK, while continuing to serve on the board of directors. Mr. White works closely with Mr. Ford and Mr. Clough on Energy Division activities. During 2017, Mr. White entered into a three-year employment contract through December 2020 that allows for performance and discretionary bonuses. During 2017, Mr. White’s initial base pay was set at $225 thousand, with increases to $250 thousand and $275 thousand in years 2 and 3, respectively. In addition, he earned a sign-on bonus of $30 thousand.

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Pay Ratio Disclosure Rule

In August 2015, pursuant to a mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd - Frank Act”), the Securities and Exchange Commission (“SEC”) adopted a rule requiring annual disclosure of the ratio of the median employee’s annual total compensation to the total annual compensation of the principal executive officer (‟PEO”).  The Company’s PEO is Mr. William Clough.  The purpose of the new required disclosure is to provide a measure of the equitability of pay within the organization.  The Company believes its compensation philosophy and process yield an equitable result and is presenting such information in compliance with the required disclosure as follows:

Median Employee total annual compensation	$	50,657
Mr. Clough ("PEO") total annual compensation	$	1,145,165
Ratio of PEO to Median Employee Compensation	23:1

When determining the median employee, we included the following compensation in our calculations:

• Salary or wages

• Bonuses

• Stock awards

• Other compensation including health insurance benefits, disability insurance benefits, life insurance benefits and 401(k) match benefits provided by the Company but excluding health and pension benefits provided by certain governments.

Mr. Clough’s compensation can be reviewed in more detail in the Summary Compensation Table and includes the same benefits that were included in the calculation of the median employee’s compensation.

We elected to exclude our CUI-Japan sales office from the calculation due to there being less than 5% of the total number of employees there (4 employees). We elected to include 5 contract employees in determining the median employee.

Full and part-time employee compensation for employees that were hired during the year was annualized based on the average compensation they received during the period they were employed. The number of employees was determined as of December 31, 2018 when there were 353 total employees (Excluding CUI-Japan and including 5 contract employees), 101 of which are considered US employees and 252 of which were considered non-US employees.

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Summary Compensation Table

The following table sets forth the compensation paid and accrued to be paid by the Company for the fiscal years 2018, 2017 and 2016 to the Company’s Chief Executive Officer, Chief Financial Officer and President of CUI Inc.

Summary Compensation Table

				Stock			Option		Non- equity Incentive
Name and		Salary		Awards			Awards		Plan					Total
Principal Position	Year	($)		($)			($)		Compensation ($) (9)		All Other Compensation ($)			($)
William J. Clough, CEO/	2018		559,660		—	(2)		—		552,428		33,077	(2)		1,145,165
President/Counsel/	2017		538,135		—	(2)		—		497,672		30,869	(2)		1,066,676
Director (1)	2016		517,438		—	(2)		—		575,751		24,801	(2)		1,117,990
Daniel N. Ford, CFO	2018		350,000		—	(4)		—		254,789		40,238	(4)		645,027
COO - Energy Division (3)	2017		320,000		—	(4)		—		244,888		38,532	(4)		603,420
	2016		281,216		—	(4)		—		260,650		37,153	(4)		579,019
Matthew M. McKenzie,	2018		320,000		—	(6)		—		206,540		39,508	(6)		566,048
COO - PEM Division/President of CUI, Inc. (5)	2017		292,465		—	(6)		—		107,105		37,848	(6)		437,418
	2016		281,216		—	(6)		—		225,117		36,508	(6)		542,841
Paul D. White,	2018		225,000			(8)				155,000		32,717	(8)		412,717
President of Orbital Gas Systems, Ltd., Director (7)	2017		114,759		49,991	(8)		—		30,000		—	(8)		194,750
	2016		50,000		67,275	(8)		—		—		—	(8)		117,275

Footnotes:

1. Mr. Clough joined the Company on September 1, 2005. Effective September 13, 2007, Mr. Clough was appointed CEO/President of CUI Global and Chief Executive Officer of all wholly owned subsidiaries of the Company.

2. Mr. Clough is employed under a multi-year employment contract with the Company, which became effective July 1, 2013, and which was extended to run to and through December 31, 2019. Said contract provides, in relevant part, for salary in 2018 of $560 thousand, and includes bonus provisions for each calendar year up to one hundred twenty-five percent of base salary to be based on performance objectives, goals and milestones for each calendar year including revenue performance and entitles Mr. Clough to a two-year severance package and an annual 4% cost of living adjustment. Bonuses are approved quarterly based on various performance-related factors and an evaluation of current performance and includes a discretionary bonus of up to twenty-five percent of salary based upon the reasonable judgment of the compensation committee. Employee has the ability to earn a larger bonus based on the performance criteria set forth and the reasonable judgment and discretion of the compensation committee. All such bonus payments shall be paid to Mr. Clough in equal monthly installments following the period in which the bonus is earned and shall be paid on the 15th day of each month. At December 31, 2018, 2017, and 2016, there was an accrual of $30 thousand, $33 thousand, and $29 thousand, respectively, for compensation owed to Mr. Clough.

3. Mr. Ford joined the Company May 15, 2008 and serves as Chief Financial Officer of CUI Global and subsidiaries, and Chief Operating Officer of the Energy Division.

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4. Mr. Ford is employed under a multi-year employment contract with the Company, which became effective July 1, 2013 and which was extended to run to and through December 31, 2019. Said contract provides, in relevant part, for salary in 2018 of $350 thousand, an annual 4% cost of living adjustment, an eighteen-month severance package and bonus provisions up to one hundred twenty-five percent of base salary to be based on performance objectives, goals and milestones for each calendar year including revenue performance. The bonus includes a discretionary bonus of up to twenty-five percent of salary based upon the reasonable judgment of the compensation committee. Employee has the ability to earn a larger bonus based on the performance criteria set forth and the reasonable judgment and discretion of the compensation committee. Bonuses are approved quarterly based on the above factors and an evaluation of current performance. All such bonus payments shall be paid to Mr. Ford in equal monthly installments following the period in which the bonus is earned and shall be paid on the 15th day of each month. At December 31, 2018, 2017, and 2016, there was an accrual of $21 thousand, $22 thousand, and $19 thousand, respectively, for compensation owed to Mr. Ford.

5. Mr. McKenzie joined the Company May 15, 2008 and serves as President of CUI Inc. and Chief Operating Officer of the Power and Electromechanical Division.

6. Mr. McKenzie is employed under a multi-year employment contract with the Company, which became effective July 1, 2013 and which was extended to run to and through December 31, 2019. Said contract provides, in relevant part, for salary in 2018 of $320 thousand, an annual 4% cost of living adjustment, an eighteen-month severance package and bonus provisions up to one hundred twenty-five percent of base salary to be based on performance objectives, goals, and milestones for each calendar year, including revenue performance in the Power and Electromechanical segment. The bonus includes a discretionary bonus of up to twenty-five percent of salary based upon the reasonable judgment of the compensation committee. Employee has the ability to earn a larger bonus based on the performance criteria set forth and the reasonable judgment and discretion of the compensation committee. Bonuses are approved quarterly based on the above factors and an evaluation of current performance. All such bonus payments shall be paid to Mr. McKenzie in equal monthly installments following the period in which the bonus is earned and shall be paid on the 15th day of each month. At December 31, 2018, 2017, and 2016, there was an accrual of $18 thousand, $12 thousand, and $5 thousand, respectively, for compensation owed to Mr. McKenzie.

7. Mr. White served as President of Orbital Gas Systems, Ltd. since July 2017, initially in a consulting role. Upon accepting the permanent role of President of Orbital Gas Systems, Ltd. effective December 1, 2017, Mr. White ceased to be independent as a director of the Company.

8. Mr. White is employed under a three-year employment contract with the Company through December 1, 2020 and provides, in relevant part, for an initial annual salary of $225 thousand in year 1 along with a $30 thousand one-time signing bonus, and increases to $250 thousand and $275 thousand in years 2 and 3, respectively, a severance of the executive’s salary for the remainder of his severance term upon termination, bonus provisions to be based on performance objectives, goals, and milestones for each calendar year, including revenue performance at Orbital-UK. The bonus includes a discretionary bonus of up to twenty-five percent of salary based upon the reasonable judgment of the compensation committee. Employee has the ability to earn a larger bonus based on the performance criteria set forth and the reasonable judgment and discretion of the compensation committee. Bonuses are approved on an ongoing basis based on the above factors and an evaluation of current performance. All such bonus payments shall be paid to Mr. White following the period in which the bonus is earned. During 2017, Mr. White received $50 thousand of cash compensation and $50 thousand of stock awards for his services as an independent director. Further, during his time during the year ended December 31, 2017 serving as a consultant as interim President of Orbital Gas Systems, Limited, Mr. White received $46 thousand of compensation. At December 31, 2018 and 2017, there was an accrual of $155 thousand, and $40 thousand, respectively, for compensation owed to Mr. White. Mr. White's cash and equity compensation shown for 2016 was payment for his services as an independent director of CUI Global, Inc. during that year.

9. All other compensation includes health care, disability and 401(k) matching benefits.

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2018 Grants of Plan-Based Awards

		Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1)
Name	Grant Date	Threshold		Target		Maximum
		($)		($)		($)
William J. Clough	Non-equity award		—		279,830		699,575
Daniel N. Ford	Non-equity award		—		175,000		437,500
Matthew M. McKenzie	Non-equity award		—		160,000		400,000
Paul D. White	Non-equity award		—		168,750		281,250

(1) These columns show the possible payouts for each named executive officer under the Incentive Plan for 2018 based on the goals set in 2018. Additional information is included in the Compensation Discussion and Analysis, and detail regarding actual awards under the Incentive Plan is reported in the Summary Compensation Table.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth the outstanding equity awards at December 31, 2018 to each of the named executive officers:

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Option Exercise Price ($)		Option Expiration
Daniel N. Ford (1)		12,598		7.50	1/1/2019
Matthew M. McKenzie (1)		15,100		7.50	1/1/2019
Matthew M. McKenzie (1)		8,100		7.50	1/1/2019
William J. Clough (2)		5,422		9.00	10/11/2020
Daniel N. Ford (2)		12,598		9.00	10/11/2020
Matthew M. McKenzie (2)		15,100		9.00	10/11/2020
Matthew M. McKenzie (2)		3,300		9.00	10/11/2020
William J. Clough (3)		19,363		4.56	4/16/2022
William J. Clough (3)		3,300		4.56	4/16/2022
Daniel N. Ford (3)		12,598		4.56	4/16/2022
Matthew M. McKenzie (3)		15,100		4.56	4/16/2022
Matthew M. McKenzie (3)		3,300		4.56	4/16/2022
William J. Clough (4)		330,000		6.00	9/21/2022
William J. Clough (5)		200,000		6.25	6/24/2023
Daniel N. Ford (5)		100,000		6.25	6/24/2023
Matthew M. McKenzie (5)		50,000		6.25	6/24/2023
Paul D. White (6)		7,500		8.15	8/31/2024

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Footnotes:

1. Effective January 1, 2009, Mr. Ford and Mr. McKenzie received fully vested bonus options to purchase 12,598, and 15,100 common shares, respectively, within ten years from date of issuance, at a price of $7.50 per share. Also effective January 1, 2009, for service as a director of the Company, Mr. McKenzie received an option to purchase 4,800 common shares, within ten years from date of issuance, at a price of $7.50, that vested over four years, 25% after the first year and in equal monthly installments over the balance of the four year term and an option to purchase 3,300 common shares, within ten years from date of issuance, at a price of $7.50 per share that vested one year after issuance.

2. Effective October 11, 2010, Mr. Clough, Mr. Ford and Mr. McKenzie received bonus options to purchase 37,177 (5,422 remaining outstanding), 12,598 and 15,100 common shares, respectively, within ten years from date of issuance, at a price of $9.00 per share that vested over 4 years: 25% at year one and thereafter in equal monthly installments. Additionally, effective October 11, 2010, for service as a director of the Company, Mr. McKenzie received an option to purchase 3,300 common shares within ten years from date of issuance at a price of $9.00 per share that vested one year after issuance.

3. Effective April 16, 2012, Mr. Clough, Mr. Ford and Mr. McKenzie received bonus options to purchase 37,177 (19,363 remaining outstanding), 12,598, and 15,100 common shares, respectively, within ten years from date of issuance, at a price of $4.56 per share that vested over 4 years: 25% at year one and thereafter in equal monthly installments. Additionally, effective April 16, 2012, for their service as directors of the Company, Mr. Clough and Mr. McKenzie each received an option to purchase 3,300 common shares, within ten years from date of issuance, at a price of $4.56 per share that vested one year after issuance.

4. Effective September 21, 2012, under the terms of his contract extension, Mr. Clough received a bonus option to purchase 330,000 common shares, within ten years from date of issuance, at a price of $6.00 per share that vested in equal monthly installments over 4 years.

5. Effective June 24, 2013, Mr. Clough, Mr. Ford and Mr. McKenzie received bonus options to purchase 200,000, 100,000 and 50,000 common shares, respectively, within ten years from date of issuance, at a price of $6.25 per share that vested one third per year over 3 years.

6. Effective August 31, 2014, Mr. White received, for service as Director, an option to purchase 7,500 common shares within ten years from date of issuance at a price of $8.15 per share that vested one year after issuance.

Director Compensation

For 2018, each of our directors received the following compensation pursuant to our director compensation plan:

Non-employee directors received annual compensation of $100,000.

• The $100,000 annual compensation for non-employee directors is issued in the form of $50,000 cash compensation and $50,000 common stock calculated by using the Nasdaq Stock Market closing price per share on the date of issuance.

• At the election of each director, all or any portion of the cash compensation may be converted to stock purchase options calculated by using the strike price of ten percent (10%) above the Nasdaq Stock Market closing price per share on the date of grant.

• At the election of each director, all or any portion of the cash compensation may be converted to stock calculated by using the Nasdaq Stock Market closing price per share on the date of conversion.

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The following table sets forth the compensation of the non-employee directors for the fiscal year ended December 31, 2018:

	Fees						Non-Equity
	earned or						Incentive Plan		Nonqualified Deferred		All Other
	paid in Cash		Stock Awards		Option Awards		Compens ation		Compensation Earnings		Compen sation		Total
Name	($)		($)		($)		($)		($)		($)		($)
C. Stephen Cochennet	$	50,003	$	49,997	$	—	$	—	$	—	$	—	$	100,000
Corey A. Lambrecht, Director		50,003		49,997		—		—		—		—		100,000
Thomas A. Price, Director (1)		25,002		24,998		—		—		—		—		50,000
Sean P. Rooney, Director		50,003		49,997		—		—		—		—		100,000

Footnotes:

⁽¹⁾ Mr. Price retired from the board of directors effective July 1, 2018.

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Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth certain information regarding beneficial ownership of our voting shares as of December 31, 2018 by: (i) each shareholder known by us to be the beneficial owner of 5% or more of the outstanding voting shares, (ii) each of our directors and executives and (iii) all directors and executive officers as a group. Except as otherwise indicated, we believe that the beneficial owners of the voting shares listed below, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Shares of common stock issuable upon exercise of options and warrants that are currently exercisable or that will become exercisable within 60 days of December 31, 2018 have been included in the table.

No shares of preferred stock are outstanding at the date of this report.

Beneficial Interest Table

	Number of Securities		Percentages of Shares Beneficially
Name and Address of Beneficial Owner (1)	Owned		Owned (2)
William J. Clough (3)		653,251		2.25	%
C. Stephen Cochennet (4)		35,630		*
Daniel N. Ford (5)		203,598		*
Corey A. Lambrecht (6)		84,204		*
Matthew M. McKenzie (7)		123,263		*
Sean P. Rooney (8)		102,031		*
Paul D. White (9)		50,727		*
First Eagle Investment Management, LLC,
1345 Avenue of the Americas, New York, NY 10105		3,745,292		13.13	%
Heartland Advisors, Inc.
789 North Water Street, Milwaukee, WI 53202		2,741,428		9.61	%
Royce & Associates, LP
745 Fifth Avenue, New York, NY 10151		1,764,032		6.18	%
Officers, Directors, Executives as Group		1,252,704		4.34	%

Footnotes:

1. Except as otherwise indicated, the address of each beneficial owner is c/o CUI Global, Inc., 20050 SW 112th Avenue, Tualatin, Oregon 97062.

2. Calculated on the basis of 28,552,886 shares of common stock issued and outstanding at December 31, 2018 except that shares of common stock underlying options exercisable within 60 days of the date hereof are deemed to be outstanding for purposes of calculating the beneficial ownership of securities of such holder of options and shares. A * denotes less than 1 percent beneficially owned.

3. Mr. Clough’s common stock includes vested options to purchase 558,085 common shares. Mr. Clough is a Director, Chairman and Chief Executive Officer/President/General Counsel of CUI Global, Inc.

4. Mr. Cochennet was appointed to the board of directors in December 2017.

5. Mr. Ford’s shares include vested options to purchase 137,794 common shares. Mr. Ford is the Chief Financial Officer of CUI Global, Inc. and Chief Operating Officer for the Energy Division.

6. Mr. Lambrecht’s shares include vested options to purchase 24,700 common shares. Mr. Lambrecht is a Director.

7. Mr. McKenzie’s shares include vested options to purchase 112,796 common shares, which includes an option to purchase 2,796 common shares owned by his spouse. Mr. McKenzie is a Director and Chief Operating Officer of the Power and Electromechanical Segment and President of CUI Inc.

8. Mr. Rooney’s shares include vested options to purchase 45,087 common shares. Mr. Rooney is a Director.

9. Mr. White’s shares include vested options to purchase 7,500 common shares. Mr. White is a Director and President of Orbital-UK.

We relied upon Section 4(2) of the Securities Act of 1933 as the basis for an exemption from registration for the issuance of the above securities.

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Employee Equity Incentive Plans

At December 31, 2018, the Company had outstanding the following equity compensation plan information:

	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted- average exercise price of outstanding options warrants and rights		Future issuance under equity compensation plans (excluding securities reflected in column (a)
Plan Category	(a)		(b)		(c)
Equity compensation plans approved by security holders		21,333	$	5.54		—
Equity compensation plans not approved by security holders		902,565		6.34		—
		923,898	$	6.32		—

Equity Compensation Plans Approved by Shareholders

On May 16, 2008 the Company’s board of directors adopted the 2008 Equity Incentive Plan and authorized 1,500,000 shares of Common Stock to fund the Plan. At the 2008 Annual Meeting of Shareholders the Equity Incentive Plan was approved by the Company shareholders. At the 2009 Annual Meeting of Shareholders the shareholders approved an amendment to the 2008 Equity Incentive Plan to increase the number of common shares issuable under the plan from 1,500,000 to 3,000,000. These shares have been registered under Form S-8.

The 2008 Equity Incentive Plan is intended to: (a) provide incentive to employees of the Company and its affiliates to stimulate their efforts toward the continued success of the Company and to operate and manage the business in a manner that will provide for the long-term growth and profitability of the Company; (b) encourage stock ownership by employees, directors and independent contractors by providing them with a means to acquire a proprietary interest in the Company by acquiring shares of stock or to receive compensation, which is based upon appreciation in the value of Stock; and (c) provide a means of obtaining and rewarding employees, directors, independent contractors and advisors.

The 2008 Equity Incentive Plan provides for the issuance of incentive stock options (ISOs) and Non-Statutory Options (NSOs) to employees, directors and independent contractors of the Company. The Board shall determine the exercise price per share in the case of an ISO at the time an option is granted and such price shall be not less than the fair market value or 110% of fair market value in the case of a ten percent or greater stockholder. In the case of an NSO, the exercise price shall not be less than the fair market value of one share of stock on the date the option is granted. Unless otherwise determined by the Board, ISOs and NSOs granted under both plans have a maximum duration of ten years.

As of December 31, 2018 there are no remaining shares available to grant under the 2008 Equity Incentive Plan.

Equity Compensation Plans Not Approved by Shareholders

In January 2009 the Company board of directors received and approved a written report and recommendations of the Compensation Committee, which included a detailed executive equity compensation report and market analysis and the recommendations of Compensia, Inc., a management consulting firm that provides executive compensation advisory services to compensation committees and senior management of knowledge-based companies. The Compensation Committee used the report and analysis as a basis for its formal written recommendation to the board. Pursuant to a board resolution the 2009 Equity Incentive Plan (Executive), a Non-Qualified Stock Option Plan, was created and funded with 4,200,000 shares of $0.001 par value common stock. The Compensation Committee was appointed as the Plan Administrator to manage the plan.

On October 11, 2010, the board of directors authorized an additional 3,060,382 options under the 2009 Equity Incentive Plan (Executive) that were to be granted at post-reverse split quantities. On September 21, 2012, CUI Global authorized an additional 330,000 options under the 2009 Equity Incentive Plan (Executive).

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The 2009 Equity Incentive Plan (Executive) provides for the issuance of stock options to attract, retain and motivate executive and management employees and directors and to encourage these individuals to acquire an equity interest in the Company, to make monetary payments to certain management employees and directors based upon the value of the Company’s stock and to provide these individuals with an incentive to maximize the success of the Company and further the interest of the shareholders. The 2009 Plan provides for the issuance of Incentive Non-Statutory Options. The Administrator of the plan is authorized to determine the exercise price per share at the time the option is granted, but the exercise price shall not be less than the fair market value on the date the option is granted. Stock options granted under the 2009 Plan have a maximum duration of ten years.

The Company has outstanding at December 31, 2018, the following options issued under equity compensation plans not approved by security holders:

• During 2009, the Company issued under the 2009 Equity Incentive Plan (Executive) to officers and directors options to purchase restricted common stock at $7.50 per share as follows: 85,009 fully vested options, 28,800 options that vest over four years, 25% at the end of year one and thereafter in equal monthly installments; and 19,800 options that fully vested one year after the date of grant. Of these 2009 grants, 63,096 remain outstanding and fully vested at December 31, 2018.

• During 2010, the Company issued options to purchase restricted common stock at $9.00 per share to officers and directors as follows: 19,800 options that vest one year after the October 11, 2010 grant date and 82,213 options that vest over four years, 25% at one year after the grant date, thereafter in equally monthly installments. Of these 2010 grants, 51,321 remain outstanding and fully vested at December 31, 2018.

• During 2012, the Company granted options to purchase restricted common stock at $4.56 per share to officers and directors as follows: 19,800 options that vest one year after the April 16, 2012 grant date; 64,875 options that vest over four years, 25% at one year after the grant date, thereafter in equal monthly installments, and 330,000 options to purchase restricted common stock at $6.00 per share were granted to an officer that vest in equal monthly installments over the course of forty-eight consecutive months beginning September 2012. Of these 2012 grants, 390,261 remain outstanding and fully vested at December 31, 2018.

• During 2013, the Company issued 350,000 options to purchase restricted common stock at $6.25 per share to three officers as follows: one third that vest one year after the June 24, 2013 grant date, one third that vest two years after the grant date and the balance that vest three years after the grant date. At December 31, 2018, 350,000 of these 2013 granted options are outstanding and fully vested.

• During 2014, the Company issued options to purchase 10,000 shares of restricted common stock at a price of $6.92 per share to each board member who is not an employee of the Company. The options vested in twelve equal installments during 2014. The Company issued options to purchase 42,890 restricted shares of common stock at a price of $6.92 per share to two board members, who chose to receive a portion of their annual board compensation in the form of equity. The Company granted options to purchase 7,500 restricted shares of common stock at a price of $8.15 per share to each of the two newly elected directors that vested August 31, 2015. Of these 2014 options grants, 47,887 options are outstanding and fully vested at December 31, 2018.

As of December 31, 2018, there are no remaining shares available to grant under the 2009 Equity Incentive Plan (Executive).

The description of the Company’s capital stock does not purport to be complete and is subject to and qualified by its Articles of Incorporation, Bylaws, and amendments thereto and by the provisions of applicable Colorado law. The Company’s transfer agent is Computershare Trust Company, Inc., 350 Indiana Street, Suite 800, Golden, Colorado 80401.

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Item 13.  Certain Relationships and Related Transactions and Director Independence

The Board of Directors is responsible for the review and approval of all related party transactions. Although the Board does not have written policies and procedures with respect to the review of related party transactions, we intend that any such transactions will be reviewed by the Board of Directors or one of its committees, which will consider all relevant facts and circumstances and will consider, among other factors:

• the material terms of the transaction;

• the nature of the relationship between the Company and the related party;

• the significance of the transaction to the Company; and

• whether or not the transaction would be likely to impair (or create the appearance of impairing) the judgment of a director or executive officer to act in the best interest of the Company.

Except as set forth herein, no related party of the Company, including, but not limited to, any director, officer, nominee for director, immediate family member of a director or officer, immediate family member of any nominee for director, security holder that beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to its outstanding shares, or immediate family member of any such security holder, since the beginning of fiscal year 2018, has any material interest, direct or indirect, in any transaction or in any presently proposed transaction with the Company where the amount involved exceeds $120,000 which has or will materially affect the Company.

Chief Executive Officer and Chairman of the Board of Directors, William J. Clough’s son, Nicholas J. Clough, serves as President at Orbital Gas Systems, North America, Inc., a wholly owned subsidiary of the Company. Additional Information on Nicholas Clough’s compensation is included in Note 13 Related Party Transactions, to the Consolidated Financial Statements under Part II, Item 8, ‘‘Financial Statements and Supplementary Data.’’

IED and Other Affiliates Related Matters

Effective May 16, 2008 the Company formed a wholly owned subsidiary into which CUI Inc., an Oregon corporation, merged all of its assets. The funding for this acquisition was provided by a bank note, a seller’s note and a convertible seller’s note. Matthew McKenzie, COO and Daniel Ford, CFO each were partial owners in CUI Inc. prior to the acquisition and they each, along with James McKenzie are shareholders in International Electronic Devices, Inc. (IED). The convertible seller’s note was satisfied in 2010 and the bank note was satisfied in 2012. The remaining seller's note is described below:

• The $5.3 million note payable to International Electronic Devices, Inc. (IED) (the former CUI shareholders) is associated with the acquisition of CUI Inc. The promissory note is due May 15, 2020 and includes a 5% interest rate per annum, with interest payable monthly and the principal due as a balloon payment at maturity. The note contains a contingent conversion feature, such that in the event of default on the note the holder of the note can, at the holder’s option, convert the note principal into common stock at $0.001 per share. As of December 31, 2018, the Company is in compliance with all terms of this promissory note and the conversion feature is not effective.

• During 2018, 2017, and 2016, $0.3 million, $0.3 million and $0.3 million, respectively, of interest payments were made in relation to the promissory note issued to IED.

Item 14.  Principal Accountants Fees and Services

Fees or controlled billings for services billed by the Company’s principal accountant, Perkins & Company, P.C., were as follows:

	For the Years Ended December 31,
(In thousands)	2018		2017
Audit fees (1)	$	614	$	669
Audit related fees		127		133
Tax fees and other fees		83		141
Total Fees	$	824	$	943

(1) Fees and expenses for professional services rendered in connection with the audit of the Company's financial statements and internal control over financial reporting and the reviews of the financial statements included in each of the Company's quarterly reports on Form 10-Q.

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In accordance with the requirements of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder, the Audit Committee has adopted an informal approval policy that it believes will result in an effective and efficient procedure to pre-approve services performed by the independent registered public accounting firm.

Section 16(A) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers, directors and persons owning more than 10% of our common stock to file reports of ownership and reports of changes of ownership with the Securities and Exchange Commission. These reporting persons are required to furnish us with copies of all Section 16(a) forms that they file. We have made all officers and directors aware of their reporting obligations and have appointed an employee to oversee Section 16 compliance for future filings.

Shareholder Communications

Company shareholders who wish to communicate with the board of directors or an individual director may write to CUI Global, Inc., 20050 SW 112th Avenue, Tualatin, Oregon 97062, phone (503) 612-2300 or to the attention of an individual director. Your letter should indicate that you are a shareholder and whether you own your shares in street name. Letters received will be retained until the next Board meeting when they will be available to the addressed director. Such communications may receive an initial evaluation to determine, based on the substance and nature of the communication, a suitable process for internal distribution, review and response or other appropriate treatment. There is no assurance that all communications will receive a response.

Certain Provisions of the Articles of Incorporation and Colorado Business Corporation Act Relating to Indemnification of Directors and Officers

The Colorado General Corporation Act, as revised, provides that if so provided in the articles of incorporation, the corporation shall eliminate or limit the personal liability of a director to the corporation or to its shareholders for monetary damages for breach of fiduciary duty as a director; except that any such provision shall not eliminate or limit the liability of a director to the corporation or to its shareholders for monetary damages for any breach of the director's duty of loyalty to the corporation or to its shareholders, acts or omissions not in good faith or, which involve intentional misconduct or a knowing violation of law, unlawful distributions, or any transaction from which the director directly or indirectly derived an improper personal benefit.

Our Articles of Incorporation and bylaws provide that a person who is performing his or her duties shall not have any liability by reason of being or having been a director of the corporation and that the Company shall indemnify and advance expenses to a director or officer in connection with a proceeding to the fullest extent permitted or required by and in accordance with the indemnification sections of Colorado statutes.

Insofar as indemnification for liabilities may be invoked to disclaim liability for damages arising under the Securities Act of 1933, as amended, or the Securities Act of 1934 (collectively, the ‘‘Acts’’), as amended, it is the position of the Securities and Exchange Commission that such indemnification is against public policy as expressed in the Acts and are therefore, unenforceable.

Reports to Shareholders

We intend to voluntarily send Form 10-Ks to our shareholders, which will include audited consolidated financial statements. We are a reporting company and file reports with the Securities and Exchange Commission (SEC), including this Form 10-K as well as quarterly reports under Form 10-Q. The public may read and copy any materials filed with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The company files its reports electronically and the SEC maintains an Internet site that contains reports, proxy and information statements and other information filed by the company with the SEC electronically. The address of that site is www.sec.gov.

The company also maintains an Internet site, which contains information about the company, news releases, governance documents and summary financial data. The address of that site is www.CUIGlobal.com.

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Part IV

Item 15. Exhibits, Financial Statement Schedules

No schedules are included because the required information is inapplicable, not required or are presented in the financial statements or the related notes thereto.

EXHIBITS

The following exhibits are included as part of this Form 10-K.

Exhibit No.	Description
3.11(i)1	Amended Restated Articles of Incorporation that compile prior amendments into a single document.
3.12(ii)15	Amended and restated corporate bylaws that compile requirements for the nomination of persons for election to the Board of Directors and the proposal of other business to be considered by the corporation’s stockholders.
10.47 2	June 5, 2012 three-year Distributor Agreement with Belleau Wood Group.  Confidential portion(s) of this document have been redacted pursuant to protection as "confidential" under Exemption 4 of the Freedom of Information Act, 5 U.S.C. § 552(b)(4).  A request for confidential treatment has been filed separately with the SEC.
10.63 2	Amendment to promissory note payable to IED, Inc., effective September 1, 2010.
10.64 2	Amendment to promissory note payable to IED, Inc., effective December 1, 2010.
10.72 3	December 7, 2012, line of credit document with the Business Credit division of Wells Fargo Capital Finance, Seventh Amendment to the Credit and Security Agreement.
10.73 4	April 30, 2013 Amendment to California Power Research Agreement.  Confidential portion(s) of this document have been redacted pursuant to protection as "confidential" under Exemption 4 of the Freedom of Information Act, 5 U.S.C. § 552(b)(4).  A request for confidential treatment has been filed separately with the SEC.
10.77 4	July 19, 2013 Intellectual Property License between Orbital Gas Systems, a wholly owned subsidiary of CUI Global and EnDet, Ltd.  Confidential portion(s) of this document have been redacted pursuant to protection as "confidential" under Exemption 4 of the Freedom of Information Act, 5 U.S.C. § 552(b)(4).  A request for confidential treatment has been filed separately with the SEC.
10.80 5	Documents relating to the Line of Credit of our subsidiary, CUI Inc., with Wells Fargo Bank, please see our Form 8-K filed with the Commission on October 3, 2013.
10.81 6	Documents relating to an Addendum to our May 15, 2013 Distributorship Agreement with Digi-Key Corporation.  Confidential portion(s) of this document have been redacted pursuant to protection as "confidential" under Exemption 4 of the Freedom of Information Act, 5 U.S.C. § 552(b)(4).  A request for confidential treatment has been filed separately with the SEC.
10.85 7	August 28, 2014 consulting agreement with Relentless Ventures, LLC.
10.868	Asset Purchase Agreement dated February 23, 2015 to acquire the assets of Tectrol, Inc. and commercial lease attached as exhibits to our Form 8-K filed with the commission March 3, 2015.
10.8711	September 13, 2016 Orbital Gas Systems Ltd. GBP 1,500,000 multi-currency overdraft facility letter.
10.8811	September 13, 2016 Orbital Gas Systems Ltd. - Continuing Guarantee from CUI Global to Wells Fargo Bank, National Association ("N.A.") on GBP 1,500,000 multi-currency overdraft facility.
10.8911	October 5, 2016 Debenture with Orbital Gas Systems Ltd. as the Charger and Wells Fargo Bank, N.A., London branch as the bank.
10.9012	Documents relating to the renewal of Line of Credit of our subsidiary, CUI Inc., with Wells Fargo Bank, NA dated June 30, 2017.
10.9113	Documents relating to the temporary increase in the line of credit of our subsidiary, CUI Inc., with Wells Fargo Bank, NA dated September 20, 2017.
10.9214	Five-year lease for Houston, TX facility effective November 1, 2017.
10.9314	Employment agreement with Paul D. White effective December 1, 2017.
10.9415	10-year lease for Tualatin, OR facility effective December 21, 2018.
21.2 9	List of all subsidiaries, state of incorporation and name under which the subsidiary does business.
22.8 10	Revised Proxy Statement and Notice of 2018 Annual Shareholder Meeting.
23.8 15	Consent of Perkins & Company, P.C.
31.1 15	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
31.2 15	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934.
32.1 15	Certification of Chief Executive Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.

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32.2 15	Certification of Chief Financial Officer Pursuant to Rule 13a-14(b)/15d-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350.
101 15	XBRL-Related Documents.
101.INS15	XBRL Instance Document.
101.SCH15	XBRL Taxonomy Extension Schema Document.
101.CAL15	XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF15	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB15	XBRL Taxonomy Extension Label Linkbase Document.
101.PRE15	XBRL Taxonomy Extension Presentation Linkbase Document.

Footnotes to Exhibits:

1. Incorporated by reference to our Proxy Statement and Notice of 2013 Annual Shareholder Meeting filed with the Commission September 17, 2013.

2. Incorporated by reference to our Report on Form 8-K filed with the Commission on January 18, 2013.

3. Incorporated by reference to our Report on Form 8-K filed with the Commission on February 14, 2013.

4. Incorporated by reference to our Report on Form 8-K filed with the Commission on July 30, 2013.

5. Incorporated by reference to our Report on Form 8-K filed with the Commission on October 3, 2013.

6. Incorporated by reference to our Report on Form 8-K filed with the Commission on December 20, 2013.

7. Incorporated by reference to our Report on Form 8-K filed with the Commission on September 2, 2014.

8. Incorporated by reference to our Report on Form 8-K filed with the Commission on March 3, 2015 and Form 8-K/A filed with the Commission on May 13, 2015.

9. Incorporated by reference to our Report on Form 10-K filed with the Commission on March 16, 2015.

10. Filed with the Commission on October 5, 2018.

11. Incorporated by reference to our Report on Form 10-K filed with the Commission on March 14, 2017.

12. Incorporated by reference to our Report on Form 10-Q filed with the Commission on August 9, 2017.

13. Incorporated by reference to our Report on Form 10-Q filed with the Commission on November 9, 2017.

14. Incorporated by reference to our Report on Form 10-K filed with the Commission on March 14, 2018.

15. Filed herewith.

Item 16. Form 10-K Summary

None.

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 its behalf by the undersigned thereunto duly authorized.

CUI Global, Inc.

Signature		Title	Date
By	/s/ William J. Clough	CEO/Principal Executive	March 18, 2019
	William J. Clough	Officer/President/Director
By	/s/ Daniel N. Ford	CFO/ Principal Financial	March 18, 2019
	Daniel N. Ford	and Accounting Officer

126

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities on the dates indicated.

Signature		Title	Date
By	/s/ William J. Clough	CEO/Principal Executive	March 18, 2019
	William J. Clough	Officer/President/Director
By	/s/ Daniel N. Ford	CFO/ Principal Financial	March 18, 2019
	Daniel N. Ford	and Accounting Officer
By	/s/ Paul D. White	Director	March 18, 2019
	Paul D. White
By	/s/ C. Stephen Cochennet	Director	March 18, 2019
	C. Stephen Cochennet
By	/s/ Corey A. Lambrecht	Director	March 18, 2019
	Corey A. Lambrecht
By	/s/ Sean P. Rooney	Director	March 18, 2019
	Sean P. Rooney

127

EX-3.12II

Exhibit 3.12(ii)

Amended and Restated

Bylaws

of

CUI Global, Inc.

CONTENTS

ARTICLE I	7
OFFICES	7
Section 1.1 Registered Office	7
Section 1.2 Other Offices.	7
ARTICLE II	7
STOCKHOLDERS	7
Section 2.1 Annual Meeting.	7
Section 2.2 Special Meetings.	7
Section 2.3 Place of Meetings.	9
Section 2.4 Notice	9
Section 2.5 Setting a Record Date for Stockholder Meetings	9
Section 2.6 Quorum	9
Section 2.7 Adjourned Meetings	10
Section 2.8 Voting by Stockholders on Matters Other Than the Election of Directors	10
Section 2.9 Voting by Stockholders in the Election of Directors	10
(a) Resignation of Incumbent Director Who Fails to Receive a Majority Vote.	10
(b) Definition of “Compelling Reason”	11
(c) Acceptance or Non-Acceptance of a Director’s Resignation.	11
(d) Failure of a Non-Incumbent Director to Win Election.	11
(e) Filling Vacancies.	11
(f) Nominees to Agree in Writing to Abide by this Bylaw.	11
(g) Majority Vote Defined.	11
(h) Vote Standard in Contested Elections.	11
Section 2.10 Voting Rights	12
(a)One Vote per Share	12
(b)No Cumulative Voting.	12
(c)Voting by Ballot.	12
Section 2.11 Proxies	12
Section 2.12 Action by Written Consent	13
(a) General	13
(b) Inspectors of Written Consent	13
(c) Effectiveness of Action by Written Consent	13
(d) Notice of Action by Written Consent.	13
(e) Setting a Record Date for Action by Written Consent.	14

Section 2.13 Stock Records	14
Section 2.14 Notice of Stockholder Nominations and Other Business	15
(a) Annual Meetings of Stockholders.	15
(1) Nominations and Other Business.	15
(2) Timely Advance Notice in Writing.	15
(3) Increased Number of Directors.	17
(b) Special Meetings of Stockholders	17
(c) General.	18
(1) Procedure to be Followed.	18
(2) Public Announcement.	18
(3) Comply with the Exchange Act	18
(d) Stockholder Access to the Corporation’s Proxy Materials.	18
(1)  Right of Access	18
(2)  Eligibility.	19
(3)  Process.	20
(4)  Other Requirements	21
(5)  Definitions.	22
Section 2.15 Submission of Questionnaire, Representation and Agreement.	24
Section 2.16 Court Ordered Meetings.	24
Section 2.17 Voting of Shares by Certain Stockholders	25
Section 2.18 Waiver of Notice.	26
ARTICLE III	26
BOARD OF DIRECTORS	26
Section 3.1 General Powers	26
Section 3.2 Performance of Duties	26
Section 3.3 Number, Tenure and Qualifications.	26
Section 3.4 Chairman of the Board	26
Section 3.5 Quorum, Required Vote and Adjournment.	27
Section 3.6 Regular Meetings.	27
Section 3.7 Special Meetings.	27
Section 3.8 Notice	27
Section 3.9 Manner of Acting	27
Section 3.10 Informal Action by Directors or Committee Members	28
Section 3.11 Participation by Electronic Means	28
Section 3.12 Vacancies	28

Section 3.13 Resignation	28
Section 3.14 Removal.	29
Section 3.15 Committees.	28
Section 3.16 Limitations on Committee Powers	29
Section 3.17 Committee Rules	29
Section 3.18 Use of Communications Equipment in Conducting Meetings	29
Section 3.19 Compensation.	29
Section 3.20 Presumption of Assent.	30
Section 3.21 Books and Records	30
ARTICLE IV	30
OFFICERS	30
Section 4.1 Officers Delineated	30
Section 4.2 Election and Term of Office	30
Section 4.3 Removal.	30
Section 4.4 Vacancies	31
Section 4.5 Chairman of the Board.	31
Section 4.6 Chief Executive Officer.	31
Section 4.7 Chief Financial Officer.	31
Section 4.8 President.	31
Section 4.9 Vice President.	32
Section 4.10 Secretary.	32
Section 4.11 Treasurer.	32
Section 4.12 Assistant Secretaries and Assistant Treasurers.	33
Section 4.13 Other Officers, Assistant Officers and Agents	33
Section 4.14 Reservation of Authority.	33
Section 4.15 Bonds.	33
Section 4.16 Salaries.	33
ARTICLE V	33
WAIVER OF NOTICE	33
ARTICLE VI	34
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS	34
Section 6.1 Coverage.	34
Section 6.2 Claims.	34
Section 6.3 Enforcement of Claims.	35
Section 6.4 Enforceability.	35
Section 6.5 Rights Not Exclusive.	35

Section 6.6 Employees and Agents	35
Section 6.7 Insurance.	36
Section 6.8 Notices.	36
ARTICLE VII	36
CONTRACTS, LOANS, CHECKS AND DEPOSITS	36
Section 7.1 Contracts.	36
Section 7.2 Loans.	36
Section 7.3 Checks, Drafts etc.	36
Section 7.4 Deposits	36
ARTICLE VIII	36
SHARES, CERTIFICATES FOR SHARES AND TRANSFER OF SHARES	36
Section 8.1 Regulation.	36
Section 8.2 Shares Without Certificates.	36
Section 8.3 Certificates for Shares.	37
Section 8.4 Cancellation of Certificates.	37
Section 8.5 Consideration for Shares.	37
Section 8.6 Lost, Stolen or Destroyed Certificates.	37
Section 8.7 Transfer of Shares.	37
ARTICLE IX	38
FISCAL YEAR	38
ARTICLE X	38
DIVIDENDS AND DISTRIBUTIONS	38
ARTICLE XI	38
CORPORATE SEAL	38
ARTICLE XII	38
AMENDMENTS	38
ARTICLE XIII	38
EXECUTIVE COMMITTEE	38
Section 13.1 Appointment.	38
Section 13.2 Authority.	39
Section 13.3 Tenure and Qualifications	39
Section 13.4 Meetings.	39
Section 13.5 Quorum.	39
Section 13.6 Informal Action by Executive Committee	39
Section 13.7 Vacancies.	39
Section 13.8 Resignations and Removal.	39

Section 13.9 Procedure.	39
ARTICLE XIV	40
EMERGENCY BYLAWS	40
ARTICLE XV	41
GENERAL PROVISIONS	41
Section 15.1 Voting Securities Owned By Corporation.	41
Section 15.2 General and Special Bank Accounts.	41
Section 15.3 Section Headings.	41
Section 15.4 Forum Selection Bylaw.	41
CERTIFICATE	42

BYLAWS

of

CUI GLOBAL, INC.

ARTICLE I

OFFICES

Section 1.1 Registered Office. The registered office of the corporation shall be located at the corporation’s principal place of business or at the office of the person or entity then acting as the corporation’s registered agent in Colorado. The registered office and/or registered agent of the corporation may be changed from time to time by resolution of the Board of Directors.

Section 1.2 Other Offices. The corporation may also have offices at such other places as the Board of Directors may from time to time determine or the business of the corporation may require.

ARTICLE II

STOCKHOLDERS

Section 2.1 Annual Meeting. The annual meeting of the stockholders shall be held at such time on such day as shall be set by the Board of Directors for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day set for the annual meeting shall be a legal holiday, such meeting shall be held on the next succeeding business day. If the election of directors shall not be held on the day designated herein for any annual meeting of the stockholders, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a special meeting of the stockholders as soon thereafter as may be convenient.

Section 2.2 Special Meetings. Special meetings of stockholders may be called for any purpose and may be held at such time and place as shall be stated in a notice of meeting or in a duly executed waiver of notice thereof. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the corporation’s notice of meeting.

(a) A special meeting of stockholders may be called at any time by the Chief Executive Officer, President or, if directed by resolution of the Board of Directors, the Secretary.

(b) A special meeting of stockholders shall be called by the Secretary at the written request (a “Special Meeting Request”) of holders of record of at least 25% of the outstanding common stock of the corporation entitled to vote on the matter or matters to be brought before the proposed special meeting (the “Requisite Percentage”). A Special Meeting Request to the Secretary shall be signed by each stockholder requesting the special meeting (each, a “Requesting Stockholder”) and shall be accompanied by a notice setting forth the information required by Section 2.14(a)(2)(A)-(D) of this Bylaw, as if such Section were applicable to Special Meeting Requests. Requesting Stockholders who collectively hold at least the Requisite Percentage on the date the Special Meeting Request is submitted to the Secretary must (i) continue to hold at least the number of shares of common stock set forth in the Special Meeting Request with respect to each such Requesting Stockholder through the date of the special meeting and (ii) submit a written certification (an “Ownership Certification”) confirming the continuation of such holdings on the business day immediately preceding the special meeting, which Ownership Certification shall include the information required by Section 2.14(a)(2)(A) of this Bylaw as of the date of such special meeting with respect to each such Requesting Stockholder.

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(c) A special meeting called pursuant to Section 2.2 of this Bylaw shall be held at such date, time and place as may be set by the Board of Directors in accordance with these Bylaws; provided, however, that the date of any special meeting called pursuant to Section 2.2(b) of this Bylaw shall not be more than 90 days after a Special Meeting Request that satisfies the requirements of this Section 2.2 is received by the Secretary. The day, place and hour of such special meeting shall be set forth in the notice of special meeting. If a valid Special Meeting Request is received by the Secretary subsequent to a valid Special Meeting Request and before the date of the corresponding special meeting of stockholders, all items of business contained in such Special Meeting Requests may be presented at one special meeting.

(d) Notwithstanding the foregoing provisions of this Section 2.2, a special meeting requested by stockholders pursuant to Section 2.2(b) of this Bylaw shall not be held if (i) the Special Meeting Request does not comply with this Section 2.2; (ii) the Special Meeting Request relates to an item of business that is not a proper subject for stockholder action under applicable law; (iii) the Special Meeting Request is received by the corporation during the period commencing 90 days prior to the first anniversary of the date of the immediately preceding annual meeting and ending on the date of the next annual meeting; (iv) an annual or special meeting of stockholders that included a substantially similar item of business (“Similar Business”) (as determined in good faith by the Board of Directors) was held not more than 120 days before the Special Meeting Request was received by the Secretary; (v) the Board of Directors has called or calls for an annual or special meeting of stockholders to be held within 90 days after the Special Meeting Request is received by the Secretary and the Board of Directors determines in good faith that the business to be conducted at such meeting includes the Similar Business; (vi) such Special Meeting Request was made in a manner that involved a violation of Regulation 14A under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or other applicable law; or (vii) two or more special meetings of stockholders called pursuant to the request of stockholders have been held within the 12-month period before the Special Meeting Request was received by the Secretary. For purposes of this Section 2.2(d), the nomination, election or removal of directors shall be deemed to be Similar Business with respect to all items of business involving the nomination, election or removal of directors, changing the size of the Board of Directors and filling of vacancies and/or newly created directorships resulting from any increase in the authorized number of directors.

(e) Any Requesting Stockholder may revoke such stockholder’s participation in a Special Meeting Request at any time by written revocation delivered to the Secretary and if, following any such revocation, there are outstanding un-revoked requests from stockholders holding less than the Requisite Percentage in accordance with this Section 2.2, the Board of Directors may, in its discretion, cancel the special meeting. If none of the Requesting Stockholders appears or sends a duly authorized agent to present the business to be presented for consideration that was specified in the Special Meeting Request, or if the Ownership Certification does not satisfy the requirements set forth in Section 2.2(b) of this Bylaw, the corporation need not present such business for a vote at such special meeting.

(f) Business conducted at a special meeting requested by stockholders pursuant to Section 2.2(b) of this Bylaw shall be limited to the matters described in the applicable Special Meeting Request; provided that nothing herein shall prohibit the Board of Directors from submitting matters to the stockholders at any such special meeting requested by stockholders.

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Section 2.3 Place of Meetings. Annual and special meetings may be held at such place as the Board of Directors may determine.

Section 2.4 Notice. Written notice stating the place, day and hour of the meeting of stockholders shall be delivered not less than ten nor more than sixty days before the date of the meeting, except that (i) if the number of authorized shares is to be increased, at least thirty days’ notice shall be given, or (ii) any other longer notice period is required by the Colorado Business Corporation Act. Notice of a special meeting shall include a description of the purpose or purposes of the meeting. Notice of an annual meeting need not include a description of the purpose or purposes of the meeting except the purpose or purposes shall be stated with respect to (i) an amendment to the Articles of Incorporation of the corporation, (ii) a merger or share exchange in which the corporation is a party and, with respect to a share exchange, in which the corporation's shares will be acquired, (iii) a sale, lease, exchange or other disposition, other than in the usual and regular course of business, of all or substantially all of the property of the corporation or of another entity which this corporation controls, in each case with or without the goodwill, (iv) a dissolution of the corporation, or (v) any other purpose for which a statement of purpose is required by the Colorado Business Corporation Act. Notice shall be given personally or by mail, private carrier, telegraph, teletype, electronically transmitted facsimile or other form of wire or wireless communication, by or at the direction of the Chief Executive Officer, President, or the Secretary, or the officer or other persons calling the meeting, to each stockholder entitled to vote at such meeting. If mailed and in a comprehensible form, such notice shall be deemed to be delivered when deposited in the United States mail. If notice is given other than by mail, and provided such notice is in a comprehensible form, the notice is given and effective on the date received by the stockholder.

If three successive letters mailed to the last-known address of any stockholder of record are returned as undeliverable, no further notices to such stockholder shall be necessary until another address for such stockholder is made known to the corporation.

Section 2.5 Setting a Record Date for Stockholder Meetings. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may set a record date, which record date shall not precede the date upon which the resolution setting the record date is adopted by the Board of Directors, and which record date shall not be more than 60 nor less than 10 days before the date of any such meeting. Only stockholders as of the record date are entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof. If no record date is set by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be the close of business on the next day preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment or postponement of the meeting; provided, however, that the Board of Directors may set a new record date for the adjourned or postponement meeting.

Section 2.6 Quorum. One-third of the votes entitled to be cast on the matter by a voting group, represented in person or by proxy, constitutes a quorum of that voting group for the action on the matter. If no specific voting group is designated in the Articles of Incorporation or under the Colorado Business Corporation Act for a particular matter, all outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a voting group. In the absence of a quorum at any such meeting, a majority of the shares so represented may adjourn the meeting from time to time for a period not to exceed one hundred twenty days without further notice. However, if the adjournment is for more than one hundred twenty days, or if after the adjournment a new record date is set for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

9

Section 2.7 Adjourned Meetings. When a meeting is adjourned to another date, time or place, notice need not be given of the new date, time or place if the new date, time or place of such meeting is announced before adjournment at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which may have been transacted at the original meeting. If the adjournment is for more than 120 days, or if a new record date is set for the adjourned meeting, a new notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting as of the new record date.

Section 2.8 Voting by Stockholders on Matters Other Than the Election of Directors. With respect to any matters as to which no other voting requirement is specified by the Colorado General Corporation Law, the Certificate of Incorporation of the corporation (the “Certificate of Incorporation”) or these Bylaws, the affirmative vote required for stockholder action shall be that of a majority of the shares present in person or represented by proxy (as counted for purposes of determining the existence of a quorum) and entitled to vote at a meeting of stockholders at which a quorum is present. In the case of a matter submitted for a vote of the stockholders as to which a stockholder approval requirement is applicable under the stockholder approval policy of the NASDAQ Stock Market (or any other exchange on which the corporation’s securities are listed), the requirements of Rule 16b-3 under the Exchange Act, or any provision of the Internal Revenue Code of 1986, as amended (the “Code”), including Code Section 162(m), in each case for which no higher voting requirement is specified by the Colorado General Corporation Law, the Certificate of Incorporation or these Bylaws, the vote required for approval shall be the requisite vote specified in such stockholder approval policy, Rule 16b-3 or such Code provision, as the case may be (or the highest such requirement if more than one is applicable). For the approval of the appointment of independent public accountants (if submitted for a vote of the stockholders), the vote required for approval shall be a majority of the votes cast on the matter.

Section 2.9 Voting by Stockholders in the Election of Directors. Each director to be elected by the stockholders shall be elected by a plurality of the votes cast at any meeting held for the purpose of the election of directors at which a quorum is present, subject to the following provisions:

(a) Resignation of Incumbent Director Who Fails to Receive a Majority Vote. In any non-contested election of directors, any director nominee who is an incumbent director who receives a greater number of votes “withheld” from his or her election (or “against” or “no” votes) than votes “for” such election shall immediately tender his or her resignation to the Board of Directors, which resignation shall be irrevocable. Thereafter, the Board of Directors shall decide, through a process managed by the Corporate Nominating Committee (and excluding the nominee in question from all Board of Directors and Committee deliberations), whether to accept such resignation within 90 days of the date of such resignation. Absent a compelling reason for the director to remain on the Board of Directors (as determined by the Board of Directors), the Board of Directors shall accept the resignation from the director. To the extent that the Board of Directors determines that there is a compelling reason for the director to remain on the Board of Directors and does not accept the resignation, the Board of Directors’ explanation of its decision shall be disclosed promptly in a Current Report on Form 8-K filed with the United States Securities and Exchange Commission (the “SEC”) or in a press release that is widely disseminated.

10

(b) Definition of “Compelling Reason”. For purposes of this policy, a “compelling reason” shall be determined by the Board of Directors (excluding the nominee in question from all Board of Directors and Committee deliberations) and could include, by way of example and without limitation, situations in which a director nominee was the target of a “vote no” or “withhold” campaign on what the Board of Directors believes to be an illegitimate or inappropriate basis or if the resignation would cause the corporation to be in violation of its constituent documents or regulatory requirements.

(c) Acceptance or Non-Acceptance of a Director’s Resignation. If such incumbent director’s resignation is accepted by the Board of Directors, then such director shall immediately cease to be a member of the Board of Directors upon the date of action taken by the Board of Directors to accept such resignation. If such incumbent director’s resignation is not accepted by the Board of Directors, such director will continue to serve until the next annual meeting, or until his or her subsequent resignation or removal.

(d) Failure of a Non-Incumbent Director to Win Election. If any nominee for director who is not an incumbent fails in a non-contested election to receive a majority vote for his or her election at any meeting for the purpose of the election of directors at which a quorum is present, such candidate shall not be elected and shall not take office.

(e) Filling Vacancies. If an incumbent director’s resignation is accepted by the Board of Directors pursuant to this Bylaw, or if a non-incumbent nominee for director is not elected, the Board of Directors, may, subject to the provisions of Article III of these Bylaws, fill any resulting vacancy pursuant to the provisions of Article III, Section 3.12 of these Bylaws, or may set the size of the Board of Directors pursuant to the provisions of Article III, Section 3.3 of these Bylaws.

(f) Nominees to Agree in Writing to Abide by this Bylaw. To be eligible for election as a director of the corporation, each nominee (including incumbent directors and nominees proposed by stockholders in accordance with Article II of these Bylaws) must agree in writing in advance to comply with the requirements of this Article II of these Bylaws.

(g) Majority Vote Defined. For purposes of this Bylaw, a majority of votes cast shall mean that the number of shares voted “for” a director’s election exceeds 50% of the total number of votes cast with respect to that director’s election. Votes “cast” shall include votes “against” and “no” votes, but shall exclude withhold and abstentions with respect to a director’s election or with respect to the election of directors in general.

(h) Vote Standard in Contested Elections. Notwithstanding anything to the contrary contained in this Article II, Section 9 of these Bylaws, in the event of a contested election, directors shall be elected by the vote of a plurality of the votes cast at any meeting for the election of directors at which a quorum is present. For purposes of this Bylaw, a contested election shall mean any election of directors in which the number of candidates for election as directors exceeds the number of directors to be elected, with the determination thereof being made by the Secretary (i) as of the close of the applicable notice of nomination period set forth in Article II, Section 2.14 of these Bylaws based on whether one or more notice(s) of nomination were timely filed in accordance with said Bylaws or (ii) if later, reasonably promptly following the determination by any court or other tribunal of competent jurisdiction that one or more notice(s) of nomination were timely filed in accordance with said Bylaws; provided, that the determination that an election is a contested election by the Secretary pursuant to clause (i) or (ii) shall be determinative only as to the timeliness of a notice of nomination and not otherwise as to its validity.

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Section 2.10 Voting Rights.

(a)     One Vote per Share. Unless otherwise provided by these Bylaws or the Articles of Incorporation, each outstanding share entitled to vote shall be entitled to one vote upon each matter submitted to a vote at a meeting of stockholders. The corporation is not obligated to issue fractional shares. Only whole shares are entitled to vote.

(b)     No Cumulative Voting. No stockholder shall be permitted to cumulate his or her votes in the election for directors or otherwise.

(c)     Voting by Ballot. Voting on any question or in any election may be by voice vote unless the presiding officer shall order or any stockholder shall demand that voting be by ballot.

Section 2.11 Proxies. At all meetings of stockholders, a stockholder may vote by proxy by signing an appointment form or similar writing, either personally or by his or her duly authorized attorney-in-fact. A stockholder may also appoint a proxy by transmitting or authorizing the transmission of a telegram, teletype, or other electronic transmission providing a written statement of the appointment to the proxy, a proxy solicitor, proxy support service organization, or other person duly authorized by the proxy to receive appointments as agent for the proxy, or to the corporation. The transmitted appointment shall set forth or be transmitted with written evidence from which it can be determined that the stockholder transmitted or authorized the transmission of the appointment. The proxy appointment form or similar writing shall be filed with the Secretary of the corporation before or at the time of the meeting. The appointment of a proxy is effective when received by the corporation and is valid for eleven months unless a different period is expressly provided in the appointment form or similar writing.

Any complete copy, including an electronically transmitted facsimile, of an appointment of a proxy may be substituted for or used in lieu of the original appointment for any purpose for which the original appointment could be used.

Revocation of a proxy does not affect the right of the corporation to accept the proxy's authority unless (I) the corporation had notice that the appointment was coupled with an interest and notice that such interest is extinguished is received by the Secretary or other officer or agent authorized to tabulate votes before the proxy exercises his or her authority under the appointment, or (ii) other notice of the revocation of the appointment is received by the Secretary or other officer or agent authorized to tabulate votes before the proxy exercises his or her authority under the appointment. Other notice of revocation may, in the discretion of the corporation, be deemed to include the appearance at a stockholders' meeting of the stockholder who granted the proxy and his or her voting in person on any matter subject to a vote at such meeting.

The death or incapacity of the stockholder appointing a proxy does not affect the right of the corporation to accept the proxy's authority unless notice of the death or incapacity is received by the Secretary or other officer or agent authorized to tabulate votes before the proxy exercises his or her authority under the appointment.

The corporation shall not be required to recognize an appointment made irrevocably if it has received a writing revoking the appointment signed by the stockholder (including a stockholder who is a successor to the stockholder who granted the proxy) either personally or by his or her attorney-in-fact, notwithstanding that the revocation may be a breach of an obligation of the stockholder to another person not to revoke the appointment.

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Section 2.12 Action by Written Consent.

(a) General. Any action required to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken and bearing the dates of signature of the stockholders who signed the consent or consents, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to the corporation’s principal place(s) of business, or an officer or agent of the corporation having custody of the book or books in which proceedings of meetings of the stockholders are recorded. Delivery made to the corporation’s principal place(s) of business office shall be by hand, by certified or registered mail, return receipt requested, or other receipted delivery, provided, however, that no consent or consents delivered by certified or registered mail or other receipted delivery shall be deemed delivered until received at the registered office. All consents properly delivered in accordance with this Section shall be deemed to be recorded when so delivered. Any action taken pursuant to such written consent or consents of the stockholders shall have the same force and effect as if taken by the stockholders at a meeting of stockholders.

(b) Inspectors of Written Consent. In the event of the delivery, in the manner provided by Section 2.12(a) of this Bylaw, to the corporation of the requisite written consent or consents to take corporate action and/or any related revocation or revocations, the corporation shall engage an inspector(s) of elections for the purpose of promptly performing a ministerial review of the validity of the consents and revocations. For the purpose of permitting the inspector(s) to perform such review, no action by written consent without a meeting shall be effective until such date as the inspector(s) certify to the corporation that the consents delivered to the corporation in accordance with Section 2.12(a) of this Bylaw represent at least the minimum number of votes that would be necessary to take the corporate action. Nothing contained in this paragraph shall in any way be construed to suggest or imply that the Board of Directors or any stockholder shall not be entitled to contest the validity of any consent or revocation thereof, whether before or after such certification by the inspector(s), or to take any other action (including, without limitation, the commencement, prosecution or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation).

(c) Effectiveness of Action by Written Consent. No written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the earliest dated consent delivered to the corporation as required by this Section, written consents signed by the holders of a sufficient number of shares to take such corporate action are so recorded.

(d) Notice of Action by Written Consent. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of stockholders to take the action were recorded.

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(e) Setting a Record Date for Action by Written Consent. In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may set a record date, which record date shall not precede the date upon which the resolution setting the record date is adopted by the Board of Directors, and which date shall not be more than 10 days after the date upon which the resolution setting the record date is adopted by the Board of Directors. Only stockholders as of the record date are entitled to consent to corporate action in writing without a meeting. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to set a record date. The Board of Directors shall promptly, but in all events within 10 days after the date on which such a request is received, adopt a resolution setting the record date (unless a record date has previously been set by the Board of Directors pursuant to the first sentence of this Bylaw). If no record date has been set by the Board of Directors, pursuant to this Bylaw or otherwise within 10 days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by statute, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Colorado, its principal place(s) of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. If no record date has been set by the Board of Directors and prior action by the Board of Directors is required by statute, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.

Section 2.13 Stock Records. The officer or agent having charge of the stock transfer books for shares of the corporation shall make, at the earlier of ten days before such meeting of stockholders or two business days after notice of the meeting, a complete list of the stockholders entitled to vote at each meeting of stockholders or any adjournment thereof. The list shall be arranged by voting groups and within each voting group by class or series of shares, shall be arranged in alphabetical order, within each class or series, and shall show the address of and the number of shares of each class or series held by each stockholder. For the period beginning the earlier of ten days prior to such meeting or two business days after notice of the meeting is given and continuing through the meeting and any adjournment thereof, this list shall be kept on file at the principal office of the corporation, or at a place (which shall be identified in the notice) in the city where the meeting will be held. Such list shall be available for inspection on written demand by any stockholder (including for the purpose of this Section any holder of voting trust certificates) or his or her agent or attorney during regular business hours and during the period available for inspection. The original stock transfer books shall be prima facie evidence as to the stockholders entitled to examine such list or to vote at any meeting of stockholders.

Any stockholder, his or her agent or attorney, may copy the list during regular business hours and during the period it is available for inspection, provided (i) the stockholder has been a stockholder for at least three months immediately preceding the demand or is a stockholder of at least five percent of all of the outstanding shares of any class of shares as of the date of the demand, (ii) the demand is made in good faith and for a purpose reasonably related to the demanding stockholder's interest as a stockholder, (iii) the stockholder describes with reasonable particularity the purpose and the list the stockholder desires to inspect, (iv) the list is directly connected with the described purpose; and (v) the stockholder pays a reasonable charge covering the cost of labor and material for such copies.

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Section 2.14 Notice of Stockholder Nominations and Other Business.

(a) Annual Meetings of Stockholders.

(1) Nominations and Other Business. Nominations of persons for election to the Board of Directors and the proposal of other business to be considered by the corporation’s stockholders may be made at an annual meeting of stockholders (A) by or at the direction of the Board of Directors, including pursuant to the corporation’s notice of meeting, or (B) by any stockholder of the corporation who (i) at the time of giving of notice provided for in this Bylaw and at the time of the stockholder meeting (including any adjournment or postponement thereof) is a stockholder of the corporation who has continuously held at least $2,000 in market value, or 1%, of the corporation's securities entitled to be voted at a stockholder meeting for at least one year by the date the proposal is submitted and continue to hold those securities through the date of the stockholder meeting and shall be in full compliance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended, (ii) is entitled to vote at the meeting and (iii) complies with the notice procedures set forth in this Bylaw as to such business or nomination; this clause (B) shall be the exclusive means for a stockholder to make nominations or submit other business (other than matters properly brought under Rule 14a-8 under the Exchange Act and included in the corporation’s notice of meeting) before an annual meeting of stockholders.

(2) Timely Advance Notice in Writing. Without qualification, for any nominations or any other business to be properly brought before an annual meeting by a stockholder pursuant to Section 2.14(a)(1)(B) of this Bylaw, the stockholder must have given timely advance notice (“notice”) in writing to the Secretary and such other business must otherwise be a proper matter for stockholder action. To be timely, a stockholder’s notice shall be delivered to the Secretary at the principal executive offices of the corporation not earlier than the close of business on the 120^th day and not later than the close of business on the 90th day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the 120^th day prior to the date of such annual meeting and not later than the close of business on the later of the 90^th day prior to the date of such annual meeting or, if the first public announcement of the date of such annual meeting is less than 100 days prior to the date of such annual meeting, the tenth day following the day on which public announcement of the date of such meeting is first made by the corporation. In no event shall any adjournment or postponement of an annual meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice as described above. To be in proper form, a stockholder’s notice (whether given pursuant to this Section 2.14(a)(2) or Section 2.14(b) of this Bylaw) to the Secretary must:

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(A) Set forth, as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the corporation’s books, and of such beneficial owner, if any, (ii) (1) the class or series and number of shares of the corporation which are, directly or indirectly, owned beneficially and of record by such stockholder and such beneficial owner, (2) any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any class or series of shares of the corporation or with a value derived in whole or in part from the value of any class or series of shares of the corporation, whether or not such instrument or right shall be subject to settlement in the underlying class or series of capital stock of the corporation or otherwise (a “Derivative Instrument”) directly or indirectly owned beneficially by such stockholder and any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of shares of the corporation, (3) any proxy, contract, arrangement, understanding, or relationship pursuant to which such stockholder has a right to vote any shares of any security of the corporation, (4) any short interest in any security of the corporation (for purposes of this Bylaw a person shall be deemed to have a short interest in a security if such person directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has the opportunity to profit or share in any profit derived from any decrease in the value of the subject security), (5) any rights to dividends on the shares of the corporation owned beneficially by such stockholder that are separated or separable from the underlying shares of the corporation, (6) any proportionate interest in shares of the corporation or Derivative Instruments held, directly or indirectly, by a general or limited partnership in which such stockholder is a general partner or, directly or indirectly, beneficially owns an interest in a general partner and (7) any performance-related fees (other than an asset-based fee) that such stockholder is entitled to, based on any increase or decrease in the value of shares of the corporation or Derivative Instruments, if any, as of the date of such notice, including without limitation, any such interests held by members of such stockholder’s immediate family sharing the same household (which information shall be supplemented by such stockholder and beneficial owner, if any, not later than 10 days after the record date for the meeting to disclose such ownership as of the record date), and (iii) any other information relating to such stockholder and beneficial owner, if any, that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for, as applicable, the proposal and/or for the election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder;

(B) If the notice relates to any business other than a nomination of a director or directors that the stockholder proposes to bring before the annual meeting, set forth (i) a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, in such business and (ii) a description of all agreements, arrangements and understandings between such stockholder and beneficial owner, if any, and any other person or persons (including their names) in connection with the proposal of such business by such stockholder;

(C) Set forth, as to each person, if any, whom the stockholder proposes to nominate for election or reelection to the Board of Directors (i) all information relating to such person that would be required to be disclosed in a proxy statement or other filings required to be made in connection with solicitations of proxies for election of directors in a contested election pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected) and (ii) a description of all direct and indirect compensation and other material monetary agreements, arrangements and understandings during the past three years, and any other material relationships, between or among such stockholder and beneficial owner, if any, and their respective affiliates and associates, or others acting in concert therewith, on the one hand, and each proposed nominee, and his or her respective affiliates and associates, or others acting in concert therewith, on the other hand, including, without limitation, all information that would be required to be disclosed pursuant to Rule 404 promulgated under Regulation S-K of the Securities Act of 1933 as amended if the stockholder making the nomination and any beneficial owner on whose behalf the nomination is made, if any, or any affiliate or associate thereof or person acting in concert therewith, were the “registrant” for purposes of such rule and the nominee were a director or executive officer of such registrant; and

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(D) With respect to each nominee for election or reelection to the Board of Directors, include a completed and signed questionnaire, representation and agreement required by Article II, Section 2.15 of these Bylaws. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as an independent director of the corporation or that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such nominee.

(3) Increased Number of Directors. Notwithstanding anything in the second sentence of Section 2.14(a)(2) of this Bylaw to the contrary, in the event that the number of directors to be elected to the Board of Directors is increased and there is no public announcement by the corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least 100 days prior to the first anniversary of the preceding year’s annual meeting, a stockholder’s notice required by this Bylaw shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the tenth day following the day on which such public announcement is first made by the corporation.

(b) Special Meetings of Stockholders. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the corporation’s notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected (1) by or at the direction of the Board of Directors, including pursuant to the corporation’s notice of meeting, (2) pursuant to Section 2.2 of this Bylaw, or (3) by any stockholder of the corporation who (i) is a stockholder of the corporation who has continuously held at least $2,000 in market value, or 1%, of the corporation's securities entitled to be voted at a stockholder meeting for at least one year by the date the proposal is submitted and continue to hold those securities through the date of the stockholder meeting and shall be in full compliance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended, (ii) is entitled to vote at the meeting (including any adjournment or postponement thereof), and (iii) complies with the notice procedures set forth in this Bylaw as to such nomination. In the event a special meeting of stockholders is called for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be) for election to such position(s) as specified in the corporation’s notice of meeting, if the stockholder’s notice required by Section 2.14(a)(2) of this Bylaw with respect to any nomination (including the completed and signed questionnaire, representation and agreement required by Section 2.15 of this Bylaw) shall be delivered to the Secretary at the principal executive offices of the corporation not earlier than the close of business on the 120^th day prior to the date of such special meeting and not later than the close of business on the later of the 90th day prior to the date of such special meeting or, if the first public announcement of the date of such special meeting is less than 100 days prior to the date of such special meeting, the tenth day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall any adjournment or postponement of a special meeting or the announcement thereof commence a new time period for the giving of a stockholder’s notice as described above.

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(c) General.

(1) Procedure to be Followed. Only such persons who are nominated in accordance with the procedures set forth in this Bylaw shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Bylaw. Except as otherwise provided by law, the Certificate of Incorporation or this Bylaw, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Bylaw and, if any proposed nomination or business is not in compliance with this Bylaw, to declare that such defective proposal or nomination shall be disregarded.

(2) Public Announcement. For purposes of this Bylaw, “public announcement” shall mean disclosure in a press release reported by a national news service or in a document publicly filed by the corporation with the SEC pursuant to Sections 13, 14 or 15(d) of the Exchange Act and the rules and regulations promulgated thereunder.

(3) Comply with the Exchange Act. Notwithstanding the foregoing provisions of this Bylaw, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Bylaw; provided, however, that any references in this Bylaw to the Exchange Act or the rules promulgated thereunder are not intended to and shall not limit the requirements applicable to nominations or proposals as to any other business to be considered pursuant to Section 2.14(a)(1)(B) or Section 2.14(b) of this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights (i) of stockholders to request inclusion of proposals in the corporation’s proxy statement pursuant to Rule 14a-8 under the Exchange Act or (ii) of the holders of any series of Preferred Stock if and to the extent provided for under law, the Certificate of Incorporation or this Bylaw.

(d) Stockholder Access to the Corporation’s Proxy Materials.

(1) Right of Access. The Corporation shall include in the proxy statement (such right of inclusion being sometimes referred to as “Access”) distributed on behalf of the Board of Directors for the meeting of stockholders the information specified below (the “Required Information”) with respect to the Eligible Stockholder (as defined below) proposing to nominate a candidate to be elected as a director of the corporation and the candidate to be nominated (an “Access Candidate”); provided that the nomination complies with the requirements of this Section, all other applicable provisions of these Bylaws and the corporation’s Articles of Incorporation and all applicable state and federal laws or regulations. The Required Information shall be (i) all information concerning the Access Candidate and the Eligible Stockholder required to be provided by a stockholder in connection with a solicitation of proxies for the election as a director of the Access Candidate under the rules of the Securities and Exchange Commission, these bylaws, the Corporation’s Articles of Incorporation, the rules and listing guidelines of the NASDAQ Stock Market or such other principal U.S. securities market in which the common stock of the Corporation trades and all other applicable state and federal laws and regulations and (ii) if the Eligible Stockholder so elects, a statement (the “Statement”), of not more than 500 words in support of the nomination. The Required Information shall be furnished to the Corporation by the Eligible Stockholder in accordance with this Section 2.14(d).

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The form of proxy that the Corporation distributes for the meeting of stockholders shall permit stockholders to give instructions for the voting of their shares with respect to the election of the Access Candidate in substantially the same manner as provided with respect to the nominees of the Board of Directors, but shall clearly distinguish between an Access Candidate and a nominee of the Board of Directors. Nominees need not be listed in alphabetical order either in the proxy statement or the form of proxy. Moreover, the form of proxy may permit stockholders to vote for all of the Board of Directors’ nominees without specifying each such nominee, as well as to give discretion to the named proxies to vote for (or withhold votes from) nominees of their choice.

The Corporation shall not be required to provide Access with respect to any meeting of stockholders (a) for more than the Maximum Number of Access Candidates or (b) if it receives timely notice pursuant to the Corporation’s advance notice bylaw that any stockholder proposes to nominate a candidate for election with respect to which Access is not being requested.

(2) Eligibility. In order for information about an Access Candidate of an Eligible Stockholder to be included in the Corporation’s proxy materials, the following requirements must be satisfied:

A.     The Eligible Stockholder shall have provided to the Corporation notice of the candidate for whom it seeks Access pursuant to this Section (“Notice of Access”) not later than the last date by which notice of a proposed nomination is required to be provided to the Corporation in accordance with the Corporation’s advance notice bylaw, Section 2.14(a)(2).

B.     The Eligible Stockholder’s Notice of Access shall identify only one Access Candidate for election as a director at the meeting of stockholders.

C.     The Access Candidate shall be Independent and shall not be a Disqualified Repeat Nominee.

D.     The Eligible Stockholder shall represent and undertake in its Notice of Access that it, its Access Candidate and each of its and its Access Candidate’s Affiliates and Associates (a) has not nominated and will not nominate for election to the Board of Directors at the meeting of stockholders any individual other than the individual named in its Notice of Access, (b) has not engaged and will not engage in, and has not and will not be a “participant” in another person’s “solicitation” within the meaning of SEC Rule 14a-1(l) in support of the election of any individual as a director at the meeting of stockholders other than its named Access Candidate or a nominee of the Board of Directors and (c) will not distribute to any stockholder any form of proxy for the meeting of stockholders other than the form distributed by the Corporation.

E.     The Eligible Stockholder shall represent and undertake in its Notice of Access that at the time of giving its Notice of Access and at all times until the election of directors at the meeting of stockholders neither it nor the Access Candidate nor the Affiliates and Associates of it and its Access Candidate shall own any securities of the Corporation for the purpose, or with the effect, of changing or influencing the control of the Corporation, or in connection with or as a participant in any transaction having that purpose or effect, including any transaction referred to in SEC Rule 13d–3(b), other than solely by reason of seeking the election as a director of its named Access Candidate.

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F.     The Eligible Stockholder shall not have submitted a Notice of Access with respect to the immediately preceding meeting of stockholders, except where the individual named in such Notice of Access received at such meeting votes in favor of his or her election representing at least 25% of the total votes cast with respect to the election.

(3) Process.

A.     The Nominating Committee shall consider a Notice of Access and shall determine if the Access Candidate is Independent based on the information regarding the Independence of such Access Candidate that is received by the Board of Directors pursuant to the Corporation’s advance notice bylaw. If the Committee believes it needs additional information to make the Independence determination, it shall notify the Eligible Stockholder of the nature and type of information required and afford the Eligible Stockholder and the Access Candidate a reasonable period of time to submit such additional information. The Committee may, in its sole discretion, permit the Eligible Stockholder and/or the Access Candidate and its or their representatives an opportunity to appear before the Committee in connection with its consideration of the Independence of the Access Candidate. The Committee may, in its sole discretion, make a recommendation to the Board of Directors as to whether the Access Candidate should be nominated by the Board of Directors for election at the meeting of stockholders.

B.     If the Board of Directors nominates an Access Candidate as part of the Board of Directors’ slate of nominees, the Notice of Access will be deemed withdrawn and the former Access Candidate shall be presented to the stockholders in the same manner as every other nominee of the Board of Directors. However, if elected, the Access Candidate shall be considered a director for whom Access was provided for all purposes of this Section, including the determination of the Maximum Number of nominees. If the Board of Directors does not so nominate the Access Candidate, Access shall be provided in accordance with the terms and subject to the conditions of this Section 2.14(d).

C.     If an Access Candidate or an Eligible Stockholder fails to continue to meet the requirements of this Section for Access or if an Access Candidate fails to meet all of the requirements of the Corporation’s advance notice bylaw to be properly nominated as a candidate for election as a director at the meeting of stockholders or if an Access Candidate dies, becomes disabled or is otherwise disqualified from being nominated for election or serving as a director prior to the meeting of stockholders:

(i)     The Corporation may, to the extent feasible, remove the name of the Access Candidate and the Statement from its proxy statement, remove the name of the Access Candidate from its form of proxy and/or otherwise communicate to its stockholders that the Access Candidate will not be eligible for nomination at the meeting of stockholders.

(ii)     The Eligible Stockholder may not name another Access Candidate or, subsequent to the last day on which a stockholder’s notice of an intent to make a nomination would be timely, otherwise cure in any way any defect preventing the nomination of the Access Candidate at the meeting of stockholders.

D.     The Board of Directors or a committee thereof may adopt such rules or guidelines for applying the provisions of this Section as it determines are appropriate.

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E.     If there are more than the Maximum Number of candidates for which Access has been sought in compliance with this Section, Access hereunder shall be provided for the Maximum Number of Access Candidates made by those Eligible Stockholders who Net Long Beneficially Own the highest number of shares of common stock of the Corporation, based on the Net Long Beneficial Ownership of each Eligible Stockholder on the date as of which it reported its Net Long Beneficial Ownership in its Notice of Access.

(4) Other Requirements

A.     The Eligible Stockholder shall have executed and delivered to the Corporation simultaneously with its delivery of its Notice of Access an undertaking acknowledging its responsibility for the Required Information, all other information submitted to the Corporation pursuant to this Section and all of its and its Access Candidate’s communications to stockholders in connection with the election of directors at the meeting of stockholders. In such undertaking, the Eligible Stockholder shall expressly assume all liability to which the Corporation or any of its Affiliates, or any director, officer, employee or representative thereof, may be subject as a result of any legal or regulatory violation arising out of any such information or communication made available by or on behalf of the Eligible Stockholder or any of its Affiliates or its Access Candidate to the Corporation or to any stockholder of the Corporation in connection with the election of directors at the meeting of stockholders.

B.     The Eligible Stockholder and its Access Candidate shall each provide to the Corporation prompt written notice of (a) any material change in its Net Long Beneficial Ownership of common stock of the Corporation occurring since the date as of which the Eligible Stockholder reported its Net Long Beneficial Ownership in its Notice of Access and before the election of directors at the meeting and (b) any material error recognized by the Eligible Stockholder or its Access Candidate in, or any change in circumstances that makes incorrect or misleading in any material respect, the information previously provided by the Eligible Stockholder or its nominee in the Notice of Access or otherwise provided in accordance with this Section. The Eligible Stockholder, in addition, shall certify as to the accuracy in all material respects of its Notice of Access as of the record date for notice of the meeting of stockholders and as of the date that is ten (10) business days prior to the meeting or any adjournment or postponement thereof, or, if there are fewer than ten (10) business days between the date of the meeting of stockholders and such adjourned or postponed meeting, then as of the date of the meeting so adjourned or postponed. Such certification shall be delivered to, or mailed to and received by, the Secretary at the principal executive offices of the Corporation not later than five (5) business days after the record date for notice of the meeting (in the case of a certification required to be made as of such record date), and not later than eight (8) business days prior to the date for the meeting or, if practicable, any adjournment or postponement thereof (and, if not practicable, on the first practicable date prior to the date to which the meeting has been adjourned or postponed) (in the case of a certification required to be made as of ten (10) business days prior to the meeting or any adjournment or postponement thereof).

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(5) Definitions. For the purposes of this Section, the following definitions shall apply:

A.     An “Affiliate” of a person shall mean another person that, directly or indirectly through one of more intermediaries, controls, is controlled by or is under common control with such person.

B.     An “Associate” of a person shall mean any:

(i)     Corporation or organization (other than a majority-owned subsidiary of such person) of which such person is an officer or partner or is, directly or indirectly, the beneficial owner of ten (10) percent or more of any class of equity securities;

(ii)     Trust or other estate in which such person has a substantial beneficial interest or as to which such person serves as trustee or in a similar fiduciary capacity; and

(iii)     Relative or spouse of such person, or any relative of such spouse, who has the same home as such person or who is a director or officer of the registrant or any of its parents or subsidiaries.

C.     “Net Long Beneficial Ownership” (and its correlative terms), when used to describe the nature of a person’s ownership of common stock of the Corporation, shall mean those shares of common stock of the Corporation as to which the person in question possesses (a) the full unhedged power to vote or direct the voting of such shares, (b) the full unhedged economic incidents of ownership of such shares (including the full right to profits and the full risk of loss), and (c) the full unhedged power to dispose of or direct the disposition of such shares; provided that the number of shares calculated in accordance with clauses (a), (b) and (c) shall not include any shares (i) sold by such person or any of its Affiliates in any transaction that has not been settled or closed, (ii) borrowed by such person or any of its Affiliates for any purposes or purchased by such person or any of its Affiliates pursuant to an agreement to resell or (iii) subject to any option, warrant, forward contract, swap, contract of sale, other derivative or other agreement or understanding sold or acquired by such person or any of its Affiliates, whether any such instrument is to be settled with shares or with cash based on the notional amount of shares subject thereto, in any such case which has, or is intended to have, the purpose or effect of (A) reducing in any manner, to any extent or at any time in the future, such person’s or Affiliates’ full rights to vote or direct the voting and full rights to dispose or direct the disposition of any of such shares, and/or (B) offsetting to any degree gain or loss arising from the full economic ownership of such shares by such person or Affiliate.

D.     A “Disqualified Repeat Nominee” in respect of a meeting of stockholders shall mean an individual as to whom Access to the Corporation’s proxy materials for the immediately preceding meeting of stockholders was provided and who withdrew from or became ineligible or unavailable for election at the meeting or received at such meeting votes in favor of his or her election representing less than 25% of the total votes cast for or withheld from his or her election.

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E.     An “Eligible Stockholder” shall mean a person who, as of the date of submission of the Notice of Access:

(i)     Is a stockholder of the corporation who has continuously held at least $2,000 in market value, or 1%, of the corporation's securities entitled to be voted at a stockholder meeting for at least one year by the date the proposal is submitted and continue to hold those securities through the date of the stockholder meeting,

(ii)     Has or have had continuous Net Long Beneficial Ownership of at least the same amount of securities so owned by such person on the date as of which the Eligible Stockholder reported its Net Long Beneficial Ownership in its Notice of Access for a minimum of one year prior to the date of submission of the Notice of Access,

(iii)     Continue(s) to have Net Long Beneficial Ownership of at least the same amount of securities so owned by such person as of the date of which the Eligible Stockholder reported its Net Long Beneficial Ownership in its Notice of Access through the date of the election of directors at the meeting of stockholders to which the Notice of Access pertains and

(iv)     Complies with all other provisions of this Section and shall be in full compliance with Rule 14a-8 under the Securities Exchange Act of 1934, as amended. Each Eligible Stockholder shall submit with the Notice of Access one or more written statements from the registered holder of the shares (and from each intermediary through which each such person derives, or during the minimum holding period has derived, Net Long Beneficial Ownership of such shares) verifying that, as of a date within seven (7) days preceding the date of submission of the Notice of Access, such person beneficially owns such shares and has beneficially owned at least that amount of shares continuously for at least the minimum holding period. For purposes of this Section, persons who jointly nominate an individual for election as a director shall be considered an Eligible Stockholder only if they have agreed in writing to so act, are so identified in the Notice of Access and the information and the undertakings required by this Section for an Eligible Stockholder are provided with respect to each such person. For the avoidance of doubt, for purposes of determining if persons who claim jointly to satisfy the minimum stock ownership and minimum holding period requirements for an Eligible Stockholder, only the common stock of the Corporation Net Long Beneficially Owned by any member of a group continuously for at least one full year shall be aggregated with the common stock Net Long Beneficially Owned continuously for one year by each other person acting jointly to constitute an Eligible Stockholder. No person may be a member of more than one group of persons constituting an Eligible Stockholder with respect to any annual meeting of stockholders.

F.     “Independent” with respect to an Access Candidate shall mean (a) that the nominee would be considered an independent director in accordance with applicable rules promulgated by the Securities and Exchange Commission and within the meaning of Rule 5605(a)(2) of The NASDAQ Stock Market or such other principal U.S. securities market in which the common stock of the Corporation trades and any additional standards used by the Board of Directors or a duly authorized committee thereof in determining and disclosing the independence of the Corporation’s directors and (b) the nominee is not an employee or officer of, or consultant to, the Eligible Stockholder or any of its Affiliates and has no other material association, by agreement, understanding or familial or other relationship, with the Eligible Stockholder or any of its Affiliates or Associates.

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G.     The “Maximum Number” of candidates for which Access to the Corporation’s proxy materials must be provided in respect of a meeting of stockholders (“Maximum Number of Access Candidates”) shall be that number of directors representing 25% of the entire Board of Directors in office on the immediate preceding annual meeting, rounded down to the nearest whole number. This Maximum Number of Access Candidates shall be set as of the last date by which advance notice of the proposed nomination by a stockholder of an individual for election as a director at the meeting of stockholders may be timely given to the Corporation in accordance with the Corporation’s advance notice bylaw. The Maximum Number of Access Candidates shall in no event exceed the number of nominees of the Board of Directors.

H.     All references in this Section to rules of the Securities and Exchange Commission shall refer to the rules of the Securities and Exchange Commission as in effect on the date this Section becomes effective and as such rules may be amended from time to time thereafter or any successor provision of such rules.

I.     An “annual meeting of stockholders” shall include a special meeting of stockholders to elect directors held in lieu of an annual meeting of stockholders and any adjournment of an annual meeting of stockholders or any such special meeting.

Section 2.15 Submission of Questionnaire, Representation and Agreement. To be eligible to be a nominee for election or reelection as a director of the corporation, a person must complete and deliver (in accordance with the time periods prescribed for delivery of notice under Article II, Section 2.14 of these Bylaws) to the Secretary at the principal executive offices of the corporation a written questionnaire with respect to the background and qualification of such person and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be in the form provided by the corporation, and shall be provided by the Secretary upon written request) and a written representation and agreement (in the form provided by the Secretary upon written request) that such person (a) is not and will not become a party to (1) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director of the corporation, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the corporation or (2) any Voting Commitment that could limit or interfere with such person’s ability to comply, if elected as a director of the corporation, with such person’s fiduciary duties under applicable law, (b) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed therein and (c) in such person’s individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as a director of the corporation, and will comply with all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the corporation.

Section 2.16 Court Ordered Meetings. A stockholder may apply to the district court in the county in Colorado where the corporation's principal office is located or, if the corporation has no principal office in Colorado, to the appropriate court of the county in which the corporation's corporate office is located to seek an order that a stockholder meeting be held (i) if an annual meeting was not held within fifteen months after its last annual meeting, or (ii) if a stockholder participated in a proper call of or demand for a special meeting and notice of the special meeting was not given within thirty days after the date of the call or the date of the last of the demands necessary to require the calling of the meeting was received by the corporation pursuant to the Colorado Business Corporation Act, or the special meeting was not held in accordance with the notice.

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Section 2.17 Voting of Shares by Certain Stockholders. If the name on a vote, consent, waiver, proxy appointment, or proxy appointment revocation corresponds to the name of a stockholder, the corporation is entitled to accept the vote, consent, waiver, proxy appointment or proxy appointment revocation and give it effect as the act of the stockholder.

If the name signed on a vote, consent, waiver, proxy appointment or proxy appointment revocation does not correspond to the name of a stockholder, the corporation is, nevertheless, entitled to accept the vote, consent, waiver, proxy appointment or proxy appointment revocation and to give it effect as the act of the stockholder if:

(a) The stockholder is an entity and the name signed purports to be that of an officer or agent of the entity;

(b) The name signed purports to be that of an administrator, executor, guardian or conservator representing the stockholder and, if the corporation requests, evidence of fiduciary status acceptable to the corporation has been presented with respect to the vote, consent, waiver, proxy appointment or proxy appointment revocation;

(c) The name signed purports to be that of a receiver or trustee in bankruptcy of the stockholder and, if the corporation requests, evidence of this status acceptable to the corporation has been presented with respect to the vote, consent, waiver, proxy appointment or proxy appointment revocation;

(d) The name signed purports to be that of a pledge, beneficial owner or attorney-in-fact of the stockholder and, if the corporation requests, evidence acceptable to the corporation of the signatory's authority to sign for the stockholder has been presented with respect to the vote, consent, waiver, proxy appointment or proxy appointment revocation;

(e) Two or more persons are the stockholder as co-tenants or fiduciaries and the name signed purports to be the name of at least one of the co-tenants or fiduciaries, and the person signing appears to be acting on behalf of all the co-tenants or fiduciaries; or

(f) The acceptance of the vote, consent, waiver, proxy appointment or proxy appointment revocation is otherwise proper under rules established by the corporation that are not inconsistent with this Section 2.17.

The corporation is entitled to reject a vote, consent, waiver, proxy appointment or proxy appointment revocation if the Secretary or other officer or agent authorized to tabulate votes has reasonable basis for doubt about the validity of the signature on it or about the signatory's authority to sign for the stockholder.

Neither the corporation nor any of its directors, officers, employees or agents who accepts or rejects a vote, consent, waiver, proxy appointment or proxy appointment revocation in good faith and in accordance with the standards of this Section is liable in damages for the consequences of the acceptance or rejection.

Redeemable shares are not entitled to be voted after notice of redemption is mailed to the holders and a sum sufficient to redeem the shares has been deposited with a bank, trust company or other financial institution under an irrevocable obligation to pay the holders of the redemption price on surrender of the shares.

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Section 2.18 Waiver of Notice. When any notice is required to be given to any stockholder, a waiver thereof in writing signed by the person entitled to such notice, whether before, at, or after the time stated therein, shall be equivalent to the giving of such notice. Such waiver shall be delivered to the corporation for filing with the corporate records.

The attendance of a stockholder at any meeting shall constitute a waiver of notice, waiver of objection to defective notice of such meeting, or a waiver of objection to the consideration of a particular matter at the stockholder meeting unless the stockholder, at the beginning of the meeting, objects to the holding of the meeting, the transaction of business at the meeting, or the consideration of a particular matter at the time it is presented at the meeting.

ARTICLE III

BOARD OF DIRECTORS

Section 3.1 General Powers. The business and affairs of the corporation shall be managed by its Board of Directors.

Section 3.2 Performance of Duties. A director of the corporation shall perform his or her duties as a director, including his or her duties as a member of any committee of the board upon which he or she may serve, in good faith, in a manner he or she reasonably believes to be in the best interests of the corporation, and with such care as an ordinarily prudent person in a like position would use under similar circumstances. In performing his or her duties, a director shall be entitled to rely on information, opinions, reports, or statements, including financial statements and other financial data, in each case prepared or presented by persons and groups listed in paragraphs (a), (b), and (c) of this Section 3.2; but he or she shall not be considered to be acting in good faith if he or she has knowledge concerning the matter in question that would cause such reliance to be unwarranted. A person who so performs his or her duties shall not have any liability by reason of being or having been a director of the corporation.

Those persons and groups on whose information, opinions, reports, and statements a director is entitled to rely upon are:

(a) One or more officers or employees of the corporation whom the director reasonably believes to be reliable and competent in the matters presented;

(b) Counsel, public accountants, or other persons as to matters which the director reasonably believes to be within such persons’ professional or expert competence; or

(c) A committee of the board upon which he or she does not serve, duly designated in accordance with the provision of the Articles of Incorporation or these Bylaws, as to matters within its designated authority, which committee the director reasonably believes to merit confidence.

Section 3.3 Number, Tenure and Qualifications. The number of directors of the corporation shall be set from time to time by resolution of the Board of Directors, but in no instance shall there be less than one director. Each director shall hold office until the next annual meeting of stockholders or until his or her successor shall have been elected and qualified. Directors need not be residents of the State of Colorado or stockholders of the corporation.

Section 3.4 Chairman of the Board. Subject to the provisions of Article III of these Bylaws, the Chairman of the Board shall be appointed by resolution of the Board of Directors and shall preside at all meetings of the Board of Directors and stockholders.

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Section 3.5 Quorum, Required Vote and Adjournment. A majority of the total number of directors shall constitute a quorum for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation or these Bylaws. The vote of a majority of directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless otherwise provided by an applicable provision of law, by these Bylaws, by the Certificate of Incorporation or by a resolution of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

Section 3.6 Regular Meetings. A regular meeting of the Board of Directors shall be held without notice other than this Bylaw immediately after, and at the same place as, the annual meeting of stockholders. The Board of Directors may provide, by resolution, the time and place, either within or without the State of Colorado, for the holding of additional regular meetings without notice other than such resolution.

Section 3.7 Special Meetings. Special meetings of the Board of Directors may be called by or at the request of the Chair of the Board, if any, the President or any two directors. The person or persons authorized to call special meetings of the Board of Directors may set any place, either within or without the State of Colorado, as the place for holding any special meeting of the Board of Directors called by them.

Section 3.8 Notice. Written notice of any special meeting of directors shall be given as follows:

(a)     By mail to each director at his or her business address at least four days prior to the meeting; or

(b)     By personal delivery, facsimile, email or other electronic means at least twenty-four hours prior to the meeting to the business address of each director, or in the event such notice is given on a Saturday, Sunday or holiday, to the residence address of each director.

(c)     If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, so addressed, with postage thereon prepaid. If notice is given by facsimile, email or other electronic means, such notice shall be deemed to be delivered when a confirmation of the transmission has been received by the sender. Any director may waive notice of any meeting before or after the time and date of the meeting stated in the notice. The waiver shall be in writing and signed by the director entitled to the notice. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting.

Section 3.9 Manner of Acting. Except as otherwise required by the Colorado Business Corporation Act or by the Articles of Incorporation, the act of the majority of the directors present at a meeting at which a quorum is present when a vote is taken shall be the act of the Board of Directors.

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Section 3.10 Informal Action by Directors or Committee Members. Unless the Articles of Incorporation or these Bylaws provide otherwise, any action required or permitted to be taken at a meeting of the Board of Directors or any committee designated by said board may be taken without a meeting if the action is evidenced by one or more written consents describing the action taken, signed by each director or committee member, and delivered to the Secretary for inclusion in the minutes or for filing with the corporate records. Action taken under this Section is effective when all directors or committee members have signed the consent, unless the consent specifies a different effective date. Such consent has the same force and effect as a unanimous vote of the directors or committee members and may be stated as such in any document.

Section 3.11 Participation by Electronic Means. Any members of the Board of Directors or any committee designated by such Board may participate in a meeting of the Board of Directors or committee by means of telephone conference or similar communications equipment by which all persons participating in the meeting can hear each other at the same time. Such participation shall constitute presence in person at the meeting.

Section 3.12 Vacancies. Any vacancy occurring in the Board of Directors may be filled by the affirmative vote of a majority of the stockholders or the Board of Directors. If the directors remaining in office constitute less than a quorum of the Board, the directors may fill the vacancy by the affirmative vote of a majority of all the directors remaining in office.

If elected by the directors, the director filling the vacancy shall hold office until the next annual stockholders' meeting at which directors are elected. If elected by the stockholders, the director filling the vacancy shall hold office for the unexpired term of his or her predecessor in office; except that, if the director's predecessor was elected by the directors to fill a vacancy, the director elected by the stockholders shall hold the office for the unexpired term of the last predecessor elected by the stockholders.

If the vacant office was held by a director elected by a voting group of stockholders, only the holders of shares of that voting group are entitled to vote to fill the vacancy if it is filled by the stockholders, and, if one or more of the remaining directors were elected by the same voting group, only such directors so elected by the same voting group are entitled to vote to fill the vacancy if it is filled by the directors.

Section 3.13 Resignation. Any director of the corporation may resign at any time by giving written notice to the Secretary. The resignation of any director shall take effect upon receipt of notice thereof or at such later time as shall be specified in such notice; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. When one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective.

Section 3.14 Removal. Subject to any limitations contained in the Articles of Incorporation, any director or directors of the corporation may be removed at any time, with or without cause, in the manner provided in the Colorado Business Corporation Act.

Section 3.15 Committees. By resolution adopted by a majority of the Board of Directors, the directors may designate two or more directors to constitute a committee, any of which shall have such authority in the management of the corporation as the Board of Directors shall designate and as shall be prescribed by or limited by the Colorado Business Corporation Act and Article III of these Bylaws.

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Section 3.16 Limitations on Committee Powers. No committee of the Board of Directors, acting without concurrence of the entire Board, shall have power or authority to:

(a) Amend the Certificate of Incorporation or recommend the same to the stockholders;

(b) Adopt an agreement of merger or consolidation or recommend the same to the stockholders; 

(c) Recommend to the stockholders the sale, lease, or exchange of all or substantially all of the corporation’s property and assets;

(d) Recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution;

(e) Amend or repeal these Bylaws;

(f) Unless expressly so provided by resolution of the Board of Directors, (i) declare a dividend; or (ii) authorize the issuance of shares of the corporation of any class; and

(g) Amend, alter, or repeal any resolution of the Board of Directors which, by its terms, provides that it shall not be amended, altered or repealed by any committee or, as applicable, a certain committee.

Section 3.17 Committee Rules. Each committee of the Board of Directors may set its own rules of procedure and shall hold its meetings as provided by such rules, except as may otherwise be provided by a resolution of the Board of Directors designating such committee. Unless otherwise provided in such a resolution, the presence of at least a majority of the members of the committee shall be necessary to constitute a quorum. In the event that a member of such committee is or are absent or disqualified, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in place of any such absent or disqualified member.

Section 3.18 Use of Communications Equipment in Conducting Meetings. Members of the Board of Directors or any committee thereof may participate in and act at any meeting of the Board of Directors or committee through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and participation in the meeting pursuant to this Section shall constitute attendance and presence in person at the meeting of the person or persons so participating.

Section 3.19 Compensation. By resolution of the Board of Directors and irrespective of any personal interest of any of the directors, each director may be paid his or her expenses, if any, of attendance at each meeting of the Board of Directors and/or Committee, and may be paid a stated salary as director or committee member or a set sum for attendance at each meeting of the Board of Directors or both. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor.

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Section 3.20 Presumption of Assent. A director of the corporation who is present at a meeting of the Board of Directors or committee of the Board at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless (i) the director objects at the beginning of the meeting, or promptly upon his or her arrival, to the holding of the meeting or the transaction of business at the meeting and does not thereafter vote for or assent to any action taken at the meeting, (ii) the director contemporaneously requests that his or her dissent or abstention as to any specific action taken be entered in the minutes of the meeting, or (iii) the director causes written notice of his or her dissent or abstention as to any specific action to be received by the presiding officer or the meeting before its adjournment or by the corporation promptly after the adjournment of the meeting. A director may dissent to a specific action at a meeting, while assenting to others. The right to dissent to a specific action taken at a meeting of the Board of Directors or a committee of the board shall not be available to a director who voted in favor of such action.

Section 3.21 Books and Records. The Board of Directors shall cause to be kept a record containing the minutes of the proceedings of the meetings of the Board of Directors and of the stockholders, appropriate stock books and registers and such books of records and accounts as may be necessary for the proper conduct of the business of the corporation.

ARTICLE IV

OFFICERS

Section 4.1 Officers Delineated. The officers of the corporation shall be: Chief Executive Officer, Chief Financial Officer, President, Secretary, and Treasurer, each of whom must be a natural person who is eighteen years or older and shall be elected by the Board of Directors. Such other officers and assistant officers as may be deemed necessary may be elected or appointed by the Board of Directors or the Chief Executive Officer.

Any number of offices may be held by the same person, except that neither the Chief Executive Officer nor any President shall also hold the office of either Treasurer or Secretary. All officers, as between themselves and the corporation, shall have such authority and perform such duties in the management of the business and affairs of the corporation as may be provided in these Bylaws, or, to the extent not so provided, as may be prescribed by the Board of Directors or by the Chief Executive Officer.

Section 4.2 Election and Term of Office. The officers of the corporation to be elected by the Board of Directors shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after the annual meeting of the stockholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as practicable. Each officer shall hold office until his or her successor shall have been duly elected and shall have qualified or until his or her death or until he or she shall resign or shall have been removed in the manner hereinafter provided.

Section 4.3 Removal. Any officer or agent may be removed by the Board of Directors at any time, with or without cause, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an officer or agent shall not of itself create contract rights.

An officer may resign at any time by giving written notice of the resignation to the Secretary of the corporation. The resignation is effective when the notice is received by the corporation unless the notice specifies a later effective date.

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Section 4.4 Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term.

Section 4.5 Chairman of the Board. The Chairman of the Board shall preside at all meetings of the directors or if the offices of the Chief Executive Officer and Chairman of the Board are separate, the Chairman may delegate such duties to the Chief Executive Officer. The Chairman of the Board shall perform such other duties as are required of him by the Board of Directors and shall have no other duties except such as are delegated to him by the Board of Directors.

Section 4.6 Chief Executive Officer. Subject to the provisions of the Article IV, the Chief Executive Officer of the corporation shall have the general charge of the business and affairs of the corporation and shall oversee the management of the business of the corporation. In the absence of the Chairman of the Board, or if designated to do so by the Board of Directors, the Chief Executive Officer shall preside at all meetings of the stockholders and of the directors and shall exercise the other powers and perform the other duties of the Chairman of the Board or designate the executive officers of the corporation by whom such other powers shall be exercised and other duties performed. The Chief Executive Officer shall see to it that all resolutions and orders of the Board of Directors are carried into effect, and the Chief Executive Officer shall have full power of delegation in so doing. The Chief Executive Officer shall have such other powers and perform such other duties as the Board of Directors or these Bylaws may, from time to time, prescribe. The Chief Executive Officer shall have the power to execute any and all instruments and documents on behalf of the corporation and to delegate to any other officer of the corporation the power to execute any and all such instruments and documents.

Section 4.7 Chief Financial Officer. The Chief Financial Officer shall have charge and custody of and be responsible for all funds and securities of the corporation, including primarily responsibility for managing the financial risks of the corporation, financial planning and record-keeping, budget management, cost benefit analysis, forecasting financial needs, monitoring cash flow, analysis of the company's financial strengths and weaknesses and suggestion of plans for improvement, ensure that the company's financial reports are accurate and completed on time, evaluate the cost of projects and advise financial feasibility, oversee banking, investments, liquidity management and create investment strategies.

Section 4.8 President. The President shall be the chief executive officer of the corporation and, subject to the control of the Board of Directors, shall in general supervise and control all of the business and affairs of the corporation. He or she shall, when present, and in the absence of a Chair of the Board, preside at all meetings of the stockholders and of the Board of Directors. He or she may sign certificates for shares of the corporation and deeds, mortgages, bonds, contracts, or other instruments which the Board of Directors has authorized to be executed, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these Bylaws to some other officer or agent of the corporation, or shall be required by law to be otherwise signed or executed; and in general shall perform all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. The President or his or her designees may sell, lease, exchange, or otherwise dispose of any or all of the corporation's property in the usual and regular course of business.

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Section 4.9 Vice President. If elected or appointed by the Board of Directors, the Vice President (or in the event there is more than one Vice President, the Vice Presidents in the order designated at the time of their election, or in the absence of any designation, then in the order of their election) shall, in the absence of the President or in the event of his or her death, inability or refusal to act, perform all duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Any Vice President may sign certificates for shares of the corporation; and shall perform such other duties as from time to time may be assigned to him or her by the President or by the Board of Directors.

Section 4.10 Secretary. The Secretary shall (a) prepare and maintain as permanent records the minutes of the proceedings of the stockholders and the Board of Directors, a record of all actions taken by the stockholders or Board of Directors without a meeting, a record of all actions taken by a committee of the Board in place of the Board of Directors on behalf of the corporation, and a record of all waivers of notice and meetings of stockholders and of the Board of Directors or any committee thereof, (b) ensure that all notices are duly given in accordance with the provisions of these Bylaws and as required by law, (c) serve as custodian of the corporate records and of the seal of the corporation and affix the seal to all documents when authorized by the Board of Directors, (d) keep at the corporation's registered office or principal place of business a record containing the names and addresses of all stockholders in a form that permits preparation of a list of stockholders arranged by voting group and by class or series of shares within each voting group, that is alphabetical within each class or series and that shows the address of, and the number of shares of each class or series held by, each stockholder, unless such a record shall be kept at the office of the corporation's transfer agent or registrar, (e) maintain at the corporation's principal office the originals or copies of the corporation's Articles of Incorporation, Bylaws, minutes of all stockholders' meetings and records of all action taken by stockholders without a meeting for the past three years, all written communications within the past three years to stockholders as a group or to the holders of any class or series of shares as a group, a list of the names and business addresses of the current directors and officers, a copy of the corporation's most recent corporate report filed with the Secretary of State, and financial statements showing in reasonable detail the corporation's assets and liabilities and results of operations for the last three years, (f) have general charge of the stock transfer books of the corporation, unless the corporation has a transfer agent, (g) authenticate records of the corporation, and (h) in general, perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him or her by the president or by the Board of Directors. Assistant Secretaries, if any, shall have the same duties and powers, subject to supervision by the Secretary. The directors or stockholders may respectively designate a person other than the Secretary or Assistant Secretary to keep the minutes of their respective meetings.

Any books, records, or minutes of the corporation may be in written form or in any form capable of being converted into written form within a reasonable time.

Section 4.11 Treasurer. The Treasurer shall: (a) have charge and custody of and be responsible for all funds and securities of the corporation; (b) receive and give receipts for moneys due and payable to the corporation from any source whatsoever, and deposit all such moneys in the name of the corporation in such banks, trust companies or other depositories as shall be selected in accordance with the provisions of these Bylaws; and (c) in general perform all of the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him or her by the Chief Executive Officer, President or by the Board of Directors.

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Section 4.12 Assistant Secretaries and Assistant Treasurers. The Assistant Secretaries and Assistant Treasurers, in general, shall perform such duties as shall be assigned to them by the Secretary or the Treasurer, respectively, or by the President, Chief Executive Officer or the Board of Directors.

Section 4.13 Other Officers, Assistant Officers and Agents. The Board of Directors may also elect or may delegate to the Chief Executive Officer the power to appoint such other officers, assistant officers and agents, as it may at any time or from time to time deem advisable, and any officers, assistant officers and agents so elected or appointed shall have such authority and perform such duties as the Board of Directors, Chief Executive Officer or President may from time to time prescribe.

Section 4.14 Reservation of Authority. All other powers not expressly delegated or provided for herein, or in the Colorado Business Corporation Act to any officer, are expressly reserved to the Board of Directors and may be delegated by it to any officer by resolution adopted from time to time by the Board of Directors.

Section 4.15 Bonds. If the Board of Directors by resolution shall so require, any officer or agent of the corporation shall give bond to the corporation in such amount and with such surety as the Board of Directors may deem sufficient, conditioned upon the faithful performance of his or her respective duties and offices.

Section 4.16 Salaries. The salaries of the officers shall be set from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that he or she is also a director of the corporation.

ARTICLE V

WAIVER OF NOTICE

Whenever a notice is required to be given by any provision of law, by these Bylaws, or by the Certificate of Incorporation, a written waiver, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to such notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the sole and express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened.

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ARTICLE VI

INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS

Section 6.1 Coverage. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (“proceeding”), by reason of the fact that he or she is or was a director, officer of the corporation (which term shall include any predecessor corporation of the corporation) or is or was serving at the request of the corporation as a director, officer, employee, fiduciary or agent of another corporation or of a partnership, joint venture, trust or other enterprise of any type or kind, domestic or foreign, including service with respect to employee benefit plans (“indemnitee”), whether the basis of such proceeding is an alleged action in an official capacity as a director, officer, employee, fiduciary or agent or in any other capacity while serving as a director, officer, employee, fiduciary or agent, shall be indemnified and held harmless by the corporation to the fullest extent authorized by the Colorado Business Corporation Act , as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than said law permitted the corporation to provide prior to such amendment), against all expenses, liability and loss (including attorneys’ fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in settlement or other disposition) incurred or suffered by such indemnitee in connection therewith and such indemnification shall continue as to an indemnitee who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the indemnitee’s heirs, executors and administrators. The right to indemnification conferred in this Bylaw shall be a contract right that vests at the time of such person’s service to or at the request of the corporation and includes the right to be paid by the corporation the expenses incurred in defending any such proceeding in advance of its final disposition, such advances to be paid by the corporation within 20 days after the receipt by the corporation of a statement or statements from the claimant requesting such advance or advances from time to time; provided, however, that if the Colorado Business Corporation Act requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the corporation of an undertaking by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Bylaw or otherwise.

Section 6.2 Claims. To obtain indemnification under this Bylaw, a claimant shall submit to the corporation a written request, including therein or therewith such documentation and information as is reasonably available to the claimant and is reasonably necessary to determine whether and to what extent the claimant is entitled to indemnification. Upon such written request by a claimant for indemnification, a determination, if required by applicable law, with respect to the claimant’s entitlement thereto shall be made as follows: (a) if requested by the claimant, by Independent Counsel (as defined below), or (b) if no request is made by the claimant for a determination by Independent Counsel, (i) by the Board of Directors by a majority vote of a quorum consisting of Disinterested Directors (as defined below), or (ii) if a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, such quorum of Disinterested Directors so directs, by Independent Counsel in a written opinion to the Board of Directors, a copy of which shall be delivered to the claimant, or (iii) if a quorum of Disinterested Directors so directs, by the stockholders of the corporation. In the event the determination of entitlement to indemnification is to be made by Independent Counsel at the request of the claimant, the Independent Counsel shall be selected by the Board of Directors. If it is so determined that the claimant is entitled to indemnification, payment to the claimant shall be made within 10 days after such determination.

For purposes of this Bylaw:

“Disinterested Director” means a director of the corporation who is not and was not a party to the matter in respect of which indemnification is sought by the claimant.

“Independent Counsel” means a law firm, a member of a law firm, or an independent practitioner, that is experienced in matters of corporation law and shall include any person who, under the applicable standards of professional conduct then prevailing, would not have a conflict of interest in representing either the corporation or the claimant in an action to determine the claimant’s rights under this Bylaw.

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Section 6.3 Enforcement of Claims. If a claim under Section 6.1 of this Bylaw is not paid in full by the corporation within 60 days after a written claim pursuant to Section 6.2 of this Bylaw has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the corporation) that the claimant has not met the standard of conduct which makes it permissible under the Colorado Business Corporation Act for the corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the corporation. Neither the failure of the corporation (including its Board of Directors, Independent Counsel or stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Colorado Business Corporation Act , nor an actual determination by the corporation (including its Board of Directors, Independent Counsel or stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. If a determination shall have been made pursuant to this Section 6.2 that the claimant is entitled to indemnification, the corporation shall be bound by such determination in any judicial proceeding commenced pursuant to this Section 6.3. The corporation shall be precluded from asserting in any judicial proceeding commenced pursuant to this Section 6.3 that the procedures and presumptions of this Bylaw are not valid, binding and enforceable and shall stipulate in such proceeding that the corporation is bound by all the provisions of this Bylaw.

Section 6.4 Enforceability. If any provision or provisions of this Bylaw shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Bylaw (including, without limitation, each portion of any paragraph of this Bylaw containing any such provision held to be invalid, illegal or unenforceable, that is not itself held to be invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Bylaw (including, without limitation, each such portion of any paragraph of this Bylaw containing any such provision held to be invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable.

Section 6.5 Rights Not Exclusive. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Bylaw (i) shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or Disinterested Directors or otherwise and (ii) cannot be terminated by the corporation, the Board of Directors or the stockholders of the corporation with respect to a person’s service prior to the date of such termination. No repeal or modification of this Bylaw shall in any way diminish or adversely affect the rights of any current or former director, officer, employee or agent of the corporation hereunder in respect of any occurrence or matter arising prior to any such repeal or modification.

Section 6.6 Employees and Agents. Persons who are not covered by the foregoing provisions of this Article VI and who are or were employees or agents of the corporation may be indemnified and may have their expenses paid to the extent and subject to such terms and conditions as may be authorized at any time or from time to time by the Board of Directors or the Chief Executive Officer.

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Section 6.7 Insurance. The corporation may purchase and maintain insurance on its own behalf and on behalf of any person who is or was a director, officer, employee, fiduciary or agent of the corporation or who is serving or has served at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity or arising out of his or her status as such, whether or not the corporation would have the power to indemnify such person against such liability under this Article VII.

Section 6.8 Notices. Any notice, request or other communication required or permitted to be given to the corporation under this Article VI shall be in writing and either delivered in person or sent by telecopy, telex, telegram, overnight mail or courier service, or certified or registered mail, postage prepaid, return receipt requested, to the Secretary and shall be effective only upon receipt by the Secretary.

ARTICLE VII

CONTRACTS, LOANS, CHECKS AND DEPOSITS

Section 7.1 Contracts. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances.

Section 7.2 Loans. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances.

Section 7.3 Checks, Drafts etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the corporation shall be signed by such officer or officers, agent or agents of the corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors.

Section 7.4 Deposits. All funds of the corporation not otherwise employed shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositories as the Board of Directors may select.

ARTICLE VIII

SHARES, CERTIFICATES FOR SHARES AND TRANSFER OF SHARES

Section 8.1 Regulation. The Board of Directors may make such rules and regulations as it may deem appropriate concerning the issuance, transfer and registration of certificates for shares of the corporation, including the appointment of transfer agents and registrars.

Section 8.2 Shares Without Certificates. Unless otherwise provided by the Articles of Incorporation or these Bylaws, the Board of Directors may authorize the issuance of any of its classes or series of shares without certificates. Such authorization shall not affect shares already represented by certificates until they are surrendered to the corporation.

Within a reasonable time following the issue or transfer of shares without certificates, the corporation shall send the stockholder a complete written statement of the information required on certificates by the Colorado Business Corporation Act.

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Section 8.3 Certificates for Shares. If shares of the corporation are represented by certificates, the certificates shall be respectively numbered serially for each class of shares, or series thereof, as they are issued, and shall be signed by an officer of the corporation authorized by these Bylaws or a resolution of the Board of Directors; provided that such signatures may be facsimile. Each certificate shall state the name of the corporation, the fact that the corporation is organized or incorporated under the laws of the State of Colorado, the name of the person to whom issued, the date of issue, the class (or series of any class), the number of shares represented thereby. A statement of the designations, preferences, qualifications, limitations, restrictions and special or relative rights of the shares of each class shall be set forth in full or summarized on the face or back of the certificates which the corporation shall issue, or in lieu thereof, the certificate may set forth that such a statement or summary will be furnished to any stockholder upon request without charge. Each certificate shall be otherwise in such form as may be prescribed by the Board of Directors and as shall conform to the rules of any stock exchange on which the shares may be listed.

The corporation shall not issue certificates representing fractional shares and shall not be obligated to make any transfers creating a fractional interest in a share of stock. The corporation may, but shall not be obligated to, issue scrip in lieu of any fractional shares, such scrip to have terms and conditions specified by the Board of Directors.

Section 8.4 Cancellation of Certificates. All certificates surrendered to the corporation for transfer shall be cancelled and no new certificates shall be issued in lieu thereof until the former certificate for a like number of shares shall have been surrendered and cancelled, except as herein provided with respect to lost, stolen or destroyed certificates.

Section 8.5 Consideration for Shares. Certificated or uncertificated shares shall not be issued until the shares represented thereby are fully paid. The Board of Directors may authorize the issuance of shares for consideration consisting of any tangible or intangible property or benefit to the corporation, including cash, promissory notes, services performed or other securities of the corporation. Future services shall not constitute payment or partial payment for shares of the corporation. The promissory note of a subscriber or an affiliate of a subscriber shall not constitute payment or partial payment for shares of the corporation unless the note is negotiable, recourse and is secured by collateral, other than the shares being purchased, having a fair market value of at least equal to the principal amount of the note.

Section 8.6 Lost, Stolen or Destroyed Certificates. Any stockholder claiming that his or her certificate for shares is lost, stolen or destroyed may make an affidavit or affirmation of that fact and lodge the same with the Secretary of the corporation, accompanied by a signed application for a new certificate. Thereupon, and upon the giving of a satisfactory bond of indemnity to the corporation or transfer agent not exceeding an amount double the value of the shares as represented by such certificate (the necessity for such bend and the amount required to be determined by the President and Treasurer of the corporation), a new certificate may be issued of the same tenor and representing the same number, class and series of shares as were represented by the certificate alleged to be lost, stolen or destroyed.

Section 8.7 Transfer of Shares. Subject to the terms of any stockholder agreement relating to the transfer of shares or other transfer restrictions contained in the Articles of Incorporation or authorized therein, shares of the corporation shall be transferable on the books of the corporation by the holder thereof in person or by his or her duly authorized attorney, upon the surrender and cancellation of a certificate or certificates for a like number of shares. Upon presentation and surrender of a certificate for shares properly endorsed and payment of all taxes therefor, the transferee shall be entitled to a new certificate or certificates in lieu thereof. As against the corporation, a transfer of shares can be made only on the books of the corporation and in the manner hereinabove provided, and the corporation shall be entitled to treat the holder of record of any share as the owner thereof and shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, except as expressly provided by the Colorado Business Corporation Act.

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ARTICLE IX

FISCAL YEAR

The fiscal year of the corporation shall be set by resolution of the Board of Directors.

ARTICLE X

DIVIDENDS AND DISTRIBUTIONS

The Board of Directors shall have full power and discretion pursuant to law, at any regular or special meeting, subject to the provisions of the Articles of Incorporation or the terms of any other corporate document or instrument, to determine what, if any, dividends or distributions shall be declared and paid or made upon or with respect to outstanding shares of the capital stock of the corporation. Dividends may be paid in cash, bonds, property, or in shares of the capital stock, subject to the provisions of the Articles of Incorporation. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or any other purpose and the directors may modify or abolish any such reserve in the manner in which it was created.

ARTICLE XI

CORPORATE SEAL

The Board of Directors may authorize the use of a corporate seal which shall be circular in form and shall have inscribed thereon the name of the corporation and the state of incorporation and the words "CORPORATE SEAL."

ARTICLE XII

AMENDMENTS

These Bylaws may be altered, amended or repealed and new Bylaws may be adopted by a majority of the directors present at any meeting of the Board of Directors of the corporation at which a quorum is present when a vote is taken.

ARTICLE XIII

EXECUTIVE COMMITTEE

Section 13.1 Appointment. The Board of Directors by resolution adopted by a majority of all directors in office, may designate two or more of its members to constitute an Executive Committee. The designation of such Committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed by law.

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Section 13.2 Authority. The Executive Committee, when the Board of Directors is not in session shall have and may exercise all of the authority of the Board of Directors except to the extent, if any, that such authority shall be limited by the resolution appointing the Executive Committee and except also that the Executive Committee shall not have the authority of the Board of Directors in reference to authorizing distributions, filling vacancies on the Board of Directors, authorizing reacquisition of shares, authorizing and determining rights for shares, amending the Articles of Incorporation, adopting a plan of merger or share exchange, recommending to the stockholders the sale, lease or other disposition of all or substantially all of the property and assets of the corporation otherwise than in the usual and regular course of its business, recommending to the stockholders a voluntary dissolution of the corporation or a revocation thereof, or amending the Bylaws of the corporation.

Section 13.3 Tenure and Qualifications. Each member of the Executive Committee shall hold office until the next regular annual meeting of the Board of Directors following his or her designation and until his or her successor is designated as a member of the Executive Committee and is elected and qualified.

Section 13.4 Meetings. Regular meetings of the Executive Committee may be held without notice at such time and places as the Executive Committee may set from time to time by resolution. Special meetings of the Executive Committee may be called by any member thereof upon not less than one day's notice stating the place, date and hour of the meeting, which notice may be written or oral. Any member of the Executive Committee may waive notice of any meeting and no notice of any meeting need be given to any member thereof who attends in person. The notice of a meeting of the Executive Committee need not state the business proposed to be transacted at the meeting.

Section 13.5 Quorum. A majority of the members of the Executive Committee shall constitute a quorum for the transaction of business at any meeting thereof, and action of the Executive Committee must be authorized by the affirmative vote of a majority of the members present at a meeting at which a quorum is present when a vote is taken.

Section 13.6 Informal Action by Executive Committee. Any action required or permitted to be taken by the Executive Committee at a meeting may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the members of the Executive Committee entitled to vote with respect to the subject matter thereof.

Section 13.7 Vacancies. Any vacancy in the Executive Committee may be filled by a resolution adopted by a majority of the Board of Directors.

Section 13.8 Resignations and Removal. Any member of the Executive Committee may be removed at any time with or without cause by resolution adopted by a majority of the Board of Directors. Any member of the Executive Committee may resign from the Executive Committee at any time by giving written notice to the President or Secretary of the corporation, and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.

Section 13.9 Procedure. The Executive Committee shall elect a presiding officer from its members and may set its own rules of procedure which shall not be inconsistent with these Bylaws. It shall keep regular minutes of its proceedings and report the same to the Board of Directors for its information at the meeting thereof held next after the proceedings shall have been taken.

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ARTICLE XIV

EMERGENCY BYLAWS

The Emergency Bylaws provided in this Article XIV shall be operative during any emergency in the conduct of the business of the corporation resulting from a catastrophic event causing a quorum of directors to be not readily obtained as a result thereof, notwithstanding any different provision in the preceding articles of the Bylaws or in the Articles of Incorporation of the corporation or in the Colorado Business Corporation Act. To the extent not inconsistent with the provisions of this Article, the Bylaws provided in the preceding articles shall remain in effect during such emergency and upon its termination the Emergency Bylaws shall cease to be operative.

During any such emergency:

(a) A meeting of the Board of Directors may be called by any officer or director of the corporation. Notice of the time and place of the meeting shall be given by the person calling the meeting to such of the directors as it may be feasible to reach by any available means of communication. Such notice shall be given at such time in advance of the meeting as circumstances permit in the judgment of the person calling the meeting.

(b) At any such meeting of the Board of Directors, a quorum shall consist of the number of directors in attendance at such meeting.

(c) The Board of Directors, either before or during any such emergency, may, effective in the emergency, change the principal office or designate several alternative principal offices or regional offices, or authorize the officers so to do.

(d) The Board of Directors, either before or during any such emergency, may provide, and from time to time modify, lines of succession in the event that during such an emergency any or all officers or agents of the corporation shall for any reason be rendered incapable of discharging their duties.

(e) No officer, director or employee acting in accordance with these Emergency Bylaws shall be liable except for willful misconduct.

(f) These Emergency Bylaws shall be subject to repeal or change by further action of the Board of Directors or by action of the stockholders, but no such repeal or change shall modify the provisions of the next preceding paragraph with regard to action taken prior to the time of such repeal or change. Any amendment of these Emergency Bylaws may make any further or different provision that may be practical and necessary for the circumstances of the emergency.

ARTICLE XV

GENERAL PROVISIONS

Section 15.1 Voting Securities Owned By Corporation. Voting securities in any other entity held by the corporation shall be voted by the Chairman of the Board or the Chief Executive Officer, unless the Board of Directors specifically confers authority to vote with respect thereto, which authority may be general or confined to specific instances, upon some other person or officer. Any person authorized to vote securities shall have the power to appoint proxies, with or without general power of substitution.

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Section 15.2 General and Special Bank Accounts. The Board of Directors may authorize from time to time the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as the Board of Directors may designate or as may be designated by any officer or officers of the corporation to whom such power of designation may be delegated by the Board of Directors from time to time. The Board of Directors may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these Bylaws, as it may deem expedient.

Section 15.3 Section Headings. Section headings in these Bylaws are for convenience of reference only and shall not be given any substantive effect in limiting or otherwise construing any provision herein.

Section 15.4 Forum Selection Bylaw. Unless the corporation consents in writing to the selection of an alternative forum, the courts of the State of Oregon (or, in the event that the Oregon state judicial system does not have jurisdiction, the federal district court for the District of Oregon) shall, to the fullest extent permitted by law, be the sole and exclusive forum for any stockholder (including a beneficial owner) to bring (1) any derivative action or proceeding brought on behalf of the corporation, (2) any action asserting a claim of breach of a fiduciary duty owed by any current or former director, officer or other employee of the corporation to the corporation or the corporation’s stockholders, (3) any action asserting a claim arising pursuant to any provision of the Colorado Business Corporation Act , the Certificate of Incorporation or these Bylaws, or (4) any action asserting a claim governed by the internal affairs doctrine, except as to each of (1) through (4) above, for any claim as to which the court determines that there is an indispensable party not subject to the jurisdiction of the court (and the indispensable party does not consent to the personal jurisdiction of the court within ten days following such determination). Any person or entity purchasing or otherwise acquiring or holding any interest in shares of capital stock of the corporation shall be deemed to have notice of and consented to the provisions of this Section 15.

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CERTIFICATE

I hereby certify that the foregoing Bylaws, consisting of forty two (42) pages, including this page, constitute the Bylaws of CUI Global, Inc., adopted by the Board of Directors of the corporation as of December 3, 2018.

   /s/                                                     

Matthew M. McKenzie

Corporate Secretary

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EX-10.94

Exhibit 10.94

EXHIBIT B

INDUSTRIAL LEASE

BETWEEN

TAMARISK TUALATIN, LLC

(Landlord)

AND

CUI, INC.

(Tenant)

Premises: 20050 SW 112th Avenue, Tualatin, Oregon,

97062 Date:     December 21, 2018

TABLE OF CONTENTS

		Page
Article 1 - BASIC PROVISIONS		1
1.1	BASIC PROVISIONS	1
Article 2 - SPECIAL PROVISIONS		2
2.1	NONE	2
Article 3		2
Article 3 STANDARD DEFINITIONS		2
3.1	DEFINITIONS	2
Article 4 - GRANT AND TERM		10
4.1	TERM, DEMISE	10
4.2	USE OF COMMON AREAS	10
4.3	QUIET ENJOYMENT	10
4.4	BASIC PROVISIONS	10
Article 5 – USE OF PREMISES		10
5.1	USE	11
5.2	CONDUCT OF BUSINESS	11
5.3	OBSERVANCE OF LAW	11
Article 6 – RENT		12
6.1	BASE RENT	12
6.2	ADDITIONAL RENT	12
6.3	INTENTIONALLY OMITTED	12
6.4	PAYMENT OF RENT - GENERAL	12
6.5	INTENTIONALLY OMITTED	13
6.6	SECURITY DEPOSIT	13
6.7	NET LEASE	15
6.8	ACCEPTANCE AND APPLICATION OF RENT	15
Article 7 – TAXES, OPERATING COSTS AND UTILITIES		15
7.1	TAXES PAYABLE BY LANDLORD	15
7.2	TAXES PAYABLE BY TENANT	15
7.3	BUSINESS TAXES AND OTHER TAXES OF TENANT	16
7.4	ASSESSMENT APPEALS	16
7.5	OPERATING COSTS	16
7.6	ESTIMATE OF ADDITIONAL RENT	16
7.7	UTILITIES	18
Article 8 – MAINTENANCE AND ALTERATIONS BY TENANT		19
8.1	MAINTENANCE OF THE PREMISES AND COMMON AREAS	19
8.2	HEATING, VENTILATING AND AIR-CONDITIONING	20
8.3	SPRINKLERS	20
8.4	ALTERATIONS	21

Page i

8.5	TELECOMMUNICATION	22
8.6	INDEMNITY	23
8.7	REMOVAL OF LEASEHOLD IMPROVEMENTS AND RESTORATION OF PREMISES	23
8.8	SIGNS AND ADVERTISING	23
8.9	LANDLORD’S MAINTENANCE OBLIGATIONS	24
Article 9 - CONTROL AND ACCESS BY LANDLORD		24
9.1	INTENTIONALLY OMITTED	24
9.2	CONTROL OF THE BUILDING BY THE LANDLORD	24
9.3	ACCESS BY LANDLORD	25
9.4	NOTICES FOR SALE OR TO LEASE	25
9.5	INTENTIONALLY OMITTED	25
Article 10 - DAMAGE AND DESTRUCTION AND CONDEMNATION		25
10.1	DAMAGE TO PREMISES	25
10.2	ABATEMENT	26
10.3	TERMINATION RIGHTS	26
10.4	LANDLORD'S RIGHTS ON REBUILDING	27
10.5	CONDEMNATION	27
Article 11 - ASSIGNMENT, SUBLETTING AND OTHER TRANSFERS		27
11.1	TRANSFERS	27
11.2	PERMITTED TRANSFERS	28
11.3	CONDITIONS OF TRANSFER	29
11.4	CORPORATE RECORDS	29
11.5	NO ADVERTISING	30
11.6	SALES OR DISPOSITIONS BY LANDLORD	30
Article 12 - ATTORNMENT, SUBORDINATION AND ESTOPPEL CERTIFICATE		30
12.1	SUBORDINATION AND ATTORNMENT	30
12.2	ESTOPPEL CERTIFICATE	30
12.3	ATTORNEY-IN-FACT	30
Article 13 - DEFAULT		31
13.1	EVENT OF DEFAULT	31
13.2	REMEDIES	31
13.3	REMEDIES GENERALLY	33
13.4	MITIGATION OF DAMAGES	33
13.5	INTENTIONALLY OMITTED	33
Article 14 – INSURANCE AND INDEMNITY		33
14.1	TENANT'S INSURANCE	33
14.2	INCREASE IN INSURANCE PREMIUMS	35
14.3	CANCELLATION OF INSURANCE	36
14.4	LOSS OR DAMAGE	36
14.5	LANDLORD'S INSURANCE	36
14.6	INDEMNIFICATION	37
14.7	LIMITATIONS OF LIABILITY	37
14.8	THIRD PARTY INSURANCE	38
Article 15 - ENVIRONMENTAL MATTERS		38
15.1	USE OF HAZARDOUS SUBSTANCES	38

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15.2	LIST OF HAZARDOUS SUBSTANCES	39
15.3	COMPLIANCE WITH ENVIRONMENTAL LAWS	39
15.4	INSPECTION OF PREMISES	39
15.5	CLEAN UP OR REMOVAL	40
15.6	OWNERSHIP OF HAZARDOUS SUBSTANCES	40
15.7	INDEMNITY	40
Article 16 - GENERAL PROVISIONS		41
16.1	GENERAL RULES OF INTERPRETATION	41
16.2	ENTIRE AGREEMENT, AMENDMENTS, WAIVER	41
16.3	SUCCESSORS	42
16.4	HOLDING OVER	42
16.5	NOTICES	42
16.6	RECORDING	42
16.7	SECURED CLAIMS	43
16.8	RULES AND REGULATIONS	43
16.9	GUARANTOR	43
16.10	FORCE MAJEURE	43
16.11	ACCEPTANCE OF LEASE	44
16.12	LIMITED RECOURSE	44
16.13	COUNTERPARTS	44
16.14	NO REPRESENTATION	44
16.15	INTERPRETATION	44
16.16	LANDLORD CONSENT	44
16.17	POWER, CAPACITY AND AUTHORITY	44
16.18	BROKERAGE FEES	44
16.19	OFAC	45
16.20	NO PLAN ASSETS	46
16.21	WAIVER OF TRIAL BY JURY	46

EXHIBIT “A”   PLAN OF PREMISES see following page	2
EXHIBIT “B”   LEGAL DESCRIPTION OF LAND	1
EXHIBIT “C” INTENTIONALLY OMITTED	1
EXHIBIT “D”   RULES AND REGULATIONS	1
EXHIBIT “E”   OPTIONS TO RENEW	1
EXHIBIT “F”   FORM OF LETTER OF CREDIT	1
EXHIBIT “G” FORM OF LANDLORD SUBORDINATION AGREEMENT	1
APPENDIX “A” GUARANTY AGREEMENT	1

Page iii

THIS LEASE DATED as of December 21, 2018 (the “Effective Date”) BY AND BETWEEN:

TAMARISK TUALATIN, LLC, a Delaware limited liability company

(hereinafter called the “Landlord”)

- and -

CUI, INC., an Oregon corporation

(hereinafter called the “Tenant”)

In consideration of the rents, covenants and agreements hereinafter reserved and contained the parties covenant and agree with each other as follows:

ARTICLE 1 - BASIC PROVISIONS

1.1 Basic Provisions

(a)	Landlord:	Tamarisk Tualatin, LLC, a Delaware limited liability company
	Address:	c/o EverWest Real Estate Investors, LLC, 1099 18th Street, Suite 2900, Denver, Colorado 80202 Attention: General Counsel
(b)	Tenant:	CUI, Inc., an Oregon corporation
	Address:	20050 SW 112th Avenue, Tualatin, Oregon 97062
(c)	Guarantor:	CUI Global, Inc., a Colorado corporation
	Address:	20050 SW 112th Avenue, Tualatin, Oregon 97062
(d)	Building:	The industrial and office building located at 20050 SW 112th Avenue, Tualatin, OR, and containing approximately 60,405 square feet of rentable square footage
(e)	Project:	As defined in Section 3.1.
(f)	Premises:	The Building, together with the Land (as initially described in Exhibit “B” and Common Areas.
(g)	Rentable Area of the Building:	Approximately 60,405 square feet.
(h)	Term; Renewal Term:	Ten (10) years, beginning on the Effective Date (the “Commencement Date”) and ending on December 31, 2028 (the “Expiration Date”), unless sooner terminated in the manner set forth in this Lease. Tenant will have two (2) options to renew the Term for periods of five (5) years each (each, an “Option Term”), exercisable in accordance with the terms and provisions of Exhibit “E”.

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(i) Base Rent:

Applicable Period	Monthly Base Rent
Commencement Date – December 31, 2019	$44,780.60 per month
January 1, 2020 – December 31, 2020	$46,124.02 per month
January 1, 2021 – December 31, 2021	$47,507.74 per month
January 1, 2022 – December 31, 2022	$48,932.97 per month
January 1, 2023 – December 31, 2023	$50,400.96 per month
January 1, 2024 – December 31, 2024	$51,912.99 per month
January 1, 2025 – December 31, 2025	$53,470.38 per month
January 1, 2026 – December 31, 2026	$55,074.49 per month
January 1, 2027 – December 31, 2027	$56,726.72 per month
January 1, 2028 – December 31, 2028	$58,428.53 per month
First Option Term	For the first year of the First Option Term, [monthly rent at the Prevailing Market rate, as determined in accordance with Exhibit “E”.
Second Option Term	For the first year of the Second Option Term, [monthly rent at the Prevailing Market rate, as determined in accordance with Exhibit “E”.

(j)	Security Deposit:	$400,000.00 (subject to the terms of Section 6.6 below)
(k)	Permitted Use:	Sale and distribution of electronic devices, with showroom and office uses related thereto.
(l)	Condition of Premises:	The Tenant hereby accepts the Premises including, without limitation, shipping doors and dock levellers (if any) “as is, where is” in their state and condition existing as of the Commencement Date.

ARTICLE 2 - SPECIAL PROVISIONS

2.1  None

ARTICLE 3 STANDARD DEFINITIONS

3.1 Definitions

“Additional Charges” has the meaning set forth in Section 8.4.

‘Additional Rent” means any other amount payable by the Tenant under this Lease other than Base Rent.

“Affiliate” has the meaning set forth in Section 11.2 of this Lease.

“Alterations” means any additions, installations, repairs, alterations, replacements, or improvements made in or to the Premises.

“Anti-Corruption Laws” has the meaning set out in Section 16.19(c).

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“Anti-Money Laundering Laws” has the meaning set out in Section 16.19(c).

“Applicable Laws” means all statutes, laws, by-laws, regulations, ordinances, orders and requirements of governmental or other public authorities having jurisdiction in force from time to time.

“Audit Election Period” has the meaning set out in Section 7.6(d).

“Bankruptcy Code” has the meaning set forth in Section 6.6(b).

“Base Rent” means the amount described in Section 1.1(i).

“Basic Provisions” means the provisions set forth in Article 1 of this Lease.

“Binding Notice” has the meaning set forth in Section 1.03(a) of Exhibit “E”.

“Broker Notice” has the meaning set forth in Section 1.03(b) of Exhibit “E”.

“Building” means the property initially described in Section 1.1(d) and the Land, and all other structures, improvements, facilities and appurtenances that have been or will be constructed on the Land or such portion (above, at or below grade), including the Common Areas, all as may be altered, expanded, reduced or reconstructed from time to time.

“Building Systems” has the meaning set forth in Section 8.4(c) of this Lease.

“Business Day” means a day other than a Saturday, Sunday or other holiday under the laws of the State of Oregon.

“Business Taxes” means every tax and license fee which is levied, rated, charged or assessed against or in respect of any and every business carried on in the Premises or in respect of the use or occupancy thereof or any other part of the Building by the Tenant and every sub-tenant and licensee of the Tenant whether any such tax or license fee is charged by any federal, municipal, state, school or other body.

“Change of Control” means, in the case of any corporation or partnership, the transfer or issue by sale, assignment, subscription, transmission on death, mortgage, charge, security interest, operation of law (including via merger) or otherwise, of any direct or indirect shares, voting rights, limited liability company, limited partnership or other membership or ownership interest in Tenant or Guarantor (i) of more than forty-nine percent (49%) of the direct or indirect interests in Tenant or Guarantor or (ii) which would result in any change in the effective control of such corporation or partnership (and in the case of a partnership, includes a change in any of its partners), unless such change occurs as a result of trading in the shares of a public corporation listed on a recognized stock exchange in the United States.

“Commencement Date” means the date referred to in Section 1.1(h).

“Common Areas” means those areas, facilities, utilities, improvements, equipment and installations which are in the Project and from time to time are not designated or intended by the Landlord to be leased to Tenant or any subtenant, or are provided or designated from time to time by the Landlord for the use or benefit of the tenants in common with others entitled to their use or benefit, in the manner and for the purposes permitted by this Lease. The Common Areas includes but is not limited to parking areas, the entrances and exits, landscaping, the structural elements, roof, driveways, common loading dock, sidewalks, landscaped areas, equipment, stairways, common interior areas, common restrooms, fire prevention, security and communications systems, columns, pipes, electrical, plumbing, drainage, mechanical, telephone, meter, storage, janitor rooms, and the other installations, equipment or services located in the Project or related to it as well as the structures housing them.

“Connecting Equipment” has the meaning set out in Section 8.5.

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“Contamination” has the meaning set forth in Section 15.3(b).

“Control” has the meaning set forth in Section 11.2 of this Lease.

“CUI Global Successor” has the meaning set out in Section 6.6(c).

“Damage” has the meaning set forth in Section 10.1.

“Drawings” has the meaning set out in Section 8.4.

“EBITDA” has the meaning set out in Section 6.6(c).

“Effective Date” is the date of this Lease, as provided on page 1 of this Lease.

“Encumbrance” has the meaning set forth in Section 12.1.

“Environmental Audit” means an investigation or inspection of the Premises or other affected locations of the Building, Land or Project by an environmental consultant designated by the Landlord together with such other tests, surveys and inquiries as such consultant deems advisable in the circumstances into the generation, use, transport, storage, disposal, handling, sale or manufacture of any Hazardous Substances in, on or about the Premises, Building, Land or Project by the Tenant, its agents, employees and contractors, or any other person using or occupying the Premises or any portion thereof, or into the condition or status of the Premises in relation to possible contamination by any Hazardous Substances. Any such Environmental Audit shall include the contractor’s written report delivered to the Landlord summarizing the nature and results of all inspections, investigations, tests, surveys and inquiries conducted by the consultant, and the consultant’s recommendations for any investigation, remedial or precautionary actions to be taken in relation to the presence of Hazardous Substances on the Premises, Building, Land or Project.

“Environmental Laws” means collectively, all applicable federal, state and municipal laws, statutes, ordinances, by-laws and regulations and all orders, directives and decisions rendered by, and policies, guidelines and similar guidance of, any ministry, department or administrative or regulatory agencies, authority, tribunal or court, relating to the protection of the environment, human health and safety (including, without limitation, the Occupational Safety and Health Administration) or the use, treatment, storage, presence, disposal, packaging, recycling, handling, clean-up or other remediation or corrective action of or in respect of any Hazardous Substances.

“ERISA” has the meaning set out in Section 16.20.

“Estimates” has the meaning set forth in Section 1.03(b) of Exhibit “E.”

“Event of Default” has the meaning set out in Section 13.1.

“Expert” means any architect, engineer, land surveyor or other professional consultant from time to time retained by the Landlord.

“Expiration Date” has the meaning set out in Section 1.1(h).

“Financial Institution” has the meaning set out in Section 16.19(a).

“First Renewal Option” has the meaning set forth in Section 1.01 of Exhibit “E”.

“First Renewal Term” has the meaning set forth in Section 1.01 of Exhibit “E”.

“Fiscal Year” means a calendar year.

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“Force Majeure” means a strike, labor trouble, inability to get materials or services, power failure, restrictive governmental laws or regulations, riots, insurrection, sabotage, rebellion, war, acts of terrorism, act of God, the failure of any existing tenant or occupant to vacate the Premises or any other similar reason, that is not the fault of the party asserting it. Force Majeure does not include inability to obtain funds.

“Guarantor” means the Person, if any, who has executed or agreed to execute a guaranty agreement in favor of the Landlord.

“Guarantor Revenues” has the meaning set out in Section 6.6(c).

“Hazardous Substances” means any pollutant, contaminant, chemical, waste or deleterious substance (including, without limitation, and by way of example, solvent waste, liquid industrial waste, other industrial waste, toxic waste, hazardous waste and fungal contaminants) as defined in or pursuant to Environmental Laws.

“Holdover Percentage” has the meaning set forth in Section 16.4.

“Indemnified Parties” has the meaning set out in Section 14.6.

“Initial Renewal Notice” has the meaning set forth in Section 1.02 of Exhibit “E”.

“Issuing Bank” has the meaning set out in Section 6.6(b).

“Land” means the land described in Exhibit “B”, as they may be expanded, reduced or altered from time to time.

“Landlord Subordination Agreement” has the meaning set forth in Section 16.7.

“Last Possession Date” has the meaning set forth in Section 16.7.

“Leasehold Improvements” means all items generally considered as leasehold improvements, including, without limitation, all structures, alterations, fixtures, improvements, installations and additions in or serving the Premises made from time to time by or on behalf of the Tenant or any prior occupant of the Premises including, without limitation, doors, hardware, partitions (excluding free-standing partitions), lighting fixtures, window coverings and carpeting however affixed and whether or not moveable, but excluding trade fixtures and unattached furniture and equipment not of the nature of fixtures.

“Letter of Credit” has the meaning set out in Section 6.6(b).

“LOC Expiration Date” has the meaning set out in Section 6.6(b).

“Maintenance Contracts” has the meaning set forth in Section 18.2.

“Marks” has the meaning set forth in Section 8.8(e).

“Measurement Standards” means the Building Owners and Managers Association (“BOMA”) 2012 Industrial Building Standards (ANSI/BOMA Z65.2), Method A, provided that notwithstanding the foregoing or anything else contained in this Lease, the Landlord may, at its option from time to time, choose to measure the area of the Premises or any space included in the Building in accordance with the BOMA standard method of measurement then in effect from time to time.

“Minor Alteration” has the meaning set out in Section 8.4.

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“Mortgagee” means a creditor that holds all or part of the Building and/or Project or the Land as security, but a creditor, chargee or security holder of a tenant is not a Mortgagee.

“Notice” has the meaning set forth in Section 16.5.

“OFAC” has the meaning set out in Section 16.19(a).

“Operating Costs” means, without duplication, the total amounts incurred, paid or payable by the Landlord or by others on behalf of the Landlord in the ownership, operation, maintenance, repair, replacement, supervision, management and administration of the Land, Building and/or Project, including, without limitation, the aggregate of the following:

(a) the total costs and expenses of all insurance which the Landlord is obligated to obtain and/or which the Landlord otherwise reasonably obtains, any commercially reasonable deductible amounts payable by the Landlord in respect of any insured risk or claim and the amounts of losses incurred or claims paid below the insurance deductible;

(b) amounts paid to, or reasonably attributable to the remuneration of, all personnel (whether on or off-site and whether employed by the Landlord or a management company) involved in the maintenance, repair, operation, administration, supervision and management of the Building and/or Project, including fringe benefits, severance pay, termination payments and other employment costs;

(c) the reasonable cost of equipment, tools, machinery, building supplies and materials used by the Landlord in the operation, maintenance, repair of and replacement to the Common Areas, Building and/or Project;

(d) costs of:

(i) operating, maintaining, replacing, modifying and repairing the Common Areas, Building and/or Project, including without limitation such costs where incurred by the Landlord in order to comply with Applicable Laws or required by the Landlord's insurance carrier or resulting from normal wear and tear to the Building and/or Project;

(ii) making alterations, replacements or additions to the Building and/or Project to conform with Applicable Laws, intended to reduce Operating Costs, and improve the operation of the Building and/or Project and the systems, facilities and equipment serving the Building and/or Project, or maintain their operation; and

(iii) replacing machinery or equipment which by its nature requires periodic replacement, including, without limitation, base building sprinklers (for ordinary hazard use) serving leasable premises,

all to the extent that such costs are fully chargeable in the Fiscal Year in which they are incurred in accordance with accounting practices generally accepted in the real estate industry;

(e) costs of any clean up or removal as required by Applicable Laws of any substance or material existing in, on or upon the Land, Building and/or Project that was not regulated by Applicable Laws as of the date of this Lease but subsequently becomes (or is first interpreted by Applicable Laws to be so) regulated;

(f) auditing, accounting, legal and other professional and consulting fees and disbursements incurred in connection with the maintenance, repair, replacement, operation, administration, supervision and management of the Building and/or Project, including those incurred with respect to the preparation of the statements required under the provisions of this Lease and costs of administering, minimizing, contesting or appealing assessments of Taxes (whether or not successful);

Page 6

(g) Intentionally Omitted;

(h) all expenses and fees, including attorneys’ fees and court or other venue of dispute resolution costs, incurred in negotiating or contesting real estate taxes or the validity and/or applicability of any governmental enactments which may affect Operating Costs; provided the Landlord shall credit against Operating Costs any refunds received from such negotiations or contests to the extent originally included in Operating Costs (less the Landlord’s costs);

(i) dues, costs, fees or expenses arising in connection with any association affecting the Property or the Building; and

(j) a monthly administrative services fee of three percent (3%) of Base Rent and Operating Costs (excluding Landlord’s insurance costs described in subparagraph [a] above).

In determining Operating Costs, the cost (if any) of the following shall be excluded or deducted, as the case may be:

A. all net recoveries which reduce Operating Costs received by the Landlord from tenants as a result of any act, omission, default or negligence of such tenants or by reason of a breach by such tenants of provisions in their respective leases (other than recoveries from such tenants under clauses in their respective leases requiring their contribution to Operating Costs);

B. net proceeds received by the Landlord from insurance policies taken out by the Landlord to the extent that the proceeds relate to Operating Costs;

C. costs and expenses relating to the leasing of space or premises in the Building including leasing commissions and advertising costs;

D. any income taxes, corporation taxes, business taxes, profit taxes, capital gains tax, gift taxes, succession taxes, inheritance taxes, place of business taxes or other taxes personal to the Landlord except to the extent they are imposed in lieu of or in replacement of any Taxes;

E. expenses for repairs or maintenance related to the Building and/or the Project which have been reimbursed to the Landlord pursuant to warranties or service contracts;

F. any principal, interest or other carrying charges or mortgage payments or other financing costs in respect of the Building and/or Project.

G. except as otherwise specifically permitted by this Lease, the cost of any items that, under generally accepted accounting principles, are properly classified as capital expenses; and

H. costs for any items that are the responsibility of Tenant under this Lease.

In computing Operating Costs, with respect to any costs, expenses or amounts incurred wholly or partly with respect to other parts of the Project, the Landlord shall have the right from time to time to reasonably allocate and reallocate such costs, expenses and amounts, in whole or in part, among all or any portion of the Building (including second floor premises, if applicable),or different categories of leasable premises and between the Building and other buildings forming part of the Project as may be constructed from time to time.

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“PM” has the meaning set forth in Section 8.4.

“Permitted Successor Event” has the meaning set forth in Section 11.2 of this Lease.

“Permitted Transfer” has the meaning set forth in Section 11.2 of this Lease.

“Permitted Transferee” has the meaning set forth in Section 11.2 of this Lease.

“Person” means any person, firm, partnership, corporation or other legal entity, including any combination of them.

“Premises” has the meaning set forth in Section 1.1(f).

“Prevailing Market” has the meaning set forth in Section 1.05 of Exhibit “E”.

“Prevailing Market Discussion Period” has the meaning set forth in Section 1.03(a) of Exhibit “E”.

“Prime Rate” means the rate of interest, per annum, from time to time publicly quoted by the Wall Street Journal as the reference rate of interest (commonly known as the “prime rate”) used by banks to determine rates of interest chargeable on American dollar demand loans to their commercial customers, provided that if the Wall Street Journal no longer publishes such rate, then such rate shall be determined by averaging the reference rate charged by the three (3) largest banks (by deposits) in the United States.

“Project” means the Land, the Building and all other buildings and other structures, improvements, facilities and appurtenances that have been or will be constructed on the Land, all as may be altered, expanded, reduced or reconstructed from time to time. In the event that the Building is not part of a Project, then all references in this Lease to “Project” shall be deemed to be references to “Building”.

“Property” means the Land that contains the Building.

“Proportionate Share” means One Hundred Percent (100%).

“Rejection Notice” has the meaning set forth in Section 1.03(a) of Exhibit “E”.

“Renewal Amendment” has the meaning set forth in Section 1.04 of Exhibit “E”.

“Renewal Option” has the meaning set forth in Section 1.01 of Exhibit “E”.

“Renewal Term” has the meaning set forth in Section 1.01 of Exhibit “E”.

“Rent” means the aggregate of Base Rent and Additional Rent.

“Rent Loss Insurance” has the meaning set forth in Section 10.2.

“Rentable Area” means, in the case of the Building, the aggregate of the Rentable Area of all leasable premises in the Building, calculated in accordance with the Measurement Standards, provided that nothing contained in this Lease shall be deemed to be a representation or warranty by Landlord that the Rentable Area of the Building initially set forth in Section 1.1(g) of this Lease has been calculated in accordance with the Measurement Standards, the parties acknowledging and agreeing that Landlord has not measured the Building as of the date of this Lease.

“Rules and Regulations” means the Rules and Regulations annexed hereto as Exhibit “D” together with any amendments, deletions and additions made by the Landlord from time to time pursuant to Section 16.8, all of which shall form part of this Lease.

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“Sales Tax” means all goods and services tax, harmonized sales tax, value added tax, business transfer tax, sales tax, multi-stage sales tax, use tax, consumption tax, or other similar taxes imposed by any federal, state or municipal government upon the Landlord or Tenant in respect of this Lease, or the payments made by the Tenant hereunder or the goods and services provided by the Landlord hereunder including, without limitation, the rental of the Premises and the provision of administrative services to the Tenant hereunder, whether existing at the date of this Lease or hereafter imposed by any governmental authority.

“Second Renewal Option” has the meaning set forth in Section 1.01 of Exhibit “E”.

“Second Renewal Term” has the meaning set forth in Section 1.01 of Exhibit “E”.

“Secured Claim” means a lien (possessory or non-possessory, including any construction, mechanic’s or materialmen’s liens (and any lien filed by any subcontractor supplier thereof)) or claim, a fixed or floating charge, mortgage, security interest, debenture or other encumbrance, or a Notice with respect to any of them.

“Security Deposit” means the sum of money set out in Section 1.1(j).

“Statement” has the meaning set forth in Section 7.5(b).

“Stipulated Rate” means the rate of interest per annum that is three percentage (3%) points more than the Prime Rate.

“SNDA” has the meaning set out in Section 12.1.

“Taxes” means all real property taxes (including local improvement taxes), rates, duties, assessments, impositions and levies of every kind and nature whatsoever whether ordinary or extraordinary, general or special, foreseen or unforeseen, that are now or hereafter levied, rated, charged or assessed by any authority (whether municipal, parliamentary, school or otherwise) against or in respect of the Land, Building and/or Project, or any part or parts thereof, and every other tax, charge, rate assessment or payment which may become a charge upon or levied or collected upon or in respect of the Land, Building and/or Project, or any parts thereof, and all taxes payable by the Landlord which are imposed in lieu of or in addition to any such real property taxes and any taxes levied or assessed against the Landlord on account of its ownership of the Land, Building and/or Project (excluding always income or profit taxes upon the income of the Landlord to the extent such taxes are not levied in lieu of real property taxes levied or assessed against the Land, Building and/or Project or upon the Landlord in respect thereof).

“Tenant Contractors” has the meaning set out in Section 14.8.

“Tenant Related Party” has the meaning set out in Section 16.19(a).

“Tenant’s Auditor” has the meaning set out in Section 7.6(d).

“Tenant’s Proportionate Replacement Percentage” has the meaning set forth in Section 8.1 of this Lease.

“Term” means the period of time as described in Section 1.1(h).

“Transfer” means all or any of the following, whether by conveyance, written agreement or otherwise: (i) an assignment of this Lease in whole or in part; (ii) a sublease of all or any part of the Premises; (iii) the sharing or transfer of any right of use or occupancy of all or any part of the Premises; (iv) any mortgage, charge or encumbrance of this Lease or the Premises or any part of the Premises or other arrangement under which either this Lease or the Premises become security for any indebtedness or other obligation; and (v) a Change of Control, and includes, without limitation, any transaction or occurrence whatsoever (including, but not limited to, expropriation, receivership proceedings, seizure by legal process and transfer by operation of law), which has changed or might change the identity of the Person having use or occupancy of any part of the Premises. “Transferor” or “Transferee” have corresponding meanings.

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“U.S. Person” has the meaning set out in Section 16.19(a).

ARTICLE 4 - GRANT AND TERM

4.1 Term, Demise

The Landlord leases to the Tenant, and the Tenant leases from the Landlord, the Premises, to have and to hold for the Term, unless sooner terminated by the Landlord pursuant to this Lease. The Tenant hereby accepts the Premises in the condition described in Section 1.1(l). Without limiting the generality of the foregoing, Landlord hereby demises and leases to Tenant and Tenant hereby leases and rents from Landlord the Land, the Building and the Premises, IN THEIR “AS IS” CONDITION, SUBJECT TO THE EXISTING STATE OF TITLE AND PHYSICAL CONDITION (WITHOUT EXPRESS OR IMPLIED WARRANTY OF LANDLORD WITH RESPECT TO THE CONDITION, QUALITY, REPAIR OR FITNESS OF ANY OF THE FOREGOING FOR A PARTICULAR USE (OR ANY USE) OR TITLE THERETO, ALL SUCH WARRANTIES BEING HEREBY DISCLAIMED BY LANDLORD AND WAIVED AND RENOUNCED BY TENANT), it being acknowledged and agreed that Tenant (or an affiliate of Tenant) has owned, occupied and operated the Land, the Building and the Premises for a period of approximately twelve (12) years prior to the Commencement Date, and that Tenant is fully aware of and responsible for the operation, use and physical condition of the Land, the Building and the Premises prior to the Commencement Date. The foregoing disclaimer in this paragraph has been negotiated by Landlord and Tenant, each being represented by independent counsel, and is intended as a complete negation of any representation or warranty by Landlord, express or implied, with respect to the condition, quality, repair, or fitness of the Premises for a particular use (or any use), or title thereto.

Notwithstanding anything to the contrary, if the Landlord is unable to deliver vacant possession of the Premises to the Tenant for any reason, including but not limited to Force Majeure or the holding over or retention of possession of any other tenant or occupant, or the lack of completion of any repairs, improvements or alterations required to be completed before the Tenant's occupancy of the Premises, then (i) the Tenant shall not be entitled to any abatement or diminution of Rent; (ii) the validity of this Lease or the parties' respective obligations hereunder shall not be affected; and (iii) the Landlord shall not be in default hereunder or be liable for damages therefor.

4.2 Use of Common Areas

The Tenant shall have the right (in common with others entitled thereto (if any)) to the use of the Common Areas designated from time to time by the Landlord for use by tenants of the Building and/or the Project, subject to the provisions of this Lease and to the Rules and Regulations made by the Landlord with respect thereto from time to time.

4.3 Quiet Enjoyment

If the Tenant pays the Rent and fully performs all its obligations under this Lease and there has been no Event of Default, then the Tenant may hold and use the Premises without interference by the Landlord or any other person claiming through the Landlord subject to the provisions of this Lease and Applicable Law.

4.4 Basic Provisions

The Basic Provisions shall form an integral part of this Lease as though they were set forth herein in full.

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ARTICLE 5 – USE OF PREMISES

5.1 Use

The Tenant shall use the Premises only for the use set out in Section 1.1(k) and for no other purpose, except with the prior written consent of Landlord. No part of the Premises shall be used by or for a call centre, telecommunications centre, school, consulate, or government office open to the public or for any uses for which existing tenants have exclusive rights or for which the Landlord has agreed to a restrictive covenant. The Landlord has made no representation or warranty to the Tenant concerning any aspect of the Building, the Project or the Premises and the Tenant is solely responsible for satisfying itself concerning the suitability of the Premises for their intended use by the Tenant, the applicable zoning and use restriction by-laws, and availability of permits. The Tenant shall, at its expense, be solely responsible for obtaining its own occupancy permit.

5.2 Conduct of Business

In the conduct of the Tenant’s use of the Premises, the Tenant will:

a)	not allow or cause any act to occur in or about the Building, Project and/or Land which, hinders or interrupts the flow of vehicular and pedestrian traffic to, in and from the Building, Project and the Land or in any way obstructs the free movement of persons doing business in the Building or on the Land or in any way cause damage to the Building, Project and/or the Land;
(b)	keep the Premises free of debris and other items that might attract rodents or vermin and free of anything of a dangerous, noxious or offensive nature or which could create a fire, environmental, health or other hazard (including any electromagnetic fields or other forms of radiation) or undue vibration, heat or noise;
(c)	not cause or allow any overloading of the floors of the Building or the bringing into or onto any part of the Building, including the Premises, of any articles or fixtures that by reason of their weight, use, energy consumption, water consumption or size might damage or endanger the structure or any of the Building Systems (hereafter defined);
(d)	not cause or allow any act or thing which constitutes a nuisance or which is offensive to or which constitutes a health hazard to the Landlord or other occupants of the Building or which interferes with the operation of any Building Systems or with the computer equipment, telecommunication equipment or other technological equipment of the Landlord, any service providers or other occupants of the Building and not carry on or permit to be carried on in or about the Premises any business or activity which shall be deemed by the Landlord, in its reasonable discretion, to be a nuisance. The Tenant covenants and agrees that it will not permit any noise, vibrations, smells or materials of any kind to escape from the Building and covenants that its intended use will not breach this covenant;
(e)	not allow or cause business to be solicited in any part of the Project (other than the Premises), nor display any merchandise, equipment or other items outside the Building at any time; and
(f)	comply with the terms and conditions of any covenants, conditions and restrictions, reciprocal easement agreements or other encumbrances affecting the Premises, the Building or the Land, including, without limitation, the Declaration of Conditions, Restrictions and Easement, recorded August 9, 2006, Recorder’s Fee No. 2006-094818, Records of Washington County, Oregon and Declaration of Covenants, Conditions, and Restrictions for Franklin Business Park, recorded November 10, 2004, Recorder’s Fee No. 2004-129475, Records of Washington County, Oregon, as each has been and may be amended from time to time.

5.3 Observance of Law

Subject to Landlord’s obligations under this Lease, the Tenant shall, at its sole cost and expense, promptly observe and comply with all laws or requirements of all governmental authorities, including federal, state and municipal legislative enactments, by-laws and other regulations and all other authorities having jurisdiction, including fire insurance underwriters, now or hereafter in force which pertain to or affect the Premises, the Tenant's use of the Premises or the conduct of any business in the Premises, or the making of any repairs, replacements, alterations, additions, changes, substitutions or improvements of or to the Premises. The Tenant shall carry out all such modifications, alterations or changes of or to the Premises by or on behalf of the Tenant and the Tenant's conduct of business in or use of the Premises which are required by any such authorities.

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ARTICLE 6 – RENT

6.1 Base Rent

The Tenant shall pay to the Landlord Base Rent in accordance with Section 1.1(i), by equal consecutive monthly installments in advance on the first day of each month, subject to any adjustment pursuant to Section 6.3.

6.2 Additional Rent

The Tenant shall also pay throughout the Term, at the times and in the manner provided in this Lease, all Additional Rent which shall, except as otherwise provided in this Lease or as may be required by a third party payee, be payable within thirty (30) days of receipt by the Tenant of an invoice, statement or demand for it.

6.3 Intentionally Omitted

6.4 Payment of Rent - General

(a)	All payments required to be made by the Tenant pursuant to this Lease shall be paid when due, in lawful money of the United States, without prior demand and without any abatement, set-off, compensation or deduction whatsoever, except as may be otherwise expressly provided herein, at the address of the Landlord set out in Section 1.1(a) or at such other address as the Landlord may designate from time to time in writing to the Tenant.
(b)	All payments required to be made by the Tenant pursuant to this Lease, except for Sales Tax, shall be deemed to be Rent and shall be payable and recoverable as Rent, and the Landlord shall have all rights against the Tenant for default in any such payment as in the case of arrears of Rent.
(c)	The Tenant shall pay to the Landlord all Sales Tax applicable from time to time, calculated and payable in accordance with Applicable Laws and the Tenant shall pay such amount at the earlier of: (i) the time provided for by Applicable Laws; and (ii) the time such Rent is required to be paid under this Lease. The amount payable by the Tenant on account of Sales Tax shall be deemed not to be Rent for the purpose of such calculation but in the event of a failure by the Tenant to pay any amount, the Landlord shall have the same rights and remedies as it has in the event of a failure by the Tenant to pay Rent.
(d)	At the Landlord's request, the Tenant shall make all payments under this Lease by way of checks, wire, ACH, or automatic withdrawals and shall execute and deliver either concurrently with this Lease or from time to time within three (3) Business Days following request for it, such documentation as may be required by the Landlord and its bank in order to effect such payments.
(e)	If the Commencement Date is other than the first day of a full period in respect of which any item of Rent is calculated, or the Expiration Date is other than the last day of a full period, then unless otherwise provided in this Lease, the amount of such item of Rent payable in respect of the broken period shall be prorated based upon a period of three hundred and sixty-five (365) days (366 days for a leap year).

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(f) If the Tenant fails to pay Rent required to be paid hereunder within five (5) days following the due date, Tenant shall pay the Landlord an administrative fee equal to five percent (5%) of the past due Rent and the unpaid Rent shall bear interest at the Stipulated Rate from the due date to the actual date of payment. Notwithstanding anything to the contrary contained in this subparagraph (f), Landlord shall not impose such administrative fee on the first occurrence of a late payment of Rent by Tenant in a calendar year if Tenant pays such late payment of Rent within three (3) Business Days after receipt from Notice of such nonpayment from Landlord.

6.5 Intentionally Omitted

6.6 Security Deposit

(a) The Landlord acknowledges receipt from the Tenant of the Security Deposit to be held, without interest, as security (without prejudice to the Landlord’s other rights and remedies) for the observance and performance of the Tenant’s obligations under this Lease. If the Tenant defaults in the performance of any of the terms, covenants, conditions and provisions of this Lease as and when the same are due to be performed by the Tenant, then the Landlord, at its option, may appropriate and apply all or any part of the Security Deposit on account of any losses or damages sustained by the Landlord as a result of such default. Upon demand by the Landlord following any such appropriation, the Tenant shall pay to the Landlord an amount sufficient to restore the total original amount of the Security Deposit. The Landlord may retain and apply the Security Deposit toward any payment owing by the Tenant in respect of any year end adjustment of Additional Rent for the last Fiscal Year of the Term or extended term as the case may be. If the Tenant complies with all of the terms, covenants, conditions and provisions under this Lease and is not then holding over in accordance with Section 16.4, any unused portion of the Security Deposit shall be returned to the Tenant, without interest, within forty (40) days after the later to occur of: (i) the Expiration Date (as such may be renewed or extended pursuant to the terms of this Lease), and (ii) the date upon which Tenant vacates the Premises. If the Landlord sells the Landlord's interest in the Building and transfers the said Security Deposit to the purchaser, then the Landlord shall be discharged from all liability to the Tenant with respect to the Security Deposit. In the event of any renewal or extension of the Term, the amount of the Security Deposit (or Letter of Credit, as applicable) shall be among those items taken into consideration for purposes of determining the Prevailing Market.

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(b) Tenant shall have the right to fund the Security Deposit by a negotiable standby letter of credit (the “Letter of Credit”), which Letter of Credit shall be delivered to Landlord and shall: (i) be in the amount of $400,000.00, (ii) be issued on the form attached hereto as Exhibit “F” or another form meeting the requirements set forth herein and otherwise acceptable to Landlord, (c) name Landlord as its beneficiary, (d) be drawn on an FDIC insured financial institution satisfactory to the Landlord (the “Issuing Bank”), (e) be able to be drawn upon in Denver, Colorado, (f) be “callable” at sight, unconditional and irrevocable, (g) be fully assignable, without a fee (or with a fee that shall be payable by Tenant), by Landlord and its successors and assigns, (h) permit partial draws and multiple presentations. If permitted by applicable Law, the Letter of Credit shall be an “evergreen” letter of credit, which shall be for a term of not less than 1 year, and which provides that the same shall be automatically renewed for successive 1-year periods through a date which is not earlier than 60 days after the Expiration Date, as such date is renewed or extended (the “LOC Expiration Date”). In the event an “evergreen” letter of credit is not permitted by Applicable Laws or a letter of credit cannot be obtained through the LOC Expiration Date, the Letter of Credit (and any renewals or replacements thereof) shall be for a term of not less than 1 year, and Tenant agrees that it shall from time to time, as necessary, as a result of the expiration of the Letter of Credit then in effect, renew or replace the original and any subsequent Letter of Credit so that a Letter of Credit, in the amount required hereunder and meeting the requirements set forth herein, is in effect until a date which is at least 60 days after the LOC Expiration Date. If the LOC Expiration Date is after the stated expiration date of the Letter of Credit then held by Landlord and either the Issuing Bank does not renew the Letter of Credit at least 60 days prior to the stated expiration date of such Letter of Credit or Tenant fails to furnish to Landlord such renewal or replacement at least 60 days prior to the stated expiration date of such Letter of Credit, then Landlord, or its managing agent, may draw upon such Letter of Credit and hold the proceeds thereof (and such proceeds need not be segregated) as a Security Deposit pursuant to the terms of this Lease. In addition, Landlord, or its then managing agent, shall have the right to draw down an amount up to the face amount of the Letter of Credit if any of the following shall have occurred or are applicable: (1) such amount is due to Landlord under the terms and conditions of this Lease and remains unpaid after the expiration of any applicable notice and cure period, or (2) Tenant has filed a voluntary petition under the U. S. Bankruptcy Code or any state bankruptcy code (collectively, “Bankruptcy Code”), or (3) an involuntary petition has been filed against Tenant under the Bankruptcy Code, or (4) the long term rating of the Issuing Bank has been downgraded to BBB or lower (by Standard & Poor’s) or Baa2 or lower (by Moody’s) and Tenant has failed to deliver a new Letter of Credit from a bank with a long term rating of A or higher (by Standard & Poor’s) or A2 or higher (by Moody’s) and otherwise meeting the requirements set forth in this Section within ten (10) Business Days following notice from Landlord. The Letter of Credit will be honored by the Issuing Bank regardless of whether Tenant disputes Landlord’s right to draw upon the Letter of Credit. Any renewal or replacement of the original or any subsequent Letter of Credit shall meet the requirements for the original Letter of Credit as set forth above, except that such replacement or renewal shall be issued by an FDIC insured financial institution satisfactory to the Landlord at the time of the issuance thereof. If Landlord draws on the Letter of Credit as permitted in this Lease or by the Letter of Credit, then, within ten (10) Business Days after receipt of Landlord’s written demand, Tenant shall restore the amount available under the Letter of Credit to its original amount by providing Landlord with an amendment to the Letter of Credit evidencing that the amount available under the Letter of Credit has been restored to its original amount and Tenant’s failure to do so shall constitute an Event of Default. In the alternative, Tenant may provide Landlord with cash, to be held by Landlord in accordance with Section 6.6(a) of this Lease, equal to the restoration amount required under the Letter of Credit. If Landlord desires to assign the Letter of Credit, Tenant shall execute and deliver to the Issuing Bank and documents required to effectuate such transfer and pay any transfer and processing fees. The use, application or retention of the Letter of Credit, or any portion thereof, by Landlord shall not prevent Landlord from exercising any other right or remedy provided by this Lease or by any applicable Law, it being intended that Landlord shall not first be required to proceed against the Letter of Credit, and it shall not operate as a limitation on any recovery to which Landlord may otherwise be entitled. Tenant agrees not to interfere in any way with payment to Landlord of the proceeds of the Letter of Credit. No condition or term of this Lease shall be deemed to render the Letter of Credit conditional to justify the Issuing Bank in failing to honor a drawing upon such Letter of Credit in a timely manner. Tenant agrees and acknowledges that (a) the Letter of Credit constitutes a separate and independent contract between Landlord and the Issuing Bank, (b) Tenant is not a third party beneficiary of such contract, (c) Tenant has no property interest whatsoever in the Letter of Credit or the proceeds thereof, and (d) in the event Tenant becomes a debtor under any chapter of the Bankruptcy Code, neither Tenant, any trustee, nor Tenant’s bankruptcy estate shall have any right to restrict or limit Landlord’s claim and/or rights to the Letter of Credit and/or the proceeds thereof by application of Section 502(b)(6) of the U. S. Bankruptcy Code or otherwise.

(c) Provided that there has not been an Event of Default under this Lease and Tenant is not in breach or default of any of the terms and conditions of this Lease for which Tenant has been given Notice, the Security Deposit (or the Letter of Credit, as applicable) is subject to reduction as follows: (i) if the Guarantor Revenues (defined below) for a fiscal year during the Term equal or exceed $100,000,000.00 and EBITDA (defined below) equals or exceeds $5,000,000.00 for such fiscal year, then the Security Deposit (or the Letter of Credit, as applicable) shall be reduced to $224,000.00, (ii) if the Guarantor Revenues for a fiscal year during the Term equal or exceed $140,000,000.00 and EBITDA equals or exceeds $10,000,000.00 for such fiscal year, then the Security Deposit (or the Letter of Credit, as applicable) shall be reduced to $134,000.00, and (iii) if the Guarantor Revenues for two (2) or more consecutive fiscal years equal or exceed $140,000,000.00 and EBITDA for such two (2) or more consecutive fiscal years equals or exceeds $10,000,000.00, then the Security Deposit (or the Letter of Credit, as applicable) shall be reduced to $45,000.00. Once the Security Deposit (or the Letter of Credit, as applicable) is reduced pursuant to clauses (i), (ii) or (iii) above, it is not subject to increase. As used herein: (y) “Guarantor Revenues” shall mean the total revenues of the Guarantor initially named in this Lease, or such other entity that owns or Controls, directly or indirectly, the Tenant initially named in this Lease (the “CUI Global Successor”), and (z) “EBITDA” means the earnings before taxes, interest, depreciation and amortization of the Guarantor initially named in this Lease or the CUI Global Successor. To effect a reduction in the Security Deposit (or the Letter of Credit, as applicable), Tenant shall provide Landlord with evidence reasonably acceptable to Landlord that the conditions contained clauses (i), (ii), or (iii) (as applicable) have been met. Provided that the conditions set forth in this subparagraph (c) have been satisfied, within thirty (30) days after Landlord’s receipt of such evidence: (1) Landlord shall refund to Tenant the applicable portion of the Security Deposit, or (2) at no cost to Landlord, Landlord shall accept from the Issuing Bank an amendment to the Letter of Credit or a substitute Letter of Credit in the form attached to this Lease as Exhibit “F” or another form meeting the requirements set forth in subsection (b) above and otherwise acceptable to Landlord, which reduces the Letter of Credit as provided herein, but which does not otherwise amend or modify same.

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6.7 Net Lease

This Lease is a net Lease to the Landlord, except as explicitly provided in this Lease. Except as otherwise expressly provided in this Lease: (i) the Landlord is not responsible for any costs, charges, expenses and outlays of any nature whatsoever arising from or relating to the Premises, Building, Land and/or Project, or the use, occupancy or contents of the Premises, or the business carried on therein, whether foreseen or unforeseen and whether or not within the contemplation of the parties at the commencement of the Term, and (ii) the Tenant will pay all costs, charges, expenses and outlays of any nature whatsoever relating to the Premises and as provided in this Lease, its share of all costs, charges, expenses and outlays relating to or affecting the Building, Land and/or the Project.

6.8 Acceptance and Application of Rent

Any endorsement, statement, condition, direction or other communication on or accompanying any Rent payment shall not be binding on the Landlord and the acceptance of any such payment shall be without prejudice to the Landlord's right to recover the balance of Rent then owing or to pursue any other remedy available to the Landlord. Any payment received by the Landlord may be applied towards amounts then outstanding under this Lease in such manner as the Landlord determines.

ARTICLE 7 – TAXES, OPERATING COSTS AND UTILITIES

7.1 Taxes Payable by Landlord

The Landlord shall pay all Taxes, but it may defer such payments or compliance to the fullest extent permitted by law so long as it pursues in good faith any contest or appeal of any such Taxes with reasonable diligence.

7.2 Taxes Payable by Tenant

(a)	The Tenant shall pay as Additional Rent directly to the Landlord in each Fiscal Year, in the manner set out in Section 7.6, the Tenant's share of Taxes as determined pursuant to this Section 7.2.
(b)	The Tenant’s share of Taxes shall be the portion of the Taxes that are attributable to the Premises, as determined by the Landlord, acting reasonably. Without limiting the foregoing:

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(i)	the Landlord may, if it so elects, determine that the Tenant’s share of Taxes attributable to the Premises shall be the Proportionate Share of Taxes;
(ii)	the Landlord shall be entitled, but not obligated, to allocate Taxes amongst categories of premises in the Building on the basis of such factors as the Landlord determines to be relevant and to adjust the Tenant’s share of Taxes based on such allocation;
(iii)	if there are separate assessments (or, in lieu of separate assessments, calculations made by authorities having jurisdiction from which separate assessments may, in the Landlord’s opinion, be readily determined) for the Premises for Taxes, the Landlord may have regard thereto;
(iv)	nothing herein shall compel or require the Landlord to adjust, continue to adjust or to make the same determination or allocation of Taxes from year to year or in any Fiscal Year; and
(v)	for the purposes of determining the share of Taxes payable by the Tenant pursuant to this Lease, Taxes shall include such additional amounts as would have formed part of Taxes had the Building been fully assessed during the whole of the relevant Fiscal Year as fully completed and fully occupied by tenants, with no special exemptions or reductions, and without taking into account any actual or potential reduction of Taxes or change of assessment category or class for premises within the Building which are vacant or underutilized.

7.3 Business Taxes and Other Taxes of Tenant

The Tenant shall promptly pay before delinquency to the taxing authorities or to the Landlord, if it so directs, as Additional Rent, any taxes, rates, duties, levies and assessments whatsoever, whether municipal, state, federal or otherwise, separately levied, imposed or assessed against or in respect of the operations at, occupancy of, or conduct of business in or from the Premises by the Tenant or any other permitted occupant, including the Tenant's Business Taxes, if levied in the state in which the Building is situated. Whenever requested by the Landlord, the Tenant shall deliver to the Landlord copies of receipts for payment of all such taxes. The Tenant will indemnify and keep the Landlord and all other Indemnified Parties indemnified from and against payment of any and all Business Taxes and any and all taxes and license fees which may in the future be levied in lieu of Business Taxes.

7.4 Assessment Appeals

The Tenant shall not appeal any governmental assessment or determination of the value of the Building or any portion of the Building whether or not the assessment or determination affects the amount of Taxes or other taxes, rates, duties, levies or assessments to be paid by the Tenant. The Landlord may contest any Taxes and appeal any assessments related thereto and may withdraw any such contest or appeal or may agree with the relevant authorities on any settlement in respect thereof. The Tenant will co-operate with the Landlord in respect of any such contest and appeal and shall provide to the Landlord such information and execute such documents as the Landlord requests to give full effect to the foregoing. All costs of any such contest and appeal by the Landlord shall be included in Operating Costs.

7.5 Operating Costs

The Tenant shall pay its Proportionate Share of Operating Costs to the Landlord as Additional Rent, in the manner set forth in this Lease.

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7.6 Estimate of Additional Rent

(a)	Prior to the beginning of each Fiscal Year following the Commencement Date, the Landlord shall compute and deliver to the Tenant a bona fide estimate in respect of such Fiscal Year of the Tenant's Proportionate Share of Operating Costs and such other items of Additional Rent as the Landlord may estimate in advance and the Tenant shall pay to the Landlord in monthly installments one-twelfth (1/12th) of such estimate simultaneously with the Tenant's payments of Base Rent, provided that notwithstanding anything to the contrary contained herein, Tenant shall pay Tenant's Proportionate Share of Taxes within ten (10) days after Tenant receives a bill therefor from Landlord (which bill may, at Landlord’s option, be given to Tenant after Landlord’s receipt of the actual bill from the taxing authority, but prior to the due date of such bill so that the Landlord collects all such amounts payable by the Tenant by the final due date in the relevant billing cycle). The Landlord may from time to time re-estimate any items of Additional Rent and may fix monthly installments for the then remaining balance of the Fiscal Year so that such items will be entirely paid during such Fiscal Year.
(b)	The Landlord shall use commercially reasonable efforts to deliver to the Tenant within one hundred fifty (150) days after the end of each Fiscal Year a written statement or statements (the “Statement”) setting out the amount of Operating Costs and such other items of Additional Rent as the Landlord estimated in advance for such Fiscal Year. If the Tenant’s share of Taxes, the Tenant’s Proportionate Share of Operating Costs and other items of Additional Rent actually paid by the Tenant to the Landlord during such Fiscal Year differs from the amount of the Tenant’s share of Taxes, the Tenant’s Proportionate Share of Operating Costs and other items of Additional Rent payable for such Fiscal Year, the Tenant shall pay such difference or the Landlord shall credit the Tenant's account (as the case may be), without interest, within thirty (30) days after the date of delivery of the Statement. If Landlord fails to furnish the Statement to Tenant for a particular Fiscal Year within twelve (12) months after the end of such Fiscal Year and such failure continues for an additional thirty (30) days after Landlord’s receipt of a written request from Tenant that such Statement be furnished, Landlord shall be deemed to have waived any rights to recover any underpayment of Tenant’s Pro Rata Share of Operating Costs and such other items of Additional Rent applicable to such Fiscal Year (except to the extent that such underpayment is attributable to a default by Tenant in its obligation to make estimated payments of Tenant’s Pro Rata Share of Operating Costs and such other items of Additional Rent), provided that the foregoing provisions of this sentence shall not, in any manner, limit or otherwise prejudice Landlord’s right to modify such Statement after such time period if a third party not affiliated with Landlord provides Landlord with new, additional or different information relating to such Statement.
(c)	Absent manifest error, the Tenant shall not claim a re-adjustment in respect of Operating Costs or other items of Additional Rent estimated by the Landlord or the share payable by the Tenant on account thereof for any Fiscal Year except by written Notice given to the Landlord within sixty (60) days after delivery of the Statement for the Fiscal Year to which the claim relates, stating the particulars of the error in computation.
(d)	Audit Rights. Within 60 days after the Landlord furnishes its Statement of actual Operating Costs for any Fiscal Year (the “Audit Election Period”), the Tenant may, at its expense, elect to audit the Landlord’s Operating Costs for such Fiscal Year only, subject to the following conditions: (a) there is no uncured Event of Default under this Lease; (b) the audit shall be prepared by an independent certified public accounting firm of recognized national standing (“Tenant’s Auditor”); (c) in no event shall any audit be performed by a firm retained on a “contingency fee” basis; (d) the audit shall commence within 30 days after the Landlord makes the Landlord’s books and records available to the Tenant’s Auditor and shall conclude within 60 days after commencement; (e) the audit shall be conducted during the Landlord’s normal business hours at the location where the Landlord maintains its books and records and shall not unreasonably interfere with the conduct of the Landlord’s business; (f) the Tenant and Tenant’s Auditor shall treat any audit in a confidential manner and shall each execute the Landlord’s confidentiality agreement for the Landlord’s benefit prior to commencing the audit; (g) Tenant’s Auditor’s audit report shall, at no charge to the Landlord, be submitted in draft form for the Landlord’s review and comment before the final approved audit report is delivered to the Landlord, and any reasonable comments by the Landlord shall be incorporated into the final audit report, and (h) the Tenant shall provide the Landlord with a copy of the audit engagement/agreement between the Tenant and Tenant’s Auditor prior to commencing the audit. Notwithstanding the foregoing, the Tenant shall have no right to conduct an audit if the Landlord furnishes to the Tenant an audit report for the Fiscal Year in question prepared by an independent certified public accounting firm of recognized national standing (whether originally prepared for the Landlord or another party). This paragraph shall not be construed to limit, suspend, or abate the Tenant’s obligation to pay Rent when due, including estimated Operating Costs. The Landlord shall credit any overpayment determined by the final approved audit report against the next Rent due and owing by the Tenant or, if no further Rent is due, refund such overpayment directly to the Tenant within 30 days of determination. Likewise, the Tenant shall pay the Landlord any underpayment determined by the final approved audit report within 30 days of determination. The foregoing obligations shall survive the expiration or termination of this Lease. If the Tenant does not give written notice of its election to audit the Landlord’s Operating Costs during the Audit Election Period, the Landlord’s Operating Costs for the applicable Fiscal Year shall be deemed approved for all purposes, and the Tenant shall have no further right to review or contest the same. The right to audit granted hereunder is personal to the initial Tenant named in this Lease and shall not be available to any assignee or subtenant under this Lease. If Landlord and Tenant determine that the Operating Costs for the Property were less than stated by more than five percent (5%) for the Fiscal Year, then Landlord shall, within thirty (30) days after receipt of a written request for reimbursement and copies of paid invoices from Tenant, reimburse Tenant for the reasonable and actual out-of-pocket costs paid by Tenant to Tenant’s Auditor who performed such review of Landlord’s records of Operating Costs for such Fiscal Year.

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7.7 Utilities

(a) The Tenant shall pay as the same becomes due respectively, all taxes and charges for public and private utilities, including water, gas, electrical power or energy, steam or hot water used upon or in respect of the Premises.

(i) If the Premises are separately metered, the Tenant shall enter into such contracts or other arrangements in connection with the utilities which the Landlord requests it to and will pay whatever deposits or other amounts which are payable under those contracts or other arrangements. No administration fee is payable for amounts billed directly to the Tenant by a supplier of utilities and paid by the Tenant directly to the supplier.

(ii) If the Premises are not separately metered, the Landlord shall allocate to the Premises and the Tenant shall pay an equitable amount as reasonably determined by the Landlord having regard among other things without limitation to the Tenant's connected load and the then current applicable commercial rates for the municipality in which the Premises is located, together with the Landlord's costs of determining the amount including, but not limited to, professional, engineering and consulting fees.

(b) Provided, without in any way limiting the provisions of this Section 7.7, if at any time during the Term, the Landlord shall determine, in its sole discretion, that the Tenant's use of any utility or service, including, without limitation, water, used or consumed on the Premises is in any way unusual or of an excessive nature, the Landlord may, at its option and at the sole cost and expense of the Tenant, install in the Premises a separate meter or sub meter with respect to any such utility or service, including, without limitation, a separate meter for the measurement of hot and cold water, whereupon the Tenant's cost in connection with any such utility or service shall be determined in accordance with such separate meter or sub meter.

(c) The Landlord is not liable for the provision of, any interruption or cessation of, or failure in the supply of utilities, services or systems in, to or serving the Project, Building or the Premises, whether they are supplied by the Landlord or others, and whether the interruption or cessation is caused by the Landlord’s negligence or not. Tenant shall be solely responsible for the provision of utilities, services and systems to the Project, the Building and the Premises.

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ARTICLE 8 – MAINTENANCE AND ALTERATIONS BY TENANT

8.1 Maintenance of the Premises and Common Areas

Subject to Landlord’s obligations under Sections 8.3 and 8.9 of this Lease, Tenant shall, at its sole cost, manage, maintain, operate and repair the Premises and all Leasehold Improvements, fixtures and equipment and the Common Areas (except to the extent that any management, operation or repair of the Common Areas is performed by Landlord) in good order and condition to the standards from time to time prevailing for similar industrial buildings in the area in which the Building is located subject to reasonable wear and tear not inconsistent with such standard. This obligation includes, but is not limited to: (i) with respect to the Premises, janitorial, re-painting at reasonable intervals, making repairs and replacements to plate glass, moldings, trimmings, locks, doors, hardware, partitions, walls, fixtures, electrical, mechanical and plumbing systems and equipment, lighting and plumbing fixtures, wiring, piping, ceilings and floors in the Premises and maintaining, repairing and replacing all operating equipment in the Premises, and (ii) with respect to the Common Areas, cleaning; snow and ice removal; garbage, waste and recycling removal and disposal; landscaping, paving, line painting, maintenance of roadways, curbs and sidewalks; supervision and security of the Common Areas, Building and the Project; maintenance, repair and replacement of signs on the Property and the utilities, if any, serving such signs; and utilities serving the Common Areas. The Tenant shall not commit or suffer any strip or waste of the Premises or the Leasehold Improvements thereon or any portion thereof. The Landlord shall have the right at all reasonable times and upon prior reasonable written or verbal notice, to examine the condition of the Premises and notify the Tenant of deficiencies and the Tenant shall make good any deficiencies for which it is responsible within fifteen (15) days from the date of such Notice. Landlord shall use reasonable efforts to minimize disruption to Tenant’s business during any such examination. Without limiting the generality of the foregoing, the Landlord and Tenant shall conduct move-in and move-out inspections to determine the condition of the Premises and identify any deficiencies requiring repair. If the standard Building Systems or components thereof (as opposed to portions of such Building Systems that relate to Tenant’s particular use, including but not limited to, supplemental HVAC systems, if any) that are Tenant’s obligation to maintain and repair during the Term require replacement and such replacement (and such replacement is not required as a result of Tenant’s failure to properly and timely maintain such Building Systems or the applicable components thereof or the negligence or willful misconduct of Tenant, its agents, employees or contractors), then Tenant shall be responsible for the cost of such replacement in an amount equal to “Tenant’s Proportionate Replacement Percentage” (defined below), and Landlord shall be responsible for the remaining cost of such replacement without reimbursement by Tenant as an Operating Cost. Prior to incurring any costs to which Tenant’s Proportionate Replacement Percentage shall apply, Tenant shall: (1) provide Notice to Landlord of the necessity of incurring such cost, together with such supporting documentation as Landlord shall reasonably require; and (2) obtain Landlord’s approval (which approval shall not be unreasonably withheld, conditioned or delayed) of the applicable Building Systems replacement equipment or applicable component thereof, the price therefor, and the installing contractor(s). In addition, Tenant shall comply with the requirements of Section 8.4 of this Lease with respect to the work to be performed in connection with the removal of the existing equipment and components and the installation of the replacement equipment and components. As used herein, “Tenant’s Proportionate Replacement Percentage” is equal to the quotient of: (a) the number of months remaining in the then current Term and (b) the number of months of the expected useful life of the item to be replaced as reasonably determined by Landlord. As used in the immediately preceding sentence, the then current Term shall mean either the initial Term, or the applicable Renewal Term (if the replacement occurs during a Renewal Term). For example, (1) if it is necessary to replace an HVAC unit at the end of the 73rd month of the initial Term at a cost of $5,000.00 and the new HVAC Unit has an expected life of 180 months, then Tenant’s Proportionate Replacement Percentage shall be (120 – 73) / 180 = 26.11%, and Tenant shall be responsible for $1,305.50 (.2611 x $5,000.00) of the replacement cost and Landlord shall be responsible for $3,694.50 of such cost, or (2) if it is necessary to replace an HVAC unit at the 5th month of the First Renewal Term at a cost of $5,000.00, then Tenant’s Proportionate Replacement Percentage shall be (60-5) / 180 = 30.56% and Tenant shall be responsible for $1,528.00 (.3056 x $5,000.00) and Landlord shall be responsible for $3,472 of such cost. Within thirty (30) days after Tenant provides Landlord with copies of paid invoices for the cost of the Building Systems replacement equipment and components (as applicable), together with full lien waivers from all contractors and subcontractors performing such work, and has provided Landlord with all applicable manufacturer and labor warranties (which warranties shall be for the benefit of Landlord), Landlord shall reimburse Tenant for the portion of such costs that are Landlord’s responsibility under this Lease. If Landlord fails to so reimburse Tenant and Tenant obtains a final unappealable judgment against Landlord therefor, then Tenant shall have the right to offset the amount of such judgment against Rent accruing under this Lease after the date upon which such judgment becomes a final unappealable judgment. Notwithstanding anything to the contrary contained herein, if the then current Term is extended, then within thirty (30) days after the commencement of such extension of the Term, Tenant shall pay to Landlord the amount of Tenant’s Proportionate Replacement Percentage applicable to the period of such extension of the Term. For illustrative purposes, with respect to the replacement of the HVAC unit in the 73rd month of the initial Term described in the example above, Tenant’s Proportionate Replacement Percentage attributable to the First Renewal Term would be 60/180 = 33.33% and Tenant shall reimburse Landlord for $1,666.50 (.3333 x $5,000.00) of such cost.

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8.2 Heating, Ventilating and Air-Conditioning

The Tenant will operate and regulate the heating, ventilating and air-conditioning equipment installed in the Building as of the date of this Lease in accordance with building standards, serving the Premises in order to maintain reasonable conditions of temperature and humidity within the Premises. The Tenant will comply with the stipulations and with the Rules and Regulations of the Landlord pertaining to the operation and regulation of that equipment.

The Tenant shall, at its expense, assume the sole responsibility for the condition, repair, operation, maintenance and replacement of any and all heating, ventilating and air-conditioning equipment within or serving the Premises. The Tenant shall enter into a maintenance contract or contracts, in form and substance and with a firm reasonably satisfactory to the Landlord and with the Landlord’s prior consent, for the maintenance and regular repair of the mechanical systems, including but not limited to the heating, ventilation and air-conditioning systems, including exhaust fans, fire alarm and fire detection systems and backflow testing for the plumbing systems (the “Maintenance Contracts”). Said maintenance contract(s) shall provide, at a minimum, for quarterly inspections, service and cleaning of said units and systems. The Tenant’s maintenance obligation shall specifically include such adjustments and servicing as each such inspection discloses to be required, and all repairs, testing and servicing as shall be necessary or reasonably required by the Landlord or the Landlord’s insurance underwriter. If replacement of equipment, fixtures, units, systems and appurtenances thereto are necessary, the Tenant shall replace the same with equipment, fixtures, units, systems and appurtenances of the same or greater quality, and repair all damage done in or by such replacement. Prior to the Commencement Date, and thereafter as requested by the Landlord, the Tenant shall provide the Landlord with a current copy of all Maintenance Contracts and the scope of work to be performed thereunder for Landlord’s review and approval. The Tenant shall provide the Landlord with prior written notice of any required replacements and material repairs together with a detailed description of the scope of work in connection therewith for the Landlord’s review and approval.

8.3 Sprinklers

The Landlord shall, as a component of Operating Costs, be responsible for the condition, repair, operation or maintenance of any or all of the equipment supplied by the Landlord referred to in this Section 8.3 (including any upgrades thereto required due to the Tenant’s use), and may enter into an ongoing maintenance contract for such equipment. The Tenant covenants to allow the Landlord and its servants, agents, employees and representatives to enter the Premises to effect any such alterations to the sprinkler system and the Landlord shall not be responsible to the Tenant for any disturbance or business interruption which may be caused, but Landlord agrees to use reasonable efforts to minimize any such disturbance or business interruption. It is agreed and understood that the sprinkler system (if any), in the Premises is for ordinary hazard use only in accordance with the Current Edition of NFPA 13 (as promulgated by the National Fire Protection Association from time to time).

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The Tenant further covenants that in the event the sprinkler system at any time malfunctions the Tenant will immediately notify the Landlord. The Tenant covenants and agrees not to shut down the sprinkler system without the prior written consent of the Landlord, which consent may be arbitrarily withheld.

8.4 Alterations

The Tenant will not alter or permit any alteration of the Premises or any portion thereof without the Landlord's prior written approval; provided, however, the Landlord’s consent shall not be required for any alteration that satisfies all of the following criteria (a “Minor Alteration”): (i) costs less than $50,000 in any one instance; (ii) is not visible from outside the Premises or Building; (iii) will not affect the Building Systems or structure of the Building; and (iv) does not require a permit from the applicable governmental agency(ies). The Tenant's request for such consent (if required by this Lease) shall be in writing and accompanied by an adequate description of the contemplated work, and where appropriate, professionally prepared working drawings, plans and specifications (the “Drawings”) therefor. All Alterations shall be conducted as follows:

(a)	in a good and workmanlike manner by contractors approved by the Landlord in advance;
(b)	in accordance with: (i) Drawings approved by the Landlord prior to the commencement of any of the Alterations (excluding for Minor Alterations); (ii) the Landlord’s design criteria manual for the Building; (iii) any conditions, regulations, procedures or rules imposed by the Landlord and in compliance with all Applicable Laws. The Landlord may elect to retain architects, environmental consultants and engineers to review such Drawings for the purpose of approving the proposed Alterations (it being understood that notwithstanding such approval, the Landlord shall have no responsibility with respect to the adequacy of such Drawings);
(c)	it is understood and agreed that the Landlord may withhold or condition its consent in its reasonable discretion if any work to be performed by the Tenant may affect the roof, exterior aesthetics, structure, or the electrical, mechanical, lighting, heating, ventilating, air-conditioning, sprinkler, fire protection or any life-safety systems of the Building (collectively, the “Building Systems”), and any such work, if approved by the Landlord, shall be performed by contractors designated or approved by the Landlord in which case the Tenant shall pay the Landlord's reasonable cost, as Additional Rent;
(d)	so as not to disturb or add to the Premises, Building or Land any Hazardous Substances designated as such under applicable legislation. Any Alterations that may impact friable or non- friable asbestos are to be handled in accordance with the procedures under Applicable Laws and as directed by the Landlord;
(e)	if the Landlord and Tenant are performing work within the Premises at the same time, the Tenant's contractors shall be subordinate to the Landlord's general contractor;
(f)	the Tenant shall be responsible for obtaining all necessary permits and licenses, including close- out documents, from governmental authorities with respect to the Alterations;
(g)	the Tenant shall provide, prior to the commencement of Alterations, evidence of required workers’ compensation coverage and proof of owners’ and contractors’ protective liability insurance coverage, with the Landlord, any property manager and any Mortgagee as required by the Landlord, to be named as additional insureds, in amounts, with insurers, and in a form reasonably satisfactory to the Landlord, which shall remain in effect during the entire period in which the Alterations will be carried out. In addition, if reasonably requested by the Landlord, the Tenant shall provide proof of performance and payment bonds being in place;
(h)	the Tenant shall utilize licensed contractors and subcontractors for any Alteration, subject to the Landlord’s approval prior to commencement of the Alterations;

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(i)	all work shall be subject to inspection by and the reasonable supervision of the Landlord;
(j)	the Tenant shall ensure that all cabling installed in the Building in connection with the Tenant’s business in or use of the Premises is appropriately labeled. For greater certainty, installation of flammable cabling shall be strictly prohibited;
(k)	within thirty (30) days after completion of the Alterations, the Tenant shall provide the Landlord with “as-built” plans (which shall not be required for Minor Alterations) completion affidavits, full and final waivers of liens, receipts and bills covering all labor and materials; and
(l)	if the Tenant fails to observe any of the requirements of this Article, the Landlord may require that construction stop and the Tenant shall, within fifteen (15) days or such longer period as is reasonably required in the circumstances to satisfy all requirements of this Article provided the Tenant is proceeding diligently, failing which, at the Landlord’s option, that the Premises be restored to their prior condition or the Landlord may do so and the Tenant shall pay the Landlord's costs, as Additional Rent, plus the Landlord’s five percent (5%) administration fee.

The Tenant shall pay: (A) all reasonable fees charged by the Landlord and all fees charged by its representatives or consultants in connection with (i) the Landlord's review of the Tenant's plans and specifications, and (ii) the Landlord's supervision of the Alterations, and (B) all costs related to (i) building services provided during construction of the Alterations (including but not limited to elevator access, utility consumption and garbage removal) and (ii) loading the Tenant's "as-built" (if such drawings are required pursuant to this Section 8.4) drawings into the Landlord's plan management database (the “Additional Charges”). If the Tenant elects to use the Landlord’s project manager or construction manager (the “PM”) as its project manager for the Alterations, the Tenant shall pay, in addition to the Additional Charges, a coordination fee to the PM in an amount of five percent (5%) of the cost of the subject Alteration. The Tenant shall ensure that there are no liens registered or claimed with respect to any part of the Alterations.

The Tenant shall not be entitled to access the roof of the Building without Landlord’s prior written consent. Notwithstanding anything herein contained: (1) no Alteration to the Premises shall be permitted which may adversely affect the condition or operation of the Premises or the Building or diminish the value thereof, and (2) if Tenant is the sole Tenant of the Building, Tenant shall have the right to access the roof of the Building without Landlord’s prior consent, but with prior written notice to Landlord, provided that Landlord’s consent shall be required in all instances where any roof penetrations or other work is being performed that might affect the roof’s warranty, the roof’s structure, or cause damage to the roof or the roof membrane.

8.5 Telecommunication

The Tenant may, at its own expense, utilize a communications service provider of its choice, with the Landlord's prior written consent, which consent may not be unreasonably withheld, and provided the service provider executes the Landlord’s standard form of license agreement as may be required. In no event shall the Tenant have any rights of access to, or installation upon, the roof of the Building without Landlord’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed. If at any time during the Term Tenant is not the sole tenant of the Building, then all telecommunication cables, wiring and conduit (collectively the “Connecting Equipment”) installed in the Premises or Building by the Tenant (or on the Tenant's behalf) shall be properly tagged upon installation at both ends and every ten (10) feet, including the Tenant's name and unit number and if requested by the Landlord, the Tenant shall, at its expense prior to the expiration of the Term, remove all Connecting Equipment installed by the Tenant (or on the Tenant's behalf) in the Premises and Building. If any communications services installed or used in the Premises by Tenant are determined by the Landlord to be interfering with any other communications services at the Premises that are used by or benefit users other than Tenant and that are installed prior to the installation of such interfering communications services installed or used by Tenant, then Tenant shall, at its sole cost and expense, forthwith on written Notice take such steps as may be necessary to cease such interference, including, if necessary, discontinuing such communication services. The provisions in this Lease pertaining to insurance shall apply to the Connecting Equipment, as well as the use and operation of the Connecting Equipment and all liabilities associated with the installation, use and operation of the Connecting Equipment. If Tenant is not the sole Tenant of the Building, the Landlord may require, upon not less than five (5) Business Days prior written Notice, that the Tenant relocate all or any portion of the Connecting Equipment or telecommunication facilities installed by it. In the event the Tenant wishes to install wireless communication equipment, the Tenant shall require the prior written consent of the Landlord and shall enter into the Landlord’s standard wireless communications agreement. The Tenant shall not install any communications equipment, including, without limitation, telephone equipment, servers, switches, firewalls and routers outside of the Building, provided that Landlord consents to Tenant’s use of any such communication equipment that is located in or around the Building as of the date of this Lease.

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8.6 Indemnity

The Tenant covenants to indemnify the Landlord and all Indemnified Parties against and from all losses, costs, claims and demands in respect of any injury or damage caused by or resulting from any work under Article 8 of this Lease.

8.7 Removal of Leasehold Improvements and Restoration of Premises

All Leasehold Improvements shall immediately upon their placement become the Landlord's property without compensation to the Tenant. Except as otherwise agreed by the Landlord in writing, no Leasehold Improvements or trade fixtures shall be removed from the Premises by the Tenant either during or at the expiration or earlier termination of the Term except that:

(a) the Tenant may, during the Term, in the usual course of its business, remove its trade fixtures, provided that the Tenant is not in default under this Lease; and

(b) the Tenant shall, prior to the expiration of the Term or earlier termination of this Lease, at its sole cost: (i) remove all of its personal property, furniture, equipment and trade fixtures; and (ii) remove wiring, cables, related devices and equipment in the Premises and those Alterations (excluding Minor Alterations) that must be removed at the expiration or earlier termination of this Lease, and failing which, the Landlord may, at its option, remove the same at the Tenant’s expense plus the Landlord’s five percent (5%) administration fee.

The Tenant shall at its own expense repair any damage caused to the Building by the Leasehold Improvements installed prior to the date of this Lease, trade fixtures or wiring, cables and related devices and equipment and/or such removal and restoration and shall leave the Premises in a clean, broom swept condition, free of all rubbish and debris. If the Tenant does not remove its trade fixtures, or wiring, cables and related equipment prior to the expiration or earlier termination of the Term, such trade fixtures or wiring, cables and related devices and equipment shall, at the option of the Landlord, be deemed abandoned and become the property of the Landlord and may be removed from the Premises and sold or disposed of by the Landlord in such manner as it deems advisable and the Tenant shall pay to the Landlord on demand all costs incurred by the Landlord in connection therewith, plus the Landlord’s five percent (5%) administration fee. If the Tenant fails to complete any work referred to in this Section 8.7 within the period specified, the Tenant shall pay compensation to the Landlord for damages suffered by the Landlord for loss of use of the Premises, which damages shall not be less than one hundred fifty percent (150%) of the per diem Rent payable during the last month preceding the expiration or earlier termination of the Term. At the expiration or earlier termination of this Lease, the Tenant will also deliver all keys and security cards for the Premises to the Landlord.

8.8 Signs and Advertising

(a) The Tenant may, at its sole expense, erect and maintain identification signage on the exterior of the Premises of a type and in a location approved in writing by the Landlord, subject to compliance with all governmental authorities and the Landlord’s sign policy for the Building and/or Project. Landlord approves the signage installed by or on behalf of Tenant that exists at the Premises as of the date of this Lease. Any such sign shall remain the property of the Tenant and shall be maintained by the Tenant at its sole cost and expense, and the Tenant shall pay for any electricity consumed by such sign. If the electricity consumption for any of the Tenant’s signs is not separately metered, the Tenant shall pay, as Additional Rent, such portion of the cost of such electricity as is equitably apportioned to the Premises by the Landlord. At the expiration or earlier termination of this Lease, the Tenant will remove any such sign from the Premises at its sole expense and will promptly repair all damage caused by its installation or removal. All costs of design, manufacture, installation, maintenance, repair, replacement, insurance and removal, and all costs of obtaining approvals and satisfying requirements of all authorities having jurisdiction, of all Tenant signage shall be solely borne by the Tenant and payable as Additional Rent.

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(b)	If there is a directory board at the entrance to the Project, then, subject to availability, the Landlord will, at the Tenant’s sole expense, provide the Tenant with a sign for the purpose of corporate identification on the directory board and such signage shall be subject to the prior written approval of the Landlord and the Landlord’s sign policy for the Building and/or Project.
(c)	If the Landlord, acting reasonably, objects to any sign, picture, advertisement, notice, lettering or decoration which may be affixed or displayed in any part of the interior of the Premises and which is visible from the exterior thereof, the Tenant shall forthwith remove or replace same at the Tenant’s expense and repair any damage caused by its installation or removal, failing which, the Landlord may remove and repair any damage, at the Tenant’s expense, payable as Additional Rent. If any sign, advertisement or notice shall be inscribed, painted or affixed by the Tenant on or to any part of the Building, Land or Project whatsoever, then the Landlord shall be at liberty to remove any such sign, advertisement or notice, at the Tenant’s sole expense, payable as Additional Rent.
(d)	The Tenant’s insurance and indemnification requirements under this Lease shall apply to and include all Tenant signage located within or upon the Premises, Building or Project.
(e)	Publication or use by the Landlord, or its representatives, of any photograph, print, video or film of the Building, Premises or Land, for advertising or promotion of same, and which show the Tenant’s trade names, trademarks, logos or other identifying marks (the “Marks”), shall be deemed not to infringe any Tenant’s rights in respect of such Marks, and shall not require Tenant’s consent to use of the Marks nor entitle the Tenant to any compensation therefor.

8.9 Landlord’s Maintenance Obligations

Landlord shall keep and maintain in good repair and working order and perform maintenance upon the: (a) structural elements of the Building; (b) roof deck of the Building (excluding the roof membrane), and (c) all utility lines serving the Building and located outside of the Building to the point of the service connection to the Building. Landlord’s costs with respect to the items in this Section 8.9 shall not be included in Operating Costs.

ARTICLE 9 - CONTROL AND ACCESS BY LANDLORD

9.1	Intentionally Omitted
9.2	Control of the Building by the Landlord
(a)	The Landlord will have, among its other rights under this Lease, the right to: (i) temporarily obstruct parts of the Building and/or Project for necessary maintenance, repair or construction; (ii) grant, modify and terminate easements and other agreements pertaining to the use and maintenance of all or any part of the Project, provided that such easements and other agreements do not materially detrimentally affect Tenant’s use of the Premises; (iii) retain contractors and employ all personnel for the operation, maintenance and control of the Building and the Project; (iv) alter, add to, subtract from, construct improvements to, rearrange, build additional stories on and construct additional facilities adjoining or near the Building and the Project; (v) relocate the facilities and improvements comprising the Building and the Project or erected on the Building and the Project; and (vi) perform any act as, in the use of good business judgment, the Landlord determines to be advisable for the more efficient and proper operation of the Building. In the exercise of its rights under Section 9.2(a) and (b) the Landlord shall use commercially reasonable efforts to minimize disruption of the Tenant’s access to the Premises and interference with the business operations of the Tenant in the Premises all to the extent reasonably possible in the circumstances.

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(b)	Tenant acknowledges that the Landlord retains and reserves any and all rights to use, alter and change the roof of the Building within which the Premises are located for such purposes as the Landlord in its sole discretion may determine provided, that (i) subject to the terms and conditions of this Lease, Tenant shall have the right to continue to use and operate any rooftop equipment existing at the Premises as of the date of this Lease and shall have the right to install replacements of such existing rooftop equipment of like kind and quality without Landlord’s consent, but with prior written notice to Landlord of such replacement and delivery to Landlord of the specifications for such replacement equipment, (ii) any such use, does not adversely impact on the use by the Tenant of the Premises, and (iii) the Tenant agrees to cooperate with the Landlord in the alteration, installation and maintenance of any use, alteration or changes to the roof of the Building.
(c)	Despite anything to the contrary in this Lease, the Landlord shall not be in breach of its covenant for quiet enjoyment or liable for any loss, costs or damages, whether direct or indirect, incurred by the Tenant and the Tenant shall not be entitled to a Rent reduction as a result of the Landlord’s exercise of its rights under Section 9.2(b).
(d)	As of the date of this Lease Landlord acknowledges that Tenant is the sole tenant under this Lease.
9.3	Access by Landlord

The Tenant shall permit the Landlord, its agents and others authorized by it, to enter the Premises to inspect, to provide services or to make repairs, replacements, changes or alterations as set out in this Lease, to take such steps as the Landlord may deem necessary for the safety, improvement, alteration or preservation of the Premises or the Building and to show the Premises to Mortgagees, prospective Mortgagees, purchasers and prospective purchasers and, during the last nine (9) months of the Term, to prospective tenants. The Landlord shall whenever possible give reasonable written or verbal Notice to the Tenant prior to such entry (other than in the case of an emergency when no Notice is required), but no such entry shall constitute a re-entry by the Landlord or an eviction or entitle the Tenant to any abatement of Rent. In the exercise of its rights under this Section 9.3, the Landlord shall use commercially reasonable efforts to minimize interference with the business operations of the Tenant in the Premises to the extent reasonably possible in the circumstances.

9.4 Notices for Sale or to Lease

The Landlord shall have the right during the Term of this Lease to place upon the Premises a notice stating that the Building and/or Project is for sale and shall, within nine (9) months prior to the expiration of the Term, have the right to place upon the Premises a notice stating that the Premises are for lease, and the Tenant shall not remove such notice or permit the same to be removed.

9.5 Intentionally Omitted

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ARTICLE 10 - DAMAGE AND DESTRUCTION AND CONDEMNATION

10.1 Damage to Premises

If all or any part of the Premises is rendered untenantable or completely inaccessible by damage from fire or other casualty (collectively, the “Damage”) in connection with which the Landlord is insured in relation to the Building, then:

(a)	if in the reasonable opinion of the Expert, the Damage can be substantially repaired within one hundred eighty (180) days from the date of such casualty (employing normal construction methods without overtime or other premium), the Landlord shall repair such Damage to the extent of the Landlord’s obligations under this Lease but excluding Damage to Leasehold Improvements and any other property that is not the responsibility of or is not owned by the Landlord which shall be the responsibility of the Tenant to repair; or
(b)	if in the reasonable opinion of the Expert, the Damage cannot be substantially repaired within one hundred eighty (180) days from the date of such casualty (employing normal construction methods without overtime or other premium), then the Landlord may elect to terminate this Lease as of the date of such casualty by written Notice delivered to the Tenant not more than twenty(20) days after receipt of the Expert's opinion, failing which the Landlord shall repair such Damage as set out in Section 10.1(a); and
(c)	if the Landlord fails to complete repairs to the Premises within 270 days from the date of the Damage, then the Tenant shall have the right to terminate this Lease following thirty (30) days written notice given after such 270 day period; provided, however, if the Landlord completes such repairs prior to the expiration of the thirty (30) day notice period, Tenant’s right to terminate shall be null and void.

Notwithstanding anything to the contrary herein, Tenant waives the right to make repairs at Landlord’s expense under any law, statute or ordinance now or hereinafter in effect.

10.2 Abatement

If the Landlord is required to repair Damage to the Premises under Section 10.1, the Rent payable by the Tenant shall be proportionately reduced to the extent that the Premises are rendered untenantable or inaccessible, from the date of the casualty until the earlier to occur of (i) the cure of the applicable untenantable condition or lack of access or (ii) substantial completion by the Landlord of its repairs as described in 10.1 above. Notwithstanding the foregoing, if the Damage is due to the fault or neglect of Tenant or its employees, agents, or invitees, or if the Tenant continues to utilize the Premises there shall be no abatement of Rent, provided that, if the Damage was caused due to the negligence of Tenant or its employees, agents or invitees and all of the following conditions are satisfied, then there shall be an abatement of Rent for the period during which Tenant is unable to utilize the Premises: (a) Tenant reimburses Landlord for the premiums for Landlord’s business interruption/rent loss insurance (“Rent Loss Insurance”), (b) Landlord is eligible to make a claim against such Rent Loss Insurance in connection with the relevant Damage, (c) Landlord’s claim for such Rent Loss Insurance in connection with such Damage is allowed and is actually paid by the insurer, and (d) the amount of such payment is not less than the amount of Rent abated. The Tenant shall effect its own repairs as soon as possible after completion of the Landlord's repairs. Furthermore, notwithstanding anything to the contrary set forth herein, there shall be no abatement or reduction of Rent where the Landlord's repairs to the Premises take less than ten (10) days to complete after the Damage occurs.

10.3 Termination Rights

Notwithstanding anything else contained in this Lease, if: (a) the Building is partially destroyed or damaged so as to affect twenty-five percent (25%) or more of the Rentable Area of the Building; or (b) in the reasonable opinion of the Expert, the Building is unsafe or access or services are affected and, in either case, cannot be substantially repaired under Applicable Laws within one hundred eighty (180) days from the date of such Damage (employing normal construction methods without overtime or other premium); or (c) the proceeds of insurance are substantially insufficient to pay for the costs of repair or rebuilding or are not payable to or received by the Landlord; or (d) Damage or destruction is caused by an occurrence against which the Landlord is not insured or beyond the extent to which the Landlord is required to insure under this Lease; or (e) any Mortgagee(s) or such Mortgagee’s designee entitled to the insurance proceeds shall not consent to the repair and rebuilding, then the Landlord may terminate this Lease by giving to the Tenant written Notice of such termination within sixty (60) days of the Damage or destruction, in which event the Term shall cease and be at an end as of the date of such Damage or destruction and the Rent and all other payments for which the Tenant is liable under the provisions of this Lease shall be apportioned and paid in full to the date of termination (subject to any abatement under Section 10.2).

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10.4 Landlord's Rights on Rebuilding

In the event of Damage to the Building and if this Lease is not terminated in accordance with Sections 10.1 or 10.3, the Landlord shall repair any damage to the Building, but only to the extent of the Landlord's obligations under this Lease and exclusive of any of Tenant's responsibilities with respect to such repair. In repairing or rebuilding the Building or the Premises the Landlord may use drawings, designs, plans and specifications other than those used in the original construction and may alter or relocate the Building on the Land, the Common Areas or any part thereof, and may alter or relocate the Premises, provided that the Building as repaired or rebuilt is of a similar standard and the Premises as altered or relocated shall be of approximately the same size as the Premises.

10.5 Condemnation

If the whole or any part of the Premises, Building or Project shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if any adjacent property or street shall be so taken or condemned, or reconfigured or vacated by such authority in such manner as to require the use, reconstruction or remodeling of any part of the Premises, Building or Project, or if the Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, the Landlord shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the authority. The Tenant shall not because of such taking assert any claim against the Landlord or the authority for any compensation because of such taking and the Landlord shall be entitled to the entire award or payment in connection therewith, except that the Tenant shall have the right to file any separate claim available to the Tenant for any taking of the Tenant’s removable property and for moving expenses, so long as such claims (a) do not diminish the award available to the Landlord, and (b) are payable separately to the Tenant. All Rent shall be apportioned as of the date of such termination. If any part of the Premises shall be taken, and this Lease shall not be so terminated, the Rent shall be proportionately abated. Notwithstanding anything to the contrary contained in this Section 10.5, in the event of a temporary taking of all or any portion of the Premises for a period of one hundred and eighty (180) days or less, then this Lease shall not terminate but the Base Rent and the Additional Rent shall be abated for the period of such taking in proportion to the ratio that the amount of rentable square feet of the Premises taken bears to the total rentable square feet of the Premises. The Landlord shall be entitled to receive the entire award made in connection with any such temporary taking.

ARTICLE 11 - ASSIGNMENT, SUBLETTING AND OTHER TRANSFERS

11.1 Transfers

The Tenant shall not enter into, consent to, or permit any Transfer (other than a Permitted Transfer) without the prior written consent of the Landlord, which consent shall not be unreasonably withheld, conditioned, or delayed. The Tenant shall pay to the Landlord its then current reasonable administration fee and all costs incurred (including, without limitation, legal fees and disbursements) in respect of the proposed Transfer. Notwithstanding any statutory provision to the contrary, it shall not be considered unreasonable for the Landlord to withhold its consent if, without limiting any other factors or circumstances which the Landlord may reasonably take into account:

(a) an Event of Default hereunder has occurred or is then in existence;

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(b)	the proposed Transfer is contrary to any covenants or restrictions granted by the Landlord to any other parties or involves a person or entity engaged in the sale, distribution or production of any product or service that violates any Applicable Laws, including, but not limited to cannabis, products containing cannabis, or cannabis related products;
(c)	in the Landlord's reasonable opinion:

(i)	either the financial background or the business history and capability of the proposed Transferee is not satisfactory;
(ii)	the nature or character of the proposed business of the proposed Transferee is such that it might harm the Landlord's business or reputation or reflect unfavorably on the Building, the Landlord, or the image of the Landlord, or is unethical, immoral or illegal;
(iii)	the Transferee does not intend to operate the Premises pursuant to the provisions of Section 5.1 hereof and such other proposed use is not acceptable to Landlord, or the Transferee’s proposed use of the Premises presents an unacceptable risk of contamination of the Land, Premises, Building or Project by Hazardous Substances; or
(iv)	the use of the Premises by the proposed Transferee could be incompatible with the other businesses or activities being carried on in the Building or could result in excessive demands being placed on the Building Systems or other Common Areas;

(d)	[Intentionally Omitted];
(e)	[Intentionally Omitted];
(f)	any sublease or proposed sublease of more than one third (1/3) of the Premises; or
(g)	the proposed Transfer is to: (i) a government, quasi-government or public agency, service or office; or (ii) a call center, school or telecommunications center; or (iii) the Landlord does not receive sufficient information from the Tenant or the Transferee to enable it to reasonably make a determination concerning the matters set out above.

Any consent by the Landlord to a Transfer shall not constitute a waiver of the necessity for such consent to any subsequent Transfer.

11.2 Permitted Transfers

Tenant may assign this Lease to a successor to Tenant by merger, consolidation or the purchase of substantially all of Tenant’s assets (“Permitted Successor Event”), or assign this Lease or sublet all or a portion of the Premises to an Affiliate (defined below), without the consent of Landlord, provided that all of the following conditions are satisfied (each a “Permitted Transfer”, and any transferee of a Permitted Transfer being a “Permitted Transferee”): (a) there must not be an Event of Default; (b) Tenant must give Landlord written notice at least fifteen (15) Business Days before such Transfer; (c) the Transfer is not a subterfuge by Tenant to avoid its obligations under this Lease to get consent to a Transfer; and (d) if the Transfer is a Permitted Successor Event, Tenant’s successor shall own all or substantially all of the assets of Tenant and Tenant’s successor shall have a tangible net worth which is at least equal to the greater of Tenant’s tangible net worth at the date of this Lease or Tenant’s tangible net worth as of the day prior to the proposed merger, consolidation or purchase. Tenant’s notice to Landlord shall include information and documentation evidencing the Permitted Transfer and showing that each of the above conditions has been satisfied. “Affiliate” shall mean an entity Controlled by, Controlling or under common Control with Tenant and the term “Control” shall mean ownership of more than forty-nine percent (49%) of the voting shares/rights of the applicable entity.

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11.3 Conditions of Transfer

The following terms and conditions apply in respect of a Transfer:

(a)	excluding Transfers resulting from operation of law, the Tenant and the Transferee shall execute, prior to the Transfer being made, an agreement with the Landlord a form acceptable to Landlord acting reasonably, including the Transferee’s covenant to be bound by all of the provisions of this Lease;
(b)	notwithstanding any Transfer, the Tenant shall remain liable under this Lease and shall not be released from performing any of the provisions of this Lease. The Tenant’s and Guarantor’s liability shall continue notwithstanding any amendment of this Lease throughout the Term and any exercise of any renewal or extension of the Term provided for herein and notwithstanding that the Landlord may collect Rent from the Transferee;
(c)	except in connection with Permitted Transfers or a Change of Control, if the base rent and additional rent (net of reasonable out-of-pocket costs for commissions, for cash allowances and for Alterations required by and made for the Transferee by the Tenant; amortized on a straight line basis over the term of the Transfer) to be paid by the Transferee under such Transfer exceeds the Base Rent and Additional Rent payable by the Tenant hereunder, then fifty percent (50%) of the amount of such excess shall be paid by the Tenant to the Landlord. Except in connection with a Permitted Transfer or a Change of Control, if the Tenant receives from any Transferee, either directly or indirectly, any consideration other than base rent or additional rent for such Transfer, either in the form of cash, goods or services, then Tenant shall immediately pay to the Landlord an amount equivalent to fifty percent (50%) of such consideration;
(d)	that all the subtenant’s right and interest in and to the Premises absolutely terminates upon the termination, surrender, release, disclaimer or merger of this Lease notwithstanding any contrary statutory right or rule of law; and
(e)	notwithstanding anything to the contrary contained in this Lease, if the Transfer results in a Change of Control of Guarantor due to merger, consolidation or the purchase of substantially all of Guarantor’s assets, then Landlord’s consent with respect to such Change of Control of Guarantor shall not be required if all of the following are satisfied: (i) there is no Event of Default under this Lease and Guarantor is not in default under the terms of the Guaranty, (ii) Guarantor must give Landlord notice of such Transfer at least fifteen (15) Business Days before such Transfer, (iii) such Transfer is not a subterfuge for Guarantor to avoid its obligations under the Guaranty, and (iv) Guarantor’s successor shall own all or substantially all of the assets of Guarantor and shall have a tangible net worth which is at least equal to the greater of Guarantor’s tangible net worth as of the date of this Lease or Guarantor’s tangible net worth as of the day prior to the proposed merger, consolidation or purchase. Guarantor’s notice to Landlord shall include information and documentation evidencing such Transfer and showing that each of the conditions contained in this subparagraph (e) have been satisfied.
11.4	Corporate Records

Upon the Landlord's request, the Tenant shall: (a) deliver a certificate by one of its senior officers setting forth the details of its corporate and capital structure; and (b) make available to the Landlord or its representatives all of its applicable corporate or partnership records, as the case may be, for inspection at all reasonable times, in order to ascertain whether any Change of Control for which Landlord has consent rights has occurred. Tenant’s obligations under the immediately preceding sentence shall be deemed to be satisfied if Tenant’s voting securities are listed on a recognized securities exchange and Tenant makes such financial information requested by Landlord pursuant to the immediately preceding sentence (or the Securities Exchange Commission’s required filings containing the relevant financial information) freely available to the public on its website.

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11.5 No Advertising

The Tenant shall not advertise that the whole or any part of the Premises are available for a Transfer and shall not permit any broker or other Person to do so unless the text and format of such advertisement is approved in writing by the Landlord. No such advertisement shall contain any reference to the rental rate of the Premises.

11.6 Sales or Dispositions by Landlord

The Landlord shall have the unrestricted right to sell, transfer, lease, license, charge or otherwise dispose of all or any part of its interest in the Building or the Land or any interest of the Landlord in this Lease. In the event of any sale, transfer, lease or other disposition of the Building, the Land or this Lease, the Landlord shall thereupon, and without further agreement, be released of all liability under this Lease arising from and after such disposition. If required by the Landlord in connection with any sale, transfer, charge or other disposition the Tenant shall, within ten (10) Business Days of request, provide to the Landlord, prospective purchasers and Mortgagees and their respective agents and consultants, access to the current financial statements of the Tenant and any Guarantor.

ARTICLE 12 - ATTORNMENT, SUBORDINATION AND ESTOPPEL CERTIFICATE

12.1 Subordination and Attornment

This Lease and the rights of the Tenant in this Lease are automatically subordinate to every existing and future mortgage, charge, trust deed, financing, refinancing or collateral financing against the Premises or the Building and any renewals or extensions of or advances under them (collectively “Encumbrances”). The Tenant will, on request, attorn to and recognize as landlord the holder of any such Encumbrances or any transferee or disposee of the Building and/or Project or of an ownership or equity interest in the Building and/or Project. The Tenant will, within ten (10) Business Days after the request, sign and deliver any reasonably requested subordination non-disturbance and attornment document. The Tenant will further, upon request by Landlord or any Mortgagee, send to the Mortgagee (or its designee) copies of all notices of default, termination or both given by the Tenant to Landlord under this Lease. Without limitation of any other terms or provisions of any subordination, non-disturbance and/or attornment agreement entered into between the Tenant and any Mortgagee, in the event of any failure by Landlord to perform its obligations hereunder, any Mortgagee may, at its election, during the applicable cure period available to Landlord, cure such failure or breach for and on behalf of Landlord, and any such cure shall be deemed to be performance by Landlord hereunder.

12.2 Estoppel Certificate

Within ten (10) Business Days after a request by the Landlord, the Tenant will sign and deliver to the Landlord, any Mortgagee or to any Person with or proposing to take an interest in all or part of the Building a certificate stating that this Lease is in full force and effect, any modification to this Lease, the commencement and expiration dates of this Lease, the date to which Rent has been paid, the amount of any Security Deposit, whether there is any existing default and the particulars thereof and any other information reasonably required by the Landlord or the Person requesting the certificate including, without limitation, details with reasonable particularity respecting the financial status, credit standing and corporate organization of the Tenant and the Guarantor, if any, including current financial statements.

12.3 Attorney-in-Fact

The Tenant will execute and deliver whatever commercially reasonable instruments and certificates are requested pursuant to Sections 12.1 and 12.2. If the Tenant has not executed whatever instruments and certificates it is required to execute within ten (10) Business Days after the Landlord’s request, the Tenant irrevocably appoints the Landlord as the Tenant’s attorney in-fact with full power and authority to execute and deliver in the name of the Tenant, any of those instruments or certificates or, the Landlord, may, at its option, avail itself of all remedies under Article 13 without the requirement to provide further Notice and without incurring any liability.

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ARTICLE 13 - DEFAULT

13.1 Event of Default

An “Event of Default”: means if and whenever:

(a) any Rent is not paid within five (5) Business Days after the due date, provided, however, Landlord shall be obligated to give Tenant written Notice of Tenant’s failure to pay Rent within such five (5) Business Day period only once during any consecutive twelve (12) month period;

(b) any of the Tenant's obligations under this Lease is breached (other than a breach specified in Sections 13.1(a) and 13.1(c)), and:

(i) the breach is not remedied within thirty (30) days after written Notice from the Landlord to the Tenant specifying particulars of the breach (or such shorter period as may be expressly provided in this Lease or Applicable Law), or

(ii) if thirty (30) days is not a reasonable time to remedy the breach, the Tenant has not commenced diligently to remedy the breach within thirty (30) days after the written Notice or is not proceeding diligently to remedy the breach within a reasonable time.

(c) any of the following events occurs:

(i)	the Tenant or a Person carrying on business in any part of the Premises, or a Guarantor becomes bankrupt or insolvent or avails itself of the benefit of any statute respecting insolvency or bankruptcy or makes any proposal, assignment or arrangement with its creditors;
(ii)	a receiver or manager is appointed for all or any part of the property of the Tenant or of another Person carrying on business in the Premises, or of an Guarantor or any of the Tenant's assets are taken or seized under a writ of execution, assignment, charge or other security instrument;
(iii)	steps are taken for the dissolution, winding up or other termination of the Tenant's or the Guarantor's existence or for the liquidation of their respective assets;
(iv)	the Tenant or the Guarantor makes a bulk sale of assets regardless of where they are situated or moves or commences, attempts or threatens to move its goods, chattels and equipment out of the Premises (other than in the normal course of its business);
(v)	the Tenant abandons the Premises; or
(vi)	the Tenant effects a Transfer that is not permitted under this Lease.

13.2 Remedies

If and whenever an Event of Default occurs, the Landlord shall have the following rights and remedies, exercisable immediately and without further Notice and at any time while the Event of Default continues:

(a) to terminate this Lease and re-enter the Premises. The Landlord may remove all Persons and property from the Premises and store such property at the expense and risk of the Tenant or sell or dispose of such property in such manner as the Landlord sees fit without Notice to the Tenant. Notwithstanding any termination of this Lease, the Landlord shall be entitled to receive Rent and all Sales Tax up to the time of termination plus accelerated Rent as provided in this Lease and damages including, without limitation: (i) damages for the loss of Rent suffered by reason of this Lease having been prematurely terminated; (ii) costs of reclaiming, repairing and re-leasing the Premises; and (iii) legal fees and costs and expenses;

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(b)	to enter the Premises as agent of the Tenant and to relet the Premises for whatever length of time and on such terms as the Landlord in its discretion may determine including, without limitation, the right to: (i) take possession of any property of the Tenant on the Premises; (ii) store such property at the expense and risk of the Tenant; (iii) sell or otherwise dispose of such property in such manner as the Landlord sees fit; and (iv) make alterations to the Premises to facilitate the reletting. The Landlord shall receive the rent and proceeds of sale as agent of the Tenant and shall apply the proceeds of any such sale or reletting first, to the payment of any expenses incurred by the Landlord with respect to any such reletting or sale, second, to the payment of any indebtedness of the Tenant to the Landlord other than Rent and third, to the payment of Rent in arrears, with the residue to be held by the Landlord and applied to payment of future Rent as it becomes due and payable. The Tenant shall remain liable for any deficiency to the Landlord;
(c)	to remedy or attempt to remedy the Event of Default for the account of the Tenant and to enter upon the Premises for such purposes. The Landlord shall not be liable to the Tenant for any loss, injury or damages caused by acts of the Landlord in remedying or attempting to remedy the Event of Default. The Tenant shall pay to the Landlord, on demand, all expenses incurred by the Landlord in remedying the Event of Default, together with the Landlord’s five percent (5%) administration fee and interest at the Stipulated Rate from the date such expense was incurred by the Landlord;
(d)	to recover from the Tenant all damages, costs and expenses incurred by the Landlord as a result of the Event of Default including any deficiency between those amounts which would have been payable by the Tenant for the portion of the Term following such termination and the net amounts actually received by the Landlord during such period of time with respect to the Premises;
(e)	to recover from the Tenant the full amount of the current month's Rent together with the next three (3) months' installments of Rent, which shall immediately become due and payable as accelerated rent;
(f)	to withhold or suspend payment of sums the Landlord would otherwise be obligated to pay to the Tenant under this Lease or any other agreement;
(g)	to require all future payments to be made by cashier’s check, money order or wire transfer after the first time any check is returned for insufficient funds, or the second time any sum due hereunder is more than ten (10) Business Days late; and
(h)	to apply any Security Deposit as permitted under this Lease.
(i)	the Landlord may exercise all of its remedies as may be permitted by law including without limitation, terminating this Lease, re-entering the Premises and removing all persons and property therefrom, which property may be stored by the Landlord at a warehouse or elsewhere at the risk, expense and for the account of the Tenant. If the Landlord elects to terminate this Lease or terminate the Tenant’s right to possession of the Premises, the Landlord shall be entitled to recover from the Tenant the aggregate of all amounts permitted by law, including but not limited to (i) the worth at the time of award of the amount of any unpaid Rent which had been earned at the time of such termination; plus (ii) the worth at the time of award of the amount by which the unpaid Rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that the Tenant proves could have been reasonably avoided; plus (iii) the worth at the time of award of the amount by which the unpaid Rent for the balance of the Term after the time of award exceeds the amount of such rental loss that the Tenant proves could have been reasonably avoided; plus (iv) any other amount necessary to compensate the Landlord for all the detriment proximately caused by the Tenant's failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, specifically including but not limited to, tenant improvement expenses, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; and (v) at the Landlord's election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law. As used in items (i) and (ii), above, the "worth at the time of award" shall be computed by allowing interest of the greater of 18%, or the maximum amount of such interest permitted by law. As used in item (iii), above, the "worth at the time of award" shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).

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The Tenant agrees that no Notice of an Event of Default or of a breach of any covenant or condition in this Lease will be considered void or ineffective as a result of a minor or technical inaccuracy or error.

13.3 Remedies Generally

Unless expressly provided in this Lease, the repossession or re-entering of all or any part of the Premises or the Landlord’s exercise of any other remedy either as provided herein or otherwise, shall not relieve the Tenant of its liabilities and obligations under this Lease, including, without limitation, the Tenant’s liability for the payment of Rent or any other damages the Landlord may incur by reason of the Tenant’s breach. In addition, the Tenant shall not be relieved of its liabilities under this Lease or be entitled to any damages hereunder based upon minor or immaterial errors in the exercise of the Landlord’s remedies. The remedies under this Lease are cumulative and may be exercised independently or in combination with others. No remedy is exclusive or dependent on any other remedy. The specifying or use of a remedy under this Lease does not limit rights to use other remedies available to the Landlord generally at law or in equity.

13.4 Mitigation of Damages

Upon termination of the Tenant’s right to possess the Premises, the Landlord shall, only to the extent required by Applicable Laws, use objectively reasonable efforts to mitigate damages by reletting the Premises. The Landlord shall not be deemed to have failed to do so if the Landlord refuses to lease the Premises to a prospective new tenant with respect to whom the Landlord would be entitled to withhold its consent pursuant to Section 11.1, or who (a) is an affiliate, parent or subsidiary of the Tenant; (b) is not acceptable to any Mortgagee of the Landlord; (c) requires improvements to the Premises to be made at the Landlord’s expense; or (d) is unwilling to accept lease terms then proposed by the Landlord, including: (i) leasing for a shorter or longer term than remains under this Lease; (ii) re-configuring or combining the Premises with other space, (iii) taking all or only a part of the Premises; and/or (iv) changing the use of the Premises. Notwithstanding the Landlord’s duty to mitigate its damages as provided herein, the Landlord shall not be obligated (1) to give any priority to reletting the Tenant’s space in connection with its leasing of space in the Building or any complex of which the Building is a part, or (2) to accept below market rental rates for the Premises or any rate that would negatively impact the market rates for the Building. To the extent that the Landlord is required by Applicable Laws to mitigate damages, the Tenant must plead and prove by clear and convincing evidence that the Landlord failed to so mitigate in accordance with the provisions of this Section 13.4, and that such failure resulted in an avoidable and quantifiable detriment to the Tenant.

13.5 Intentionally Omitted.

ARTICLE 14 – INSURANCE AND INDEMNITY

14.1 Tenant's Insurance

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(a) The Tenant shall, throughout the period that the Tenant is given possession of the Premises and during the entire Term, at its sole cost and expense, take out and keep in full force and effect, the following insurance:

(i)	all-risk property insurance (including but not limited to sprinkler leakage, flood, earthquake and collapse coverage) in an amount equal to the full replacement cost thereof upon property of every description and kind owned by the Tenant or for which the Tenant is liable, or installed by or on behalf of the Tenant and which is located within the Building or Land including, without limitation, Leasehold Improvements, tenant's fixtures, the Tenant's inventory, furniture and personal property provided that (1) with respect to flood and earthquake risks, such coverage shall be as close to full replacement cost value as permitted under typical commercial policies in the area of the Premises, and (2) if there is a dispute as to the amount which comprises full replacement cost, the decision of the Landlord or any Mortgagee shall be conclusive;
(ii)	business interruption insurance in such amount as will reimburse the Tenant for direct or indirect loss of earnings attributable to all perils insured against in Sections 14.1(a)(i) and 14.1(a)(iv) and other perils commonly insured against by prudent tenants or attributable to prevention of access to the Premises or the Land, Building and Project as a result of such perils;
(iii)	commercial general liability insurance, including property damage and bodily injury and personal injury liability, tenant's legal liability, non-owned automobile liability, contractual liability, and employers’ liability. Such policies shall be written on a comprehensive basis with inclusive limits of not less than Five Million Dollars ($5,000,000) per occurrence for bodily injury to any one or more persons, or property damage (provided, however, that the maximum liability for “tenant’s legal liability” insurance shall not exceed $1,000,000 per occurrence), and such higher limits as the Landlord, acting reasonably, or its Mortgagee requires from time to time, and shall contain a severability of interests clause and a cross-liability clause;
(iv)	if applicable, broad form comprehensive boiler and machinery insurance on a blanket repair and replacement basis with limits for each accident in an amount not less than the full replacement cost of all Leasehold Improvements and of all boilers, pressure vessels, air-conditioning equipment and miscellaneous electrical apparatus owned or operated by the Tenant or by others (other than the Landlord) on behalf of the Tenant in or serving the Premises;
(v)	if applicable, standard owner’s form automobile policy providing third party liability insurance with Two Million Dollars ($2,000,000) inclusive limits, and accident benefits insurance covering all licensed vehicles owned or operated by or on behalf of the Tenant; and
(vi)	any other form of insurance which the Landlord, acting reasonably, or the Mortgagee requires from time to time in form, in amounts and for risks against which a prudent tenant would insure. So long as the coverage afforded Landlord, the other additional insureds and any designees of Landlord shall not be reduced or otherwise adversely affected, all or part of Tenant’s insurance may be carried under a blanket policy covering the Premises and any other of Tenant’s locations, or by means of a so called “umbrella” policy.

(b) All policies shall be taken out with insurers acceptable to the Landlord; shall be in a form satisfactory from time to time to the Landlord which form may include a reasonable deductible, the amount of which will be subject to the Landlord's approval, which approval may not be unreasonably withheld, shall be non-contributing with and shall apply only as primary and not as excess to any other insurance available to the Landlord or the Mortgagee, shall not be invalidated as respects the interests of the Mortgagee by reason of any breach or violation of any warranties, representations or conditions contained in the policies. All policies shall contain an undertaking by the insurers to notify the Landlord and the Mortgagee in writing not less than thirty (30) days prior to any material change, cancellation or termination thereof, and, in respect of Sections 14.1(a)(i), 14.1(a)(ii) and 14.1(a)(iv), contain a waiver of subrogation and incorporate a Mortgagee's standard mortgage clause. The Landlord, its designated property manager and any Mortgagee shall be named as additional insureds under Section 14.1(a)(iii) and as loss payee under Sections 14.1(a)(i) and 14.1(a)(iv).

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(c)	Certificates of insurance issued by the Tenant’s broker or insurer will be delivered to the Landlord as soon as practicable after the placing of the required insurance and in any event at least ten (10) days prior to the effective date of coverage. Provided that no review or approval of any such insurance certificate by the Landlord shall derogate from or diminish the Landlord's rights or the Tenant's obligations contained in this Article.
(d)	If the Tenant fails to take out or keep in force any insurance referred to in this Section 14.1, or should any such insurance not be approved by either the Landlord or the Mortgagee and should the Tenant not commence to diligently rectify (and thereafter proceed to diligently rectify) the situation within twenty-four (24) hours after written Notice by the Landlord to the Tenant (stating, if the Landlord or the Mortgagee does not approve of such insurance, the reasons therefor), the Landlord has the right without assuming any obligation in connection therewith to effect such insurance at the sole cost of the Tenant and all outlays by the Landlord shall be paid by the Tenant to the Landlord on demand as Additional Rent without prejudice to any other rights and remedies of the Landlord under this Lease.
(e)	The Tenant agrees that in the event of damage or destruction to the Leasehold Improvements in the Premises covered by insurance pursuant to Sections 14.1(a)(i) and 14.1(a)(iv), the Tenant shall use the proceeds of such insurance for the purpose of repairing or restoring such Leasehold Improvements save and except if the Landlord has terminated this Lease in which case the Tenant shall forthwith pay to the Landlord all of its insurance proceeds relating to the Leasehold Improvements in the Premises. In the event of damage to or destruction of the Land, Building and/or Project entitling the Landlord to terminate this Lease pursuant to Sections 10.1 and 10.3, then if the Premises have also been damaged or destroyed and this Lease is terminated, the Tenant shall forthwith pay to the Landlord all of its insurance proceeds relating to the Leasehold Improvements in the Premises and if the Premises have not been damaged or destroyed, the Tenant shall upon demand deliver to the Landlord in accordance with the provisions of this Lease the Leasehold Improvements and the Premises.
14.2	Increase in Insurance Premiums

The Tenant shall not keep, use, sell or offer to sell in or upon the Premises any article which may be prohibited by any fire insurance policy in force from time to time covering the Premises, Land, Building or Project. If:

(a)	the occupation of the Premises (or Tenant’s vacating of the Premises);
(b)	the conduct of business in the Premises; or
(c)	any act or omission of the Tenant in the Land or Building or any part thereof;

causes or results in any increase in premiums for the insurance carried from time to time by the Landlord with respect to the Land, Building or Project, the Tenant shall pay any such increase in premiums as Additional Rent forthwith upon demand by the Landlord. In determining whether increased premiums are caused by or result from the use or occupancy of the Premises, a schedule issued by the organization computing the insurance rate on the Land, Building or Project showing the various components of such rate shall be conclusive evidence of the several items and charges which make up such rate. The Tenant shall comply promptly with all requirements of any insurer now or hereafter in effect pertaining to or affecting the Premises, Land, Building or Project.

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14.3 Cancellation of Insurance

If any insurance policy upon the Land, Building or Project or any part thereof shall be cancelled or shall be threatened by the insurer to be cancelled or the coverage thereunder reduced in any way by the insurer by reason of the use or occupation or vacating of the Premises or any part thereof by the Tenant or by any assigns or sub-tenant of the Tenant or any occupant of the Premises, or by anyone permitted by the Tenant to be upon the Premises, the Tenant shall remedy the condition giving rise to cancellation, threatened cancellation or reduction of coverage within twenty-four (24) hours after written Notice thereof by the Landlord. In the event the Tenant fails to remedy as provided in this Section 14.3, the Landlord may, at its option, terminate this Lease by leaving upon the Premises Notice in writing and thereupon Rent and any other payments for which the Tenant is liable under this Lease shall be apportioned and paid in full to the date of such termination and the Tenant shall immediately deliver up possession of the Premises to the Landlord and the Landlord may re-enter and take possession of the same.

14.4 Loss or Damage

The Landlord shall not be liable for any death or injury arising from or out of any occurrence in, upon, at or relating to the Land, Building or Project, or damage to property of the Tenant or of others located on the Premises or elsewhere in the Land, Building or Project, nor shall it be responsible for any loss of or damage to any property of the Tenant or others from any cause whatsoever, except to the extent any such death, injury, loss or damage which results from the gross negligence of the Landlord, its agents, servants or employees or other persons for whom it may be in law responsible and provided that in no event shall the Landlord be responsible for any loss, injury or damage contemplated by Section 14.7(b), or for any indirect or consequential damages sustained by the Tenant or others. Without limiting the generality of the foregoing, but subject to the exceptions to the limitation of the liability of the Landlord set out herein, the Landlord shall not be liable for any injury or damage to persons or property resulting from fire, explosion, dampness, falling plaster, falling ceiling tile, falling ceiling fixtures (including part or all of the ceiling T grid system) and diffuser coverings, or from steam, gas, electricity, water, rain, flood, snow or leaks from any rentable premises or the parking facilities or from the pipes, sprinklers, appliances, plumbing works, roof, windows or subsurface of any floor or ceiling of the Building or from the street or any other place or by any other cause whatsoever. The Landlord shall not be liable for any such damage caused by other persons in the Building or by occupants of adjacent property thereto, or the public, or caused by construction or by any private, public or quasi-public work. All property of the Tenant kept or stored on the Premises shall be so kept or stored at the risk of the Tenant only and the Tenant shall indemnify the Landlord and each other Indemnified Party and save it harmless from any claims arising out of any damage to the same including, without limitation, any subrogation claims by the Tenant's insurers.

14.5 Landlord's Insurance

As a component of Operating Costs, the Landlord shall at all times throughout the Term carry:

(a) insurance on the Building and/or Project (excluding the foundations and excavations) and the machinery, boilers and equipment contained therein or servicing the Building and/or Project and owned by the Landlord or the owners of the Land and Building (specifically excluding any property with respect to which the Tenant is obliged to insure pursuant to Section 14.1 or similar sections of their respective leases) against damage by fire and extended perils or all-risks coverage;

(b) commercial general liability and property damage insurance with respect to the Landlord's operations in the Land, Building or Project;

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(c) loss of rental income insurance, or loss of insurable gross profits commonly insured against by prudent landlords, including loss of all rentals receivable from tenants in the Building and/or Project in accordance with the provisions of their leases, including base rent and additional rent; and

(d) such other form or forms of insurance as the Landlord or the Mortgagee reasonably considers advisable.

Such insurance shall be in such reasonable amounts and with such reasonable deductibles as would be carried by a prudent owner of a reasonably similar industrial building, having regard to size, age and location. Notwithstanding the Landlord's covenant contained in this Section 14.5, and notwithstanding any contribution by the Tenant to the cost of insurance premiums provided herein, the Tenant acknowledges and agrees that no insurable interest is conferred upon the Tenant under any policies of insurance carried by the Landlord, and the Tenant has no right to receive any proceeds of any such insurance policies carried by the Landlord.

14.6	Indemnification
(a)	Except as provided in Section 14.7(a) but notwithstanding any other provision of this Lease, the Tenant shall defend, indemnify and save harmless the Landlord and Landlord’s affiliates, members, managers, principals, partners, officers, directors, employees, lenders and agents (collectively, the “Indemnified Parties”) from and against any loss (including loss of Base Rent and Additional Rent), claims, actions, damages, liability and expenses in connection with loss of life, personal injury, damage to property or any other loss or injury whatsoever arising out of this Lease (except to the extent caused by the gross negligence or intentional misconduct of Landlord), or any occurrence in, upon or at the Premises, or the current or future occupancy or use by the Tenant or any affiliate of Tenant of the Premises or any part thereof, or any other part of the Building or the Land, or occasioned wholly or in part by any act or omission of the Tenant, any affiliate of Tenant or by anyone permitted to be on the Premises or the Building or the Land by the Tenant. If the Landlord (or any other Indemnified Party) shall, without fault on its part, be made a party of any litigation commenced by or against the Tenant or any affiliate of Tenant, then the Tenant shall protect, indemnify and hold the Landlord (and/or such other Indemnified Party) harmless and shall pay all costs, expenses and reasonable legal fees incurred or paid by the Landlord (and/or such other Indemnified Party) in connection with such litigation. Such indemnification in respect of any such breach, violation or non-performance, damage to property, injury or death to person or persons shall survive any expiration or earlier termination of this Lease and without limiting the generality of the foregoing, shall indemnify and hold the Landlord and each other Indemnified Party harmless from and against any claims arising herein. The Tenant shall also pay all costs, expenses and legal fees that may be incurred or paid by the Landlord or any other Indemnified Party in reasonably enforcing the terms, covenants and conditions in this Lease unless a court of law having jurisdiction shall decide otherwise.
(b)	Landlord hereby agrees to indemnify, defend and hold Tenant and any Tenant Related Party harmless from and against any and all claims for property damage, personal injury or any other matter arising, claimed, charged or incurred against or by Tenant or any of any Tenant Related Party in connection with or relating to any event, condition, matter or thing which occurs in, at or about the Property to the extent due to the gross negligence or willful misconduct of Landlord or any of the Indemnified Parties. Notwithstanding anything to the contrary contained herein, Tenant hereby waives all claims against and releases Landlord and the Indemnified Parties from all claims for any injury to or death of persons, damage to property or business loss in any manner related to (i) Force Majeure, (ii) acts of third parties, (iii) the items as described in Section 14.4 above, (iv) the inadequacy or failure of any security or protective services, personnel or equipment, or (v) any other cause except the gross negligence or intentional misconduct of Landlord.

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14.7	Limitations of Liability
(a)	Landlord waives and shall cause its insurer to waive all loss, claims, actions, damages, liability and expenses in respect of any loss, injury or damage insured by the Landlord under Sections 14.5(a) and 14.5(c) to the extent of any recovery by the Landlord under such insurance; and
(b)	Tenant waives and shall cause its insurer to waive all loss, claims, actions, damages, liability and expenses in respect of any loss, injury or damage to property insured or required to be insured by the Tenant under Sections 14.1(a)(i), 14.1(a)(ii) and 14.1(a)(iv); and
(c)	For the purposes of the waivers in this Section 14.7, any deductible with respect to a party’s insurance shall be deemed to be covered and recoverable by such party under valid and collectible policies of insurance.
14.8	Third Party Insurance

Tenant shall monitor the insurance coverage of all contractors, vendors and subcontractors (individually and collectively, “Tenant Contractors”), which coverage shall be at the expense of such Tenant Contractors. Except as otherwise expressly approved by Landlord in writing, Tenant shall require that all Tenant Contractors performing any work or services at or about the Property maintain insurance coverage with coverage and limits acceptable to Landlord, in Landlord’s reasonable discretion, and, in no event shall such coverage be less than following types and minimum amounts:

(i)     Worker’s Compensation insurance in accordance with all Applicable Laws;

(ii)     Employer’s Liability insurance in a minimum amount of $500,000 each accident; $500,000 disease, policy limit; $500,000 disease, per employee;

(iii)    Broad form commercial general liability insurance naming Landlord and Tenant and any other interests required by Landlord, including, but not limited to, any Mortgagee and all Indemnified Parties as additional insureds. Tenant Contractors, except as noted below, will provide coverage in an amount of at least $2,000,000 per occurrence and aggregate. Except as otherwise expressly approved by Landlord in writing, all Tenant Contractors’ policies will be broad form and shall include contractual liability, personal injury protection and completed operations coverage. Such contractors’ policies will be primary and non- contributory with respect to any insurance maintained by or in any way available to Landlord, each of its Mortgagees, all Indemnified Parties, or Tenant;

(iv)     Auto liability insurance (in a minimum amount of $1,000,000 as a combined single limit) covering owned, hired and non-owned vehicles; and

(v)     Property insurance coverage for tools and equipment brought onto and/or used on the Property by the Tenant Contractor in an amount equal to the replacement cost of all such tools and equipment. The Landlord shall have no responsibility and/or liability for any loss, damage, destruction, disappearance and/or theft of any such property and equipment.

Tenant shall cause such Tenant Contractors (prior to entering the Property) to provide Landlord with evidence reasonably acceptable to Landlord that such Tenant Contractors carry such insurance and that such insurance is in full force and effect.

ARTICLE 15 - ENVIRONMENTAL MATTERS

15.1 Use of Hazardous Substances

The Tenant, its agents, contractors and those for whom the Tenant is in law responsible, shall not cause or permit any Hazardous Substances to be brought upon, created, formed, kept or used in or about the Premises, Building, Land or Project without the prior written consent of the Landlord and except in compliance with all Environmental Laws. The Tenant shall further ensure that its employees are trained with respect to the identification, storage, and handling of all Hazardous Substances that are brought onto the Premises.

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15.2 List of Hazardous Substances

Prior to the Commencement Date, the Tenant will provide a list of all Hazardous Substances that the Tenant will use at the Premises for the Landlord’s prior written consent. This list will be updated and submitted to the Landlord within fifteen (15) days of written request by the Landlord or its environmental consultant; however, this shall not relieve the Tenant from obtaining the Landlord’s prior written consent of any Hazardous Substances to be brought onto the Premises, Building, Land or Project in accordance with Section 15.1.

15.3	Compliance with Environmental Laws
(a)	During the Term (including all applicable Renewal Terms), the Tenant shall at the Tenant’s own expense comply with all Environmental Laws with respect to the Premises and shall make, obtain and deliver all reports and studies as required by any governmental agency, authority or any Environmental Laws with respect to the Premises.
(b)	The Tenant shall promptly notify the Landlord if it suspects Contamination or threatened Contamination in, under or around the Premises. “Contamination” means the existence or any release or disposal of a Hazardous Substance or biological or organic contaminant, including any such contaminant which could adversely impact air quality, such as mold, fungi or other bacterial agents in, on, under, at or from the Premises, the Building or the Land which may result in any liability, fine, use restriction, cost recovery lien, remediation requirement, or other government or private party action or imposition affecting the Landlord or the Landlord’s officers, directors, managers, members, partners, shareholders, employees, agents, asset or property managers, or lenders. For purposes of this Lease, claims arising from Contamination shall include diminution in value, restrictions on use, adverse impact on leasing space, and all costs of site investigation, remediation, removal and restoration work, including response costs under CERCLA and similar statutes.
(c)	The Tenant authorizes the Landlord to make inquiries from time to time of any governmental agency or authority in order to determine the Tenant’s compliance with the Environmental Laws. The Tenant covenants and agrees that it will from time to time provide to the Landlord such written authorization as the Landlord may reasonably require in order to facilitate the obtaining of such information.
(d)	The Tenant shall immediately advise the Landlord of any breach of any part of this Article or if any governmental agency or authority issues an order, notice, cancellation, amendment, charge, violation, ticket or other document concerning the release, investigation, clean up, remediation or abatement of any Hazardous Substances. The Tenant shall promptly notify in writing both the Landlord and the proper governmental authority of any discharge, release, leak, spill or escape into the environment of any Hazardous Substances at, to or from the Premises, Building, Land or Project.
(e)	Upon request by the Landlord from time to time, the Tenant shall provide to the Landlord a certificate executed by a senior officer of the Tenant certifying ongoing compliance by the Tenant with its covenants contained herein.
15.4	Inspection of Premises

The Landlord or its agents, employees, representatives or environmental consultant may inspect the Premises from time to time with reasonable prior Notice (which may be oral), in order to verify the Tenant’s compliance with the Environmental Law and the requirements of this Lease respecting Hazardous Substances. If the inspections or environmental assessments reveal the presence of Hazardous Substances, then the Tenant shall pay as Additional Rent any costs incurred by the Landlord in making such inspections or environmental assessments, plus the Landlord’s five percent (5%) administration fee. If, further to such inspection, the Landlord determines acting reasonably, that an Environmental Audit is required, the Landlord and its agent shall be entitled to conduct an Environmental Audit immediately, and the Tenant shall provide access to the Landlord and its agent for the purpose of conducting an Environmental Audit. Such Environmental Audit shall be at the Tenant’s expense plus the Landlord’s five percent (5%) administration fee, payable as Additional Rent, and the Tenant shall, at its expense and subject to Section 15.5, forthwith remedy any problems identified by the Environmental Audit, and shall ensure that it complies with all of its covenants herein.

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15.5 Clean Up or Removal

If the Landlord or any government authority shall require the clean up or removal of any Hazardous Substances held, created, formed, released, spilled, abandoned or placed upon the Premises, Building, Land or Project or released into the environment by the Tenant in the course of the Tenant’s business or as a result of the Tenant’s use or occupancy of the Premises, then the Tenant shall, at its own expense, prepare and submit for approval all necessary studies, plans and proposals, shall provide all bonds and other security required by governmental authorities and shall forthwith carry out the work required. The Tenant shall keep the Landlord fully informed of the progress of the matter and shall provide to the Landlord full information with respect to proposed plans and comply with the Landlord’s reasonable requirements with respect to such plans. The Tenant further agrees that the Landlord may, at its option, elect to undertake such work or any part thereof at the cost and expense of the Tenant, plus the Landlord’s five percent (5%) administration fee.

15.6 Ownership of Hazardous Substances

If the Tenant creates or brings to the Premises, Building, Land or Project any Hazardous Substances or if the conduct of the Tenant’s business shall cause there to be any Hazardous Substances at the Premises, Building, Land or Project then, notwithstanding any rule of law to the contrary, such Hazardous Substances shall be and remain the sole and exclusive property of the Tenant and shall not become the property of the Landlord notwithstanding the degree of affixation to the Premises, Building, Land or Project of the Hazardous Substances, and notwithstanding the expiration or earlier termination of this Lease.

15.7 Indemnity

The Tenant will defend and indemnify the Landlord and all Indemnified Parties, and those for whom the Landlord is in law responsible, and save them harmless from every loss, cost, claim, expense, fine, penalty, prosecution or alleged infraction which they, or any of them, suffer or suffers as a result of (i) any Contamination or threatened Contamination in, under or around the Premises, (ii) any violation of Environmental Laws or the failure to hold or comply with any permit, license or similar authorization required to operate, construct, occupy, operate or use the Premises under Environmental Laws, (iii) the use, handling, manufacturing, generation, production, storage or processing of any Hazardous Substance in, under or around the Premises, (iv) any third party personal injury, wrongful death or property loss or damage, claim, action or demand under any Environmental Laws and relating to operations undertaken in, under or around the Premises (in each of clauses (i) through (iv) only occurring during the Term of this Lease), or (v) the Tenant’s breach of any of its obligations under this Article 15. For avoidance of doubt, and notwithstanding any other term or condition of this Lease, this Lease does not impose an indemnity or other obligation on Tenant (other than the obligation to not exacerbate such Contamination and to reasonably cooperate with Landlord and any applicable governmental authorities in connection with testing, remediation and removal of Contamination or any Hazardous Substance at the Premises) for Contamination occurring prior to the Commencement Date. In addition, the Tenant will pay to the Landlord, as Additional Rent, all costs incurred by the Landlord in doing any clean-up, restoration or other remedial work as a consequence of the Tenant’s failure to comply with any of its obligations under this Article 15, plus the Landlord’s five percent (5%) administration fee. The Tenant’s obligations under this Article 15 shall survive the expiration of the Term or earlier termination of this Lease.

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ARTICLE 16 - GENERAL PROVISIONS

16.1	General Rules of Interpretation
(a)	Obligations as Covenants: Each obligation of the Landlord and the Tenant in this Lease shall be considered a covenant for all purposes. If the Tenant has failed to perform any of its obligations under this Lease, such obligations shall survive the expiration or other termination of this Lease.
(b)	Time: Time is of the essence of this Lease.
(c)	Number, Gender: The grammatical changes required to make the provisions of this Lease apply in the plural sense where the Tenant comprises more than one Person and to individuals (male or female), partnerships, corporations, trusts or trustees will be assumed as though in each case fully expressed.
(d)	Liability of Tenant: If the Tenant consists of more than one Person, the covenants of the Tenant shall be joint and several covenants of each such Person. If the Tenant is a partnership, each Person who is presently a partner of the partnership and each Person who becomes a member of any successor partnership shall be and continue to be bound jointly and severally for the performance of and shall be and continue to be subject to all of the provisions, obligations and conditions of this Lease, whether or not such Person ceases to be a member of such partnership or successor partnership and whether or not such partnership continues to exist.
(e)	Governing Law: This Lease shall be governed by and construed under the Applicable Laws of the jurisdiction in which the Building is located and the parties attorn and submit to the jurisdiction of the courts of such jurisdiction.
(f)	Headings: The headings of the Articles and Sections are included for convenience only, and shall have no effect upon the construction or interpretation of this Lease.
(g)	Effect of Exculpation: Any and all exculpatory provisions, releases and indemnities included in this Lease for the benefit of the Landlord are intended also to benefit the Mortgagees, any owner or lessor with an interest in the Building prior to the Landlord, asset managers and property managers of the Landlord, and the officers, directors, shareholders, employees, agents, members, managers, and partners of each one of them.
(h)	Severability: Should any provision of this Lease be or become invalid, void, illegal or not enforceable, such provision shall be considered separate and severable from this Lease and the remaining provisions shall remain in force and be binding upon the parties hereto as though such provision had not been included.
16.2	Entire Agreement, Amendments, Waiver

This Lease contains the entire agreement between the parties with respect to the subject matter of this Lease and there are no other agreements, promises or understandings, oral or written, between the parties in respect of this subject matter (provided, that, for the avoidance of doubt, nothing set forth in this Lease shall limit or restrict any rights of Landlord against CUI Properties, LLC, pursuant to that certain Real Estate Purchase and Sale Agreement, dated as of November 20, 2018, as amended from time to time, subject to any express limitations set forth therein). This Lease may be amended only by written agreement between the Landlord and the Tenant. No electronic communications between the parties will have the effect of amending this Lease. No provisions of this Lease shall be deemed to have been waived by the Landlord or the Tenant unless such waiver is in writing signed by such party. If either the Landlord or the Tenant excuses or condones any default by the other of any obligation under this Lease, no waiver of such obligation shall be implied in respect of any continuing or subsequent default. The Landlord's receipt of Rent with knowledge of a breach shall not be deemed a waiver of any breach.

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16.3 Successors

This Lease and everything herein contained shall extend to and bind the successors and assigns of the Landlord and the legal representatives, heirs, executors, administrators, successors and permitted assigns of the Tenant (as the case may be).

16.4 Holding Over

The Tenant has no right to remain in possession of the Premises after the end of the Term. If the Tenant remains in possession of the Premises after the end of the Term with the written consent of the Landlord but without entering into a new lease or other agreement then, notwithstanding any statutory provisions or legal presumption to the contrary, there shall be no tacit renewal of this Lease or the Term and the Tenant shall be deemed to be occupying the Premises as a tenant from month-to-month (with either party having the right to terminate such month-to-month tenancy at any time on not less than thirty (30) days’ written Notice, whether or not the date of termination is at the end of a rental period) at a monthly Base Rent payable in advance on the first day of the month equal to one hundred twenty-five percent (125%) of the monthly amount of Base Rent payable during the last month of the Term and otherwise upon the same terms and covenants and conditions as in this Lease insofar as these are applicable to a monthly tenancy and, for greater certainty, including liability for all Additional Rent. If the Tenant remains in possession of the Premises after the end of the Term or any extension terms(s) without the written consent of the Landlord, Tenant shall be a tenant at sufferance. In such event, Tenant shall pay an amount (on a per month basis without reduction for partial months during the holdover) equal to one hundred twenty-five percent (125%) of the monthly amount of Base Rent payable during the last month of the Term (the “Holdover Percentage”) and otherwise upon the same terms, covenants and conditions as in this Lease, including liability for all Additional Rent. If Tenant remains in possession of the Premises in excess of thirty (30) days after the end of the Term, then commencing on the thirty-first (31st) day of such holdover, then the Holdover Percentage shall be increased to one hundred fifty percent (150%). In addition to the payment of the amounts provided above, if the Landlord is unable to deliver possession of the Premises to a new tenant, or to perform improvements for a new tenant, as a result of the Tenant’s holdover, the Tenant shall be liable to the Landlord for, and shall protect the Landlord from and indemnify and defend the Landlord against, all losses and damages, including any claims made by any succeeding tenant resulting from such failure to vacate, and any consequential damages that the Landlord suffers from the holdover.

16.5 Notices

Any notice, demand or request (“Notice”) required or permitted to be given under this Lease shall be in writing (unless otherwise expressly provided herein) and shall be deemed to have been duly given if personally delivered, delivered by courier or mailed by registered prepaid post, in the case of Notice to the Landlord, to it at the address set out in Section 1.1(a) and in the case of Notice to the Tenant, to it at the Premises, and in the case of Notice to the Guarantor, to it at the address set out in Section 1.1(c). Notice may not be given by facsimile transmission, electronic mail or any other electronic communication.

Any such Notice given in accordance with the above requirements shall be deemed to have been given, if mailed, on the fifth day following the date of such mailing or, if delivered, on the day on which it was delivered so long as such delivery was prior to 5:00 p.m. on a Business Day (and, if after 5:00 p.m. or if any such day is not a Business Day, then it shall be deemed to have been delivered on the next Business Day). Either party may from time to time by Notice change the address to which Notices to it are to be given. Notwithstanding the foregoing, during any interruption or threatened interruption in postal services, any Notice shall be personally delivered or delivered by courier. If a copy of any Notice to the Tenant is to be sent to a second address or to another Person other than the Tenant, the failure to give any such copy shall not vitiate the delivery of the Notice to the Tenant.

16.6 Recording

Neither the Tenant nor anyone on the Tenant's behalf or claiming under the Tenant (including any Transferee) shall record this Lease or any Transfer or any memorandum against the Land, Building or Project, without Landlord’s prior written consent, which consent may be withheld in Landlord’s sole discretion.

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16.7 Secured Claims

The Tenant will ensure that no Secured Claim is recorded or filed against: (a) any part of the Building, Project or the Land; (b) the Landlord’s or any Mortgagee’s interest in any part of the Building, Project or the Land; or (c) the Tenant’s interest in the Premises or any of the Leasehold Improvements in the Premises; by any Person claiming by, through, under or against the Tenant or its contractors or subcontractors. Tenant shall promptly notify Landlord of the filing or recordation of any such Secured Claim. If a Secured Claim is recorded or filed and the Tenant fails to promptly discharge it after receipt of written Notice from the Landlord, the Landlord may discharge the Secured Claim or notice of it by paying the amount claimed to be due into court (together with whatever additional amounts are required to be paid into court to obtain its removal) or directly to the holder of the Secured Claim and the Tenant will pay to the Landlord, as Additional Rent, all costs (including legal fees) incurred by the Landlord in connection with the Secured Claim, plus the Landlord’s five percent (5%) administration fee. The Tenant shall not mortgage, charge, grant a security interest in or otherwise encumber any Leasehold Improvements. However, upon Tenant’s request, Landlord agrees to subordinate Landlord’s lien as to Tenant’s personal property, including, but not limited to, Tenant’s inventory and equipment, to the interest of Tenant’s equipment lenders or lessors, provided that such subordination shall be on a form substantially similar to the form attached hereto as Exhibit “G” or other form approved by Landlord (acting reasonably) (each, a “Landlord Subordination Agreement”).

16.8 Rules and Regulations

The Tenant shall comply and cause every Person over whom it has control to comply with the Rules and Regulations. The Landlord shall have the right from time to time to make reasonable amendments, deletions and additions to such Rules and Regulations and shall provide written Notice of same to the Tenant. If the Rules and Regulations conflict with any other provisions of this Lease, the other provisions of this Lease shall govern. The Landlord shall not be obligated to enforce the Rules and Regulations and shall not be responsible to the Tenant for failure of any Person to comply with the Rules and Regulations. The Rules and Regulations may differentiate between different types of tenants, different parts of the Building or otherwise. The Landlord agrees that it will not enforce the Rules and Regulations in a manner that is discriminatory to the Tenant.

16.9 Guarantor

In order to induce the Landlord to execute and deliver this Lease and in consideration of the execution and delivery thereof by the Landlord (the receipt and sufficiency whereof is by the Guarantor hereby acknowledged) the Tenant shall cause the Guarantor, concurrently with the execution of this Lease, to enter into the guaranty agreement in the form attached hereto as Appendix “A”. The Guarantor hereby agrees to, and it is a condition of this Lease that, the Guarantor shall execute and deliver to the Landlord the guaranty agreement attached hereto as Appendix “A”.

16.10 Force Majeure

If the Landlord or the Tenant is, in good faith, prevented from doing anything required by this Lease because of Force Majeure, the doing of the thing is excused for the period of the Force Majeure and the party prevented will do what was prevented within the required period after the Force Majeure, but this does not excuse either party from payment of amounts they are required to pay at the times specified in this Lease. The Landlord shall also be excused from the performance of any term, covenant or act required hereunder if the performance of such item would be in conflict with any directive, policy or request of any governmental or quasi-governmental authority in respect of any energy, conservation, safety or security matter.

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16.11 Acceptance of Lease

The Tenant accepts this Lease of the Premises to be held by it as Tenant, subject to the provisions set out in this Lease.

16.12 Limited Recourse

The recourse of the Tenant against the Landlord shall be limited to the Landlord’s interest in the Land and Building. The Tenant shall have no recourse to any other assets of the Landlord. If the Landlord consists of more than one Person, the liability of each such Person shall be several and be limited to its percentage interest in the Building.

16.13 Counterparts

This Lease may be executed in any number of duplicate originals, all of which shall be of equal legal force and effect. Additionally, this Lease may be executed in counterparts, but shall become effective only after each party has executed a counterpart hereof; all said counterparts, when taken together, shall constitute the entire single agreement between the parties. This Lease may be executed by a party’s signature transmitted by facsimile (“fax”) or email (.PDF) or by a party’s electronic signature, and copies of this Lease executed and delivered by means of faxed or emailed copies of signatures or originals of this Lease executed by electronic signature shall have the same force and effect as copies hereof executed and delivered with original wet signatures. All parties hereto may rely upon faxed, emailed or electronic signatures as if such signatures were original wet signatures.

16.14 No Representation

No agreement, representations, warranties or conditions relating to the Premises or the contents of this Lease have been made by Landlord except as are expressly set out herein. It is understood and agreed that there have been no representations made by Landlord as to whether or not the Tenant's proposed use of the Premises is in compliance with the by-laws and regulations governing the Property. It is the Tenant's obligation to satisfy itself that its use is in compliance with the said by-laws and regulations. The Tenant acknowledges that no indemnities of the Landlord in favor of the Tenant have been given under this Lease.

16.15 Interpretation

This Lease has been negotiated and approved by the Landlord and the Tenant and, notwithstanding any rule or maxim of law or construction to the contrary, any ambiguity or uncertainty will not be construed against either Landlord or Tenant by reason of the authorship of any of the provisions contained in this Lease.

16.16 Landlord Consent

Except as otherwise specifically provided in this Lease, whenever Landlord’s consent, approval or acceptance is required under this Lease, Landlord shall not unreasonably withhold, condition, or delay such consent, approval or acceptance.

16.17 Power, Capacity and Authority

The Landlord and the Tenant covenant, represent and warrant to each other that they have the power, capacity and authority to enter into this Lease and to perform its obligations hereunder and that there are no covenants, restrictions or commitments given by it which would prevent or inhibit it from entering into this Lease.

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16.18 Brokerage Fees

Tenant warrants and represents that it has not dealt with any real estate broker or agent in connection with this Lease. Tenant shall indemnify, defend and hold Landlord harmless from any cost, expense, or liability, (including, without limitation, costs of suits and reasonable attorneys’ fees) for any compensation, commission, or fees claimed by any other real estate broker or agent in connection with this Lease (including but not limited to any expansions of the Premises and renewals) or its negotiation.

16.19	OFAC
(a)	Tenant warrants and represents that Tenant is not a “foreign person” within the meaning of Section 1445 of the Internal Revenue Code of 1986, as amended. Neither Tenant nor, to Tenant’s actual knowledge, any Person who owns a direct or indirect interest in Tenant (collectively, a “Tenant Related Party”) is now nor shall be at any time during the term of this Lease a Person with whom a United States citizen, entity organized under the laws of the United States or its territories or entity having its principal place of business within the United States or any of its territories (collectively, a “U.S. Person”), including a United States Financial Institution as defined in 31 U.S.C. 5312, as periodically amended (“Financial Institution”), is prohibited from transacting business of the type contemplated by this Lease, whether such prohibition arises under United States law, regulation, executive orders and lists published by the Office of Foreign Assets Control, Department of the Treasury (“OFAC”) (including those executive orders and lists published by OFAC with respect to Persons that have been designated by executive order or by the sanction regulations of OFAC as Persons with whom U.S. Persons may not transact business or must limit their interactions to types approved by OFAC) or otherwise.
(b)	Tenant warrants and represents that neither Tenant nor, to Tenant’s knowledge, any Tenant Related Party, (i) is under investigation by any governmental authority for, or has been charged with, or convicted of, money laundering, drug trafficking, terrorist related activities, any crimes which in the United States would be predicate crimes to money laundering or any violation of any Anti-Money Laundering Laws or any violation of any Anti-Corruption Laws; (ii) has been assessed civil or criminal penalties under any Anti-Money Laundering Laws or under any Anti-Corruption Laws; or (iii) has had any of its funds seized or forfeited in any action under any Anti Money Laundering Laws or any Anti-Corruption Laws.
(c)	For purposes of this Lease, the following terms shall have the following meanings: Anti-Money Laundering Laws” shall mean laws, regulations and sanctions, state and federal, criminal and civil, that (1) limit the use of and/or seek the forfeiture of proceeds from illegal transaction; (2) limit commercial transactions with designated countries or individuals believed to be terrorists, narcotics dealers or otherwise engaged in activities contrary to the interests of the United States; (3) require identification and documentation of the parties with whom a Financial Institution conducts business; or (4) are designed to disrupt the flow of funds to terrorist organizations. Such laws, regulations and sanctions shall be deemed to include the USA PATRIOT Act of 2001, Pub. L. No. 107-56, the Bank Secrecy Act, 31 U.S.C. Section 5311 et. seq., the Trading with the Enemy Act, 50 U.S.C. App. Section 1 et. seq., the International Emergency Economic Powers Act, 50 U.S.C. Section 1701 et. seq., the Money Laundering Control Act of 1986 and the sanction regulations promulgated pursuant thereto by the OFAC, as well as laws relating to prevention and detection of money laundering in 18 U.S.C. Section 1956 and 1957. “Anti-Corruption Laws” shall mean any anti-corruption laws of any applicable jurisdiction including the U.S. Foreign Corrupt Practices Act, 15 U.S.C. Section 78dd-1, et seq.
(d)	Tenant shall deliver to Landlord within five (5) Business Days after receipt of a written request therefor, a written certification or such other evidence reasonably acceptable to Landlord evidencing and confirming Tenant’s compliance with Sections 16.19(a) and 16.19(b) hereof. If at any time the representations set forth in either Section 16.19(a) and 16.19(b) hereof become false, Tenant shall be deemed to be in default of this Lease and Landlord shall have the right to exercise all of the remedies set forth in this Lease in the event of a Tenant default or to terminate this Lease immediately and collect damages as a result of such Tenant default.

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(e)	Anything in this Lease or otherwise to the contrary notwithstanding, Tenant hereby agrees to defend, indemnify, and hold harmless Landlord, it officers, members, managers, partners, directors, agents, employees and counsel from and against any and all claims, damages, losses, risks, liabilities and expenses (including attorneys’ fees and costs) arising from or related to any breach of the representations, warranties and covenants set forth in Sections 16.19(a) and 16.19(b) of this Lease. The indemnity obligations of Tenant under this Section 16.19(e) shall survive the termination or expiration of this Lease.
16.20	No Plan Assets. Tenant warrants and represents that, as of the date hereof and throughout the Term of this Lease (a) the Tenant is not and will not be an “employee benefit plan,” as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), whether or not subject to Title I of ERISA, or a “plan” as defined in Section 4975(e)(1) of the Code, whether or not subject to Section 4975 of the Code, (b) none of the assets of the Tenant constitutes or will constitute “plan assets” of one or more plans described in the foregoing clause (a) within the meaning of Section 3(42) of ERISA, as modified by U.S. Department of Labor Regulation 29 C.F.R. Section 2510.3-101 and (c) transactions by or with Tenant are not and will not be subject to any state statute regulating investments of, or fiduciary obligations with respect to, governmental plans, as defined in Section 3(32) of ERISA.
16.21	Waiver of Trial by Jury TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS LEASE, OR THE TRANSACTIONS OR MATTERS RELATED HERETO OR CONTEMPLATED HEREBY.

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IN WITNESS WHEREOF the parties hereto have executed this Lease.

LANDLORD TAMARISK TUALATIN, LLC, a Delaware limited liability company
By:	Tamarisk EWA Industrial, LLC, a Delaware limited liability company
Its:	Sole Member
By:	EverWest Advisors AZ, LLC, a Delaware limited liability company
Its:	Manager
By:	EverWest Advisors, LLC ,
	a Delaware limited liability company
Its:	Sole Member
By:	/s/ Paul Andrews
	Name:	Paul Andrews
	Title:	Executive Vice President & Chief Financial Officer
TENANT CUI, INC., an Oregon corporation
By:
	Name:
	Title:

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IN WITNESS WHEREOF the parties hereto have executed this Lease.

LANDLORD TAMARISK TUALATIN, LLC, a Delaware limited liability company
By:	Tamarisk EWA Industrial, LLC, a Delaware limited liability company
Its:	Sole Member
By:	EverWest Advisors AZ, LLC, a Delaware limited liability company
Its:	Manager
By:	EverWest Advisors, LLC,
	a Delaware limited liability company
Its:	Sole Member
By:	Name:
	Title:
Tenant
CUI, INC., an Oregon corporation
By:	/s/ William J. Clough
	Name:	William J. Clough
	Title:	CEO

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EXHIBIT “A”

PLAN OF PREMISES

see following page

 Exhibit “A”

Page 1

Exhibit “A”

Page 2

EXHIBIT “B”

LEGAL DESCRIPTION OF LAND

Lot 3, Franklin Business Park, in the City of Tualatin, County of Washington, and State of Oregon.

Exhibit “B”

Page 1

EXHIBIT “C”

INTENTIONALLY OMITTED

Exhibit “C”

Page 1

EXHIBIT “D”

RULES AND REGULATIONS

1.	The sidewalks, driveways, parking areas, entry passages, fire escapes and stairways, if any, shall not be obstructed by any of the tenants or used by them for any purpose other than ingress and egress to and from their respective premises. Tenants will not place or allow to be placed in the Building or Common Areas, any waste paper, dust, garbage, refuse or anything whatever that would tend to make them unclean or untidy and no vehicle shall be repaired in, on or about the Premises, Building, Land or Project or left parked outside overnight.
2.	The water closets and other water apparatus shall not be used for any purpose other than those for which they were constructed, and no sweepings, rubbish, rags, ashes or other substances shall be thrown therein. Any damage resulting by misuse shall be borne by the Tenant by whom or by whose agents, servants or employees the same is caused. Tenants shall not let the water run unless it is in actual use.
3.	No tenant shall do or permit anything to be done in their respective premises or bring or keep anything therein which will in any way increase the risk of fire or violate or act at variance with the laws relating to fires or with the regulations of the Fire Department or the Board of Health.
4.	[Intentionally omitted].
5.	Nothing shall be thrown by the tenants or those for whom they are in law responsible out of windows or doors or down the passages of the Building.
6.	No birds or animals shall be kept in or about the Building, except for certified service animals.
7.	No transmitting device shall be permitted on the Premises or an aerial erected on the exterior of the Premises, Building, Land or Project, nor the use of travelling or flashing lights, signs or television or other audio-visual or mechanical devices that can be seen outside of the Premises, or loudspeakers, television, phonographs, radios or other audio-visual or mechanical devices that can be heard outside of the Premises.
8.	No one shall use the Building or any part thereof for sleeping apartments or residential purposes or for the storage of personal effects or articles other than those required for business purposes.
9.	All tenants must observe strict care not to allow their windows or doors to remain open so as to admit rain or snow or so as to interfere with the heating of the Building. Any injury or damage caused to the Building or its appointments, furnishings, heating and other appliances by reason of windows or doors being left open so as to admit rain or snow or by interferences with or neglect of the heating appliances or by reason of the tenant or other person or servant subject to it shall be made good by the tenant in whose premises the neglect, interference or misconduct occurred.
10.	No flammable oils or other flammable, dangerous or explosive materials shall be kept or permitted to be kept in any tenant's premises.
11.	No bicycles or other vehicles shall be brought within the Building except in the warehouse portion of the Premises.
12.	Tenants shall give the Landlord prompt written Notice of any accident to or any defect in the plumbing, climate control, mechanical or electrical apparatus or any other part of the Building.
13.	The parking of cars shall be subject to the reasonable regulations of the Landlord.

Exhibit “D”

Page 1

14.	Tenants shall not mark, paint, drill into or in any way deface the walls, ceilings, partitions, floors or other parts of their respective premises or the Building except with the prior written consent of the Landlord as it may direct.
15.	The Tenant agrees to surrender to the Landlord on the termination of this Lease all keys to the said premises.
16.	No safes, machinery, equipment heavy merchandise or anything liable to injure or destroy any part of the Building shall be taken into the Building without the consent of the Landlord in writing, and the Landlord shall in all cases retain the power to limit the weight and indicate the place where such safe or the like is to stand, and the cost of repairing any and all damage done to the Building by taking in or putting out such safe or the like or during the time it is in the Building shall be paid for, on demand, by the tenant who so causes it. No tenant shall load any floor beyond its reasonable weight carrying capacity as set forth in the municipal or other codes applicable to the Building. No heavy equipment of any kind shall be moved within the Building without skids being placed under the same, and without the consent of the Landlord in writing.
17.	Nothing shall be placed on the outside of windows or projections of the premises. No air-conditioning equipment shall be placed at the windows of the premises without the consent in writing of the Landlord.
18.	No person may enter upon the roof of the Building without first obtaining Landlord’s written consent (which consent shall not be unreasonably withheld, conditioned or delayed), and any person entering upon the roof of the Building does so at his own risk.
19.	No tenant shall be permitted to do cooking or to operate cooking apparatus except in a portion of the Building rented for that purpose.
20.	If required by the Landlord, the Tenant shall arrange and pay for pest control.
21.	There shall be no smoking cigarettes, cigars, pipes, or any other tobacco products in the premises and Building, or about the Land and Project save and except for any outside area which may be designated by the Landlord (and which area may change from time to time at the Landlord's sole discretion) for that purpose, unless prohibited by any applicable law or authority having jurisdiction.

Exhibit “D”

Page 2

EXHIBIT “E”

OPTIONS TO RENEW

RENEWAL OPTIONS.

21.01. Grant of Option; Conditions. Subject to the terms herein, Tenant shall have the right to extend the Term (the “First Renewal Option”) for one additional period of 5 years commencing on the day following the expiration of the initial Term and ending on the 5th anniversary of such date of expiration (the "First Renewal Term"), and, if Tenant properly exercised the First Renewal Option and the Term was extended as a result thereof, Tenant shall also have the right to extend the Term (the “Second Renewal Option”) for one additional period of 5 years commencing on the date following the last day of the First Renewal Term and ending on the 5th anniversary of the last day of the First Renewal Term (the "Second Renewal Term"). Throughout the remainder of this Exhibit “E”, unless specifically provided otherwise: (i) the First Renewal Option and Second Renewal Option are each referred to as a “Renewal Option,” and when such term is used in connection with an exercise of the First Renewal Option, the term “Renewal Option” shall be deemed to mean the First Renewal Option, and when such term is used in connection with an exercise of the Second Renewal Option, the term “Renewal Option” shall be deemed to mean the Second Renewal Option, and (ii) the First Renewal Term and the Second Renewal Term are each referred to as a “Renewal Term,” and when such term is used in connection with an exercise of the First Renewal Option, the term “Renewal Term” shall be deemed to mean the First Renewal Term, and when such term is used in connection with an exercise of the Second Renewal Option, the term “Renewal Term” shall be deemed to mean the Second Renewal Term.

It is agreed that Tenant may exercise a Renewal Option only if:

(a) Landlord receives notice of exercise ("Initial Renewal Notice") (i) with respect to an exercise of the First Renewal Option, not less than 9 full calendar months prior to the expiration of the initial Term and not more than 12 full calendar months prior to the expiration of the initial Term, or (ii) with respect to an exercise of the Second Renewal Option, if applicable, not less than 9 full calendar months prior to the expiration of the First Renewal Term and not more than 12 full calendar months prior to the expiration of the First Renewal Term; and

(b) No Event of Default exists at the time that Tenant delivers its Initial Renewal Notice or at the time Tenant delivers its Binding Notice (as defined below) unless Landlord, in its sole and absolute discretion, agrees in writing to permit Tenant to exercise such Renewal Option notwithstanding such Event of Default; and

(c) No part of the Premises is sublet (other than pursuant to a Transfer in accordance with Section 11 of the Lease) at the time that Tenant delivers its Initial Renewal Notice or at the time Tenant delivers its Binding Notice; and

(d) The Lease has not been assigned (other than pursuant to a Transfer in accordance with Section 11 of the Lease) prior to the date that Tenant delivers its Initial Renewal Notice or prior to the date Tenant delivers its Binding Notice.

21.02. Terms Applicable to Premises During Renewal Term.

(a) The initial Base Rent rate per rentable square foot for the Premises during the Renewal Term shall equal the Prevailing Market (hereinafter defined) rate per rentable square foot for the Premises. Base Rent attributable to the Premises shall be payable in monthly installments in accordance with the terms and conditions of the Lease.

Exhibit “E”

Page 1

(b) Tenant shall pay Additional Rent for the Premises during the Renewal Term in accordance with the Lease, and the manner and method in which Tenant reimburses Landlord for Tenant's share of Operating Costs and other matters shall be some of the factors considered in determining the Prevailing Market rate for the Renewal Term.

(c) The Renewal Term shall otherwise be upon the same terms, covenants, conditions, provisions and agreements contained in the Lease, except as expressly set forth in this Exhibit “E”.

21.03. Procedure for Determining Prevailing Market. The Prevailing Market rate shall be determined as described below.

(a) Within 30 days after receipt of Tenant's Initial Renewal Notice, Landlord shall advise Tenant in writing of the applicable Base Rent rate for the Premises for the Renewal Term. Tenant, within 15 days after the date on which Landlord advises Tenant of the Base Rent rate for the Renewal Term, shall either (i) give Landlord final binding written notice ("Binding Notice") of Tenant's exercise of its Renewal Option, or (ii) if Tenant disagrees with Landlord's determination, provide Landlord with written notice of rejection (the "Rejection Notice"). If Tenant fails to provide Landlord with either a Binding Notice or Rejection Notice within such 15-day period, Tenant's Renewal Option shall be null and void and of no further force and effect. If Tenant provides Landlord with a Binding Notice within such 15-day period, Landlord and Tenant shall enter into the Renewal Amendment (as defined below) upon the terms and conditions set forth herein. If Tenant provides Landlord with a Rejection Notice within such 15-day period, Landlord and Tenant shall work together in good faith for a period of 15 days (the “Prevailing Market Discussion Period”) to agree upon the Prevailing Market rate for the Premises for the Renewal Term. Upon agreement, Tenant shall provide Landlord with Binding Notice and Landlord and Tenant shall enter into the Renewal Amendment in accordance with the terms and conditions hereof.

(b) If Landlord and Tenant fail to agree upon the Prevailing Market rate prior to expiration of the Prevailing Market Discussion Period, Tenant, by written notice to Landlord (the "Broker Notice") within 5 days after the expiration of such Prevailing Market Discussion Period, shall have the right to have the Prevailing Market rate determined in accordance with the following procedures. Upon Tenant’s delivering the Broker Notice to Landlord, Tenant shall be deemed to have irrevocably exercised the Renewal Option. If Tenant fails to timely deliver the Broker Notice to Landlord, Tenant's Renewal Option shall be deemed to be null and void and of no further force and effect. If Tenant provides Landlord with a timely Broker Notice, Landlord and Tenant, within 10 days after delivery of the Broker Notice, shall each simultaneously submit to the other, in a sealed envelope, its good faith estimate of the Prevailing Market rate (collectively referred to as the "Estimates"). If the higher Estimate is less than or equal to 103% of the lower Estimate, the Prevailing Market rate shall be the average of the Estimates.

Exhibit “E”

Page 2

(c) If the Prevailing Market rate is not resolved by the exchange of Estimates, Landlord and Tenant, within 7 days after the exchange of Estimates, shall each select a real estate broker to determine which of the two Estimates more closely reflects the Prevailing Market rate. Each real estate broker selected by either Landlord or Tenant shall be a broker licensed in Oregon, with at least 10 years of continuous experience in the Tualatin/Sherwood, Oregon commercial leasing market, and shall have a working knowledge of current rental rates and practices for industrial properties in the Tualatin/Sherwood, Oregon market area. Upon selection, Landlord's and Tenant's real estate brokers shall work together in good faith to agree upon which of the two Estimates more closely reflects the Prevailing Market rate for the Premises for the Renewal Term. The Estimate chosen by such real estate brokers shall be binding on both Landlord and Tenant as the Prevailing Market rate for the Premises during the Renewal Term. If either Landlord or Tenant fails to appoint a real estate broker within the 7-day period referred to above, the real estate broker appointed by the other party shall be the sole real estate broker for the purposes hereof and shall determine which Estimate more closely reflects the Prevailing Market rate for the Premises. If the two real estate brokers cannot agree upon which of the two Estimates more closely reflects the Prevailing Market rate within 15 days after their appointment, then, within 10 days after the expiration of such 15-day period, the two real estate brokers shall select a third real estate broker meeting the aforementioned criteria. If the two (2) real estate brokers cannot agree on the third real estate broker, then the third real estate broker shall be selected by application to the Presiding Judge of the Circuit Court of Washington County, Oregon. Once the third real estate broker has been selected as provided for above, then, as soon thereafter as practicable, but in any case, within 14 days, the third real estate broker shall make his or her determination of which of the two Estimates more closely reflects the Prevailing Market rate and such Estimate shall be binding on both Landlord and Tenant as the Prevailing Market rate for the Premises during the Renewal Term. The parties shall share equally in the costs of the third real estate broker. Any fees of any real estate broker, counsel or experts engaged directly by Landlord or Tenant, however, shall be borne by the party retaining such real estate broker, counsel or expert.

(d) If the Prevailing Market rate has not been determined by the commencement date of the applicable Renewal Term, Tenant shall pay Base Rent upon the terms and conditions in effect for the Premises during the final month of the initial Term (if in connection with an exercise of the First Renewal Option) or during the final month of the First Renewal Term (if in connection with an exercise of the Second Renewal Option) until such time as the Prevailing Market rate has been determined. Upon such determination, the Base Rent for the Premises shall be retroactively adjusted to the commencement of the applicable Renewal Term for the Premises. If such adjustment results in an underpayment of Base Rent by Tenant, Tenant shall pay Landlord the amount of such underpayment within 30 days after the determination thereof. If such adjustment results in an overpayment of Base Rent by Tenant, Landlord shall credit such overpayment against the next installment of Base Rent due under the Lease and, to the extent necessary, any subsequent installments until the entire amount of such overpayment has been credited against Base Rent.

21.04. Renewal Amendment. If Tenant is entitled to and properly exercises its Renewal Option, Landlord shall prepare an amendment (the "Renewal Amendment") to reflect changes in the Base Rent, Term, and other appropriate terms. The Renewal Amendment shall be sent to Tenant within a reasonable time after receipt of the Binding Notice (or if decided by the third real estate broker pursuant to Section 1.03, within a reasonable time after such broker’s determination) and Tenant shall execute and return the Renewal Amendment to Landlord within 15 days after Tenant's receipt of same, but, upon final determination of the Prevailing Market rate applicable during the Renewal Term as described herein, an otherwise valid exercise of the Renewal Option shall be fully effective whether or not the Renewal Amendment is executed.

Exhibit “E”

Page 3

21.05. Definition of Prevailing Market. For purposes of this Renewal Option, "Prevailing Market" shall mean the arm’s length fair market annual rental rate per rentable square foot under renewal leases and amendments entered into on or about the date on which the Prevailing Market is being determined hereunder for space comparable to the Premises in the Building and in industrial buildings comparable to the Building in the Tualatin/Sherwood, Oregon market area. The determination of Prevailing Market shall take into account any material economic differences between the terms of the Lease and any comparison lease or amendment, such as rent abatements, construction costs and other concessions and the manner, if any, in which the landlord under any such lease is reimbursed for operating expenses and taxes (including, without limitation, the base year, if any). The determination of Prevailing Market shall also take into consideration any reasonably anticipated changes in the Prevailing Market rate from the time such Prevailing Market rate is being determined and the time such Prevailing Market rate will become effective under the Lease. Tenant acknowledges and agrees that Landlord shall have no obligation to provide Tenant with a construction allowance, rent abatement or any other concessions for the Renewal Term, provided that the Prevailing Market rate shall take into account the concessions (if any) that Landlord elects (in its sole discretion) to grant to Tenant.

Exhibit “E”

Page 4

EXHIBIT “F”

FORM OF LETTER OF CREDIT

[LETTERHEAD OF ISSUER OF LETTER OF CREDIT]

                                                                 (MONTH, DAY, YEAR)

REF:     IRREVOCABLE LETTER OF CREDIT NO.                                  

GENTLEMEN:

WE HEREBY OPEN OUR UNCONDITIONAL IRREVOCABLE CLEAN LETTER OF CREDIT NO.                      IN YOUR FAVOR AVAILABLE BY YOUR DRAFT(S) AT SIGHT FOR AN AMOUNT NOT TO EXCEED IN THE AGGREGATE ($                 ) EFFECTIVE IMMEDIATELY.

ALL DRAFTS SO DRAWN MUST BE MARKED “DRAWN UNDER IRREVOCABLE LETTER OF CREDIT OF [ISSUING BANK], NO.      , DATED      , 20 .”

THIS LETTER OF CREDIT IS ISSUED, PRESENTABLE AND PAYABLE AT OUR OFFICE AT                                       , OR SUCH OTHER OFFICE IN DENVER, COLORADO AS WE MAY DESIGNATE BY WRITTEN NOTICE TO YOU, AND EXPIRES WITH OUR CLOSE OF BUSINESS ON           . IT IS A CONDITION OF THIS LETTER OF CREDIT THAT IT SHALL BE AUTOMATICALLY EXTENDED FOR ADDITIONAL TWELVE MONTH PERIODS THROUGH                                               [INSERT DATE WHICH IS 60 DAYS AFTER LEASE EXPIRATION], UNLESS WE INFORM YOU IN WRITING BY REGISTERED MAIL AT THE ABOVE ADDRESS (WITH A COPY TO                                                                                            ) DISPATCHED BY US AT LEAST 60 DAYS PRIOR TO THE THEN EXPIRATION DATE THAT THIS LETTER OF CREDIT SHALL NOT BE EXTENDED. IN THE EVENT THIS CREDIT IS NOT EXTENDED FOR AN ADDITIONAL PERIOD AS PROVIDED ABOVE, YOU MAY DRAW HEREUNDER. SUCH DRAWING IS TO BE MADE BY MEANS OF A DRAFT ON US AT SIGHT WHICH MUST BE PRESENTED TO US BEFORE THE THEN EXPIRATION DATE OF THIS LETTER OF CREDIT. THIS LETTER OF CREDIT CANNOT BE MODIFIED OR REVOKED WITHOUT YOUR CONSENT. THIS LETTER OF CREDIT IS PAYABLE IN MULTIPLE DRAFTS AND SHALL BE TRANSFERABLE BY YOU WITHOUT ADDITIONAL CHARGE.

DRAWS MAY BE PRESENTED BY FACSIMILE TO OUR FAX NUMBER                  . IF PRESENTATION IS BY FACSIMILE, THE ORIGINAL DRAFT AND THIS LETTER OF CREDIT MUST BE SENT BY OVERNIGHT COURIER THE SAME DAY AS THE FAX PRESENTATION. PAYMENT WILL BE EFFECTED ONLY UPON RECEIPT OF THE ORIGINAL DRAFT AND THE LETTER OF CREDIT AT OUR ABOVE OFFICE.

IF DEMAND FOR PAYMENT IS PRESENTED BEFORE 11:00 A.M. CENTRAL TIME, PAYMENT SHALL BE MADE TO YOU OF THE AMOUNT DEMANDED IN IMMEDIATELY AVAILABLE FUNDS NOT LATER THAN 4:00 P.M. CENTRAL TIME ON THE FOLLOWING BUSINESS DAY. IF DEMAND FOR PAYMENT IS PRESENTED AFTER 11:00 A.M. CENTRAL TIME, PAYMENT SHALL BE MADE TO YOU OF THE AMOUNT DEMANDED IN IMMEDIATELY AVAILABLE FUNDS NOT LATER THAN 4:00 P.M. CENTRAL TIME ON THE SECOND BUSINESS DAY.

Exhibit “F”

Page 1

WE HEREBY DO UNDERTAKE TO PROMPTLY HONOR YOUR SIGHT DRAFT OR DRAFTS DRAWN ON US, INDICATING OUR LETTER OF CREDIT NO.      FOR THE AMOUNT AVAILABLE TO BE DRAWN ON THIS LETTER OF CREDIT UPON PRESENTATION OF YOUR SIGHT DRAFT IN THE FORM OF SCHEDULE A ATTACHED HERETO DRAWN ON US AT OUR OFFICES SPECIFIED ABOVE DURING OUR USUAL BUSINESS HOURS ON OR BEFORE THE EXPIRATION DATE HEREOF.

EXCEPT AS EXPRESSLY STATED HEREIN, THIS UNDERTAKING IS NOT SUBJECT TO ANY AGREEMENTS, REQUIREMENTS OR QUALIFICATION. OUR OBLIGATION UNDER THIS LETTER OF CREDIT IS OUR INDIVIDUAL OBLIGATION AND IS IN NO WAY CONTINGENT UPON REIMBURSEMENT WITH RESPECT THERETO OR UPON OUR ABILITY TO PERFECT ANY LIEN, SECURITY INTEREST OR ANY OTHER REIMBURSEMENT.

EXCEPT SO FAR AS OTHERWISE EXPRESSLY STATED, THIS LETTER OF CREDIT IS SUBJECT TO INTERNATIONAL STANDBY PRACTICES 1998, INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO. 590.

[ISSUER OF LETTER OF CREDIT]

Exhibit “F”

Page 2

SCHEDULE A TO LETTER OF CREDIT

for value received

pay at sight by wire transfer in immediately available funds to                                                     the sum of U.S. $              drawn under irrevocable letter of credit no.                   , dated          , 20    , issued by                                               .

to:     [issuer of letter of credit]

[CITY, STATE]

Exhibit “F”

Page 3

EXHIBIT “G”

FORM OF LANDLORD SUBORDINATION AGREEMENT

Recording Requested By,

And After Recording, Return To:

WELLS FARGO BANK,

NATIONAL ASSOCIATION

MAC C7300-033

1700 Lincoln Street, 3^rd Floor

Denver, Colorado 80203

Attn: Loan Documentation

AGREEMENT AND ACKNOWLEDGMENT OF SECURITY INTEREST

(LANDLORD WAIVER)

THIS AGREEMENT AND ACKNOWLEDGMENT OF SECURITY INTEREST (this "Agreement") is entered into as of December , 2018, by and among WELLS FARGO BANK, NATIONAL ASSOCIATION ("Bank"), CUI, INC., an Oregon corporation ("Debtor") and TAMARISK TUALATIN, LLC, a Delaware limited liability company ("Landlord").

WHEREAS, Bank has extended, or has agreed to extend, credit to Debtor on the condition, among others, that such credit be secured by a security interest in some or all of Debtor’s personal property, including without limitation inventory and equipment that is not affixed to the Property (collectively, the "Collateral"), and all or a portion of the Collateral is now or may hereafter be located on that certain real property owned by Landlord in the County of Washington, Oregon, with an address of 20050 SW 112th Avenue, Tualatin, Oregon 97062 (if known), as more particularly described on Exhibit A attached hereto and incorporated herein by this reference (the "Property"); and

WHEREAS, in extending or continuing to extend such credit to Debtor, Bank is relying on the acknowledgments, representations and agreements relating to the Collateral set forth herein.

NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, the receipt and

sufficiency of which are hereby acknowledged, Landlord, Debtor and Bank hereby acknowledge, represent and agree as follows:

1.     Landlord's Acknowledgment. Landlord acknowledges that the security interest of Bank in the Collateral is senior and superior to any claim or right in all or any portion thereof which Landlord now has or may at any time hereafter acquire. Landlord confirms that Landlord has not received notice from any person or entity other than Bank of any claim of right, title or interest in or to any of the Collateral.

2.     Notice and License. Landlord agrees to use reasonable efforts to send to Bank, at the same time as delivery to Debtor, a copy of any notice given by Landlord to Debtor regarding any breach of, or limitation or termination of, any lease or other agreement between Debtor and Landlord relating to Debtor’s use and possession of the Property. Subject to the terms and conditions of this Agreement, Landlord and, where applicable, Debtor agree that notwithstanding any failure by Debtor to perform under, or the termination of, any lease or other agreement between Debtor and Landlord relating to Debtor's use and possession of the Property: (a) Landlord will not dispose of the Collateral nor assert any right or interest therein unless it has first notified Bank in writing and has given Bank a period of thirty (30) days from the date of such notice to exercise Bank's rights in and to the Collateral; and (b) Bank is hereby granted the right and license to enter upon the Property and to possess and use the Property solely to take possession of the Collateral and to remove all of the Collateral from the Property within such thirty (30) day period in accordance with the terms and conditions of the security agreements between Bank and Debtor, this Agreement and applicable law.

Exhibit “G”

Page 1

3.     Conditions. The rights and licenses granted to Bank herein are conditioned upon Bank's agreement to, and Bank hereby agrees to: (a) pay rent to Landlord at the times and at the daily rate paid by Debtor for the period commencing on the first day Bank has the right to enter and possess the Property and ending on the day Bank relinquishes possession thereof by written notice to Landlord (the “Bank Entry Period”), provided that Landlord will not be entitled to collect rent from both Tenant and Bank for the same period; and (b) reimburse Landlord for any damage to the Property, other than diminution in value thereof, actually caused by Bank's activities on the Property during its possession thereof. Bank represents and warrants to Landlord that Bank has sufficient liability insurance for Bank’s anticipated activities under this Agreement. Prior to Bank’s entry onto the Property, Bank shall provide Landlord with a certificate or other reasonable evidence demonstrating the insurance coverage required hereunder.

4.     Indemnity. Debtor agrees to indemnify and hold Landlord and Bank, and their respective partners, officers, directors, successors and assigns, harmless from and against any and all claims, actions, damages, costs, expenses (including, subject to applicable law, reasonable attorneys' fees, to include Bank's and Landlord’s outside counsel fees and all allocated costs of Bank's and Landlord’s in- house counsel if applicable) and/or liability (collectively, “Claims”) arising from or in any manner relating to Landlord's compliance with this Agreement and/or Bank's exercise of any of its rights hereunder. Debtor hereby irrevocably authorizes Landlord to comply with any instructions or directions which Bank may give to Landlord pursuant hereto and/or in connection with Bank's exercise of its rights, powers and remedies with respect to the Collateral. In addition, Bank agrees to indemnify and hold Landlord harmless from and against all claims, liabilities, damages, reasonable costs and expenses, including but not limited to, reasonable attorney’s fees, that may be imposed upon, incurred, sustained, claimed, or paid by Landlord that in any manner relate to or result from (i) the entry of Bank or its agents, employees, contractors or representatives onto the Property, or (ii) the removal by the Bank of the Collateral or any portion thereof from the Property, provided that the foregoing indemnity will not, as to any indemnified person, apply to claims, damages, liabilities or related expenses to the extent they are caused by the negligence of the Landlord.

5.     No Waiver; Amendments. No delay, failure or discontinuance of Bank in exercising any right, power or remedy hereunder or under any security agreement between Bank and Debtor shall affect such right, power or remedy; nor shall any single or partial exercise of any such right, power or remedy preclude, waive or otherwise affect the further exercise thereof or the exercise of any other right, power or remedy. The rights, powers and remedies of Bank hereunder are cumulative and not exclusive. Any waiver, permit, consent or approval of any kind by Bank of any breach of or default under this Agreement, or any such waiver of any provisions or conditions hereof, must be in writing and shall be effective only to the extent set forth in such writing. This Agreement may be amended or modified only in writing signed by all parties hereto.

6.     Notices. All notices, requests and demands required hereunder must be in writing, addressed to each party at the address specified below or to such other address as any party may designate by written notice to each other party, and shall be deemed to have been given or made as follows: (a) if personally delivered, upon delivery; (b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the U.S. mail, first class and postage prepaid; and (c) if sent by reputable overnight courier upon the earlier to occur of the date of receipt and the next business day after deposit with such courier prior to the final pick up at such courier’s deposit site for such day.

Exhibit “G”

Page 2

7.     Governing Law; Successors, Assigns. This Agreement shall be governed by and construed in accordance with the laws of Oregon, without reference to the conflicts of law or choice of law principles thereof but giving effect to federal laws applicable to national banks, and shall be binding upon and inure to the benefit of the heirs, executors, administrators, legal representatives, successors and assigns of the parties.

8.     Acknowledgment. Debtor acknowledges receipt of a copy of this Agreement signed by the parties hereto.

Exhibit “G”

Page 3

IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have executed this Agreement as of the day and year first written above, and as applicable, with the intention that it constitute an instrument under seal.

BANK:	LANDLORD:
WELLS FARGO BANK, NATIONAL ASSOCIATION	TAMARISK TUALATIN, LLC, a Delaware limited liability company
	By: Tamarisk EWA Industrial, LLC,
By:	a Delaware limited liability company, Sole Member
Name: Art Avitia
Title:     Vice President	By: EverWest Advisors AZ, LLC,
Address: MAC P6101-250	a Delaware limited liability company, Manager
1300 SW Fifth Ave., 25th Floor
Portland, Oregon 97201
	By: EverWest Advisors, LLC,
	a Delaware limited liability company, Sole Member
	By:
	Name:
	Title:
	Address: 1099 18th Street,
	Ste. 2900,  Denver, CO 80202
DEBTOR:
CUI, INC., an Oregon corporation
By:
Name: Daniel Ford
Title:     Chief Financial Officer
Address:    20050 SW 112th Avenue
Tualatin, OR 97062

Exhibit “G”

Page 4

NOTARY ACKNOWLEDGMENT

STATE OF COLORADO                    )

)ss.

COUNTY OF DENVER                     )

☐The undersigned, a Notary Public in and for the said County, in the State aforesaid, DOES HEREBY CERTIFY that      , the      of EverWest Advisors, LLC, a Delaware limited liability company, the Sole Member of EverWest Advisors AZ, LLC, a Delaware limited liability company, the Manager of Tamarisk EWA Industrial, LLC, a Delaware limited liability company, the Sole Member of Tamarisk Tualatin, LLC, a Delaware limited liability company, who is personally known to me to be the same person whose name is subscribed to the foregoing instrument as such , appeared before me this day in person and acknowledged that he/she signed and delivered the said instrument in his/her own free and voluntary act and as the free and voluntary act of said limited liability company, for the uses and purposes therein set forth.

GIVEN under my hand and notarial seal this day of December, 2018.

Signature of Notary                                    [Notary Seal]

My commission expires:

Exhibit “G”

Page 5

State of Oregon                               )

) ss.

County of                                        )

This record was acknowledged by me on                 , 20      , by                  as                 of                      , a national association.

Notary Public – State of Oregon

State of Oregon                                )

) ss.

County of                                         )

This record was acknowledged by me on                   , 20         , by                      as                 of                    , a national association.

Notary Public – State of Oregon

Exhibit “G”

Page 6

EXHIBIT A

TO

AGREEMENT AND ACKNOWLEDGMENT OF SECURITY INTEREST

(LANDLORD WAIVER)

Exhibit “G”

Page 7

Legal Description of Property:

Parcel I:

Lot 3, FRANLIN BUSINESS PARK, In the City of Tualatin, County of Washington and State of Oregon.

EXCEPTING THEREFROM that portion described in Dedication Deed recorded March 31, 2001, Recorder's Fee No. 2001-020356, Washington County Deed Records.

Parcel II:

TOGETHER WITH an appurtenant easement for ingress and egress as disclosed by "Declaration of Conditions, Restrictions and Easement", recorded August 9, 2006, Recorder's Fee No. 2006-094818.

Exhibit “G”

Page 8

APPENDIX “A”

GUARANTY AGREEMENT

WHEREAS:

A.     This Guaranty Agreement (this “Guaranty”) pertains to that certain Industrial Lease dated December , 2018 (the “Lease”) by and between Tamarisk Tualatin, LLC, a Delaware limited liability company (the “Landlord”) and CUI, Inc., an Oregon corporation (the “Tenant”), for the premises consisting of a building containing approximately 60,405 rentable square feet of industrial space and the adjoining land, as more particularly described in the Lease, all of which are located in Tualatin, Oregon (the “Premises”);

B.     In order to induce Landlord to enter into the Lease, CUI Global, Inc., a Colorado corporation (collectively, the “Guarantor”) hereby makes and executes this Guaranty in favor of Landlord; and

C.     Unless otherwise expressly provided in this Guaranty, all capitalized terms shall have the same meanings as in the Lease.

NOW THEREFORE for good and valuable consideration (the receipt and sufficiency of which are acknowledged by the Guarantor), the Guarantor agrees as follows:

1.     Guaranteed Obligations. The Guarantor absolutely, unconditionally and irrevocably guarantees to Landlord (a) payment to Landlord when due of (i) all Base Rent, Tenant’s Proportionate Share of [Excess] Operating Costs and other Rent; (ii) all amounts payable by reason of any indemnity, breach of warranty or event of default by Tenant under the Lease; and (iii) all costs incurred by Landlord in enforcing its rights and remedies under the Lease and/or this Guaranty, including reasonable attorneys’ fees, court costs and investigation expenses; and (b) performance of all of Tenant’s other obligations under the Lease (collectively, “Guaranteed Obligations”). This is a continuing guaranty of payment and not of collection and Guarantor’s liability is primary and not secondary. Landlord may, at its option, proceed against Guarantor without first commencing an action or obtaining a judgment against Tenant or any other party. Unless otherwise expressly provided in this Guaranty, all capitalized terms shall have the same meanings as in the Lease.

2.      Waivers and Releases.

a.     Guarantor waives marshaling of assets and liabilities, sale in inverse order of alienation, presentment, demand for payment, protest, notice of acceptance of this Guaranty, notice of nonpayment, notice of dishonor, notice of acceleration, notice of intent to accelerate and all other notices, demands, suits or other actions otherwise required as a condition to Landlord’s exercise of its rights under the Lease or this Guaranty. Guarantor’s liability hereunder shall not be released by Landlord’s receipt, application or release of security given for performance of any such obligations, nor shall Guarantor be released by reason of any lien held or executed upon Tenant and/or its assets by Landlord, its managing agent, any Mortgagee, or any of their respective agents or employees.

b.     This Guaranty shall in no way be affected by (i) any extension of time for payment or performance of any Guaranteed Obligations; (ii) supplementation or amendment (material or otherwise) of the Lease, or renewal or extension thereof, or increase in the size of the Premises (whether within the Building or the Property); (iii) any failure, omission, delay or lack of diligence by Landlord or any other person or entity, to enforce, assert or exercise any right or remedy of Landlord under the Lease or this Guaranty; (iv) settlement or compromise of any Guaranteed Obligation; (v) release or discharge of Tenant in any creditor’s receivership, bankruptcy or other proceedings; (vi) impairment, limitation or modification of the liability of Tenant (or its estate in bankruptcy), or of any remedy for the enforcement of Tenant’s liability under the Lease, resulting from the operation of any present or future provision of the United States Bankruptcy Code or other statute or from the decision of any court; (vii) rejection or disaffirmance of the Lease in any such proceedings; (viii) assignment, sublease or other transfer of the Lease or the Premises, or any interest therein, by Landlord or Tenant; (ix) any disability or other defense of Tenant; or (x) cessation of Tenant’s liability for any cause whatsoever.

Appendix “A”

Page 1

c.     Until all Guaranteed Obligations are fully performed, Guarantor (i) has no right of subrogation against Tenant due to any payment or performance by Guarantor; (ii) waives any right to enforce any remedy Guarantor may now or hereafter have against Tenant due to any such payment or performance; and (iii) subordinates any liability or indebtedness of Tenant now or hereafter held by Guarantor to the Guaranteed Obligations in favor of Landlord.

3.     Representations and Warranties. Guarantor represents and warrants, as a material inducement to Landlord to enter into the Lease, that (a) this Guaranty and each instrument securing this Guaranty have been duly executed and delivered and constitute legally enforceable obligations of Guarantor; (b) there is no action, suit or proceeding pending or, to Guarantor’s knowledge, threatened against or affecting Guarantor, at law or in equity, or before or by any governmental authority, which might result in any materially adverse change in Guarantor’s business or financial condition; (c) as of the date hereof, Guarantor’s financial condition is adequate to secure Guarantor’s obligations under this Guaranty; (d) execution of this Guaranty shall not render Guarantor insolvent; (e) from and after the date hereof, Guarantor shall not take any action, such as assuming additional liabilities, divesting assets or otherwise, which would impair Guarantor’s ability to perform its obligations under this Guaranty; and (f) Guarantor has a bona fide interest in Tenant’s financial success.

4.     Notice. Any notice or communication hereunder shall be given in writing by, and deemed received upon, posting in a U.S. Postal Service receptacle, postage prepaid, registered or certified mail, return receipt requested, or by expedited courier, where proof of delivery can be shown, to Landlord as specified in the Lease, and to Guarantor at:

20050 SW 112th Avenue

Tualatin, Oregon 97062

Attention: William J. Clough

Telephone:     (503) 612-2300

Facsimile:     (503) 612-2383

5.     Interpretation. This Guaranty shall be governed by and construed in accordance with Applicable Law. The proper place of venue to enforce payment or performance under this Guaranty shall be the county or other jurisdiction in which the Premises are located. The representations, covenants and agreements set forth herein shall continue and survive the termination of the Lease and/or this Guaranty. The masculine and neuter genders each include the masculine, feminine and neuter genders. This instrument may not be changed, modified, discharged or terminated orally or in any manner other than by an agreement in writing signed by Guarantor and Landlord. If Guarantor consists of more than one person or entity, the word “Guarantor” shall apply to each such party, each of whom shall be jointly and severally liable hereunder. The words “Guaranty” and “guarantees” shall not be interpreted to limit Guarantor’s primary obligations and liability hereunder.

6.     Consent to Jurisdiction. In any legal proceeding regarding this Guaranty, including enforcement of any judgments, Guarantor irrevocably and unconditionally (a) submits to the jurisdiction of the courts of law in the county or district in which the Property is located; (b) accepts the venue of such courts and waives and agrees not to plead any objection thereto; and (c) agrees that (i) service of process may be effected at the address specified in Paragraph 4 above, or at such other address of which Landlord has been properly notified, and (ii) nothing herein shall affect Landlord’s right to effect service of process in any other manner permitted by Applicable Law.

7.     Successors and Assigns. This Guaranty shall inure to the benefit of Landlord and its successors and assigns, and shall be binding upon Guarantor and its executors, administrators, heirs, successors and assigns. Guarantor shall not assign any obligation hereunder without Landlord’s prior written consent. If any Guarantor who is a living person dies while this Guaranty is in force, then such deceased Guarantor’s heirs, executors, administrators and representatives shall not make any distribution or disposition of assets from the estate without first making provisions acceptable to Landlord for the satisfaction of such deceased Guarantor’s obligations (and contingent obligations) hereunder.

Appendix “A”

Page 2

IN WITNESS WHEREOF the Guarantor hereto has executed this Agreement.

GUARANTOR

CUI GLOBAL, INC.,

a Colorado corporation

By:                                                     

Name:                                                

Title:                                                   

Appendix “A”

Page 3

EX-23.8

Exhibit 23.8

Consent of Independent Registered Public Accounting Firm

Board of Directors

CUI Global, Inc. & Subsidiaries

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 No. 333-216672 and on Form S-8 No. 333-163205 of CUI Global, Inc. and Subsidiaries of our reports dated March 18, 2019, relating to the consolidated balance sheets of CUI Global, Inc. and Subsidiaries as of December 31, 2018 and 2017 and the related consolidated statements of operations, comprehensive income and (loss), changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”), and the effectiveness of CUI Global Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2018, which appear in the December 31, 2018 Annual Report on Form 10-K of CUI Global, Inc. Our report on the consolidated financial statements refers to the adoption of ASC 606, Revenue from Contracts with Customers, in the year ended December 31, 2018.

/s/ Perkins & Company, P.C.

Portland, Oregon

March 18, 2019

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, William J. Clough, certify that:

1.	I have reviewed this annual report on Form 10-K of CUI Global, Inc.;
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 the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial 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(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange 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 ensure that 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 our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes 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 effectiveness of 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 fiscal quarter (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 the registrant'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 reasonably likely 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 over financial reporting.

By:	/s/ William J. Clough	March 18, 2019
	William J. Clough            Chief Executive Officer / Director

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Daniel N. Ford, certify that:

1.	I have reviewed this annual report on Form 10-K of CUI Global, Inc.;
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 the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial 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(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange 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 ensure that 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 our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes 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 effectiveness of 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 fiscal quarter (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 the registrant'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 reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

By:	/s/ Daniel N. Ford	March 18, 2019
	Daniel N. Ford            Chief Financial Officer/Principal Financial and Accounting Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of CUI Global, Inc. (the ‘‘Company’’), on Form 10-K for the period ended December 31, 2018, I hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. The annual report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the annual report fairly presents, in all materials respects, the financial condition and results of operations of the Company.

By:	/s/ William J. Clough	March 18, 2019
	William J. Clough            Chief Executive Officer/Director

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the annual report of CUI Global, Inc. (the ‘‘Company’’), on Form 10-K for the period ended December 31, 2018, I hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:

1. The annual report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the annual report fairly presents, in all materials respects, the financial condition and results of operations of the Company.

By:	/s/ Daniel N. Ford	March 18, 2019
	Daniel N. Ford            Chief Financial Officer/Principal Financial and Accounting Officer

XML

Document And Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2018	Mar. 18, 2019	Jun. 30, 2018
Document Information [Line Items]
Entity Registrant Name	CUI Global, Inc.
Entity Central Index Key	0001108967
Trading Symbol	cui
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding (in shares)		28,581,953
Entity Public Float			$ 73,354,786
Entity Shell Company	false
Document Type	10-K
Document Period End Date	Dec. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	FY
Amendment Flag	false

XML

Consolidated Balance Sheets - USD ($)	Dec. 31, 2018	Dec. 31, 2017
Current Assets:
Cash and cash equivalents	$ 3,979,000	$ 12,646,000
Trade accounts receivable, net of allowance of $167 and $135, respectively	14,416,000	10,833,000
Inventories, net of allowance of $2,495 and $946, respectively	13,042,000	13,892,000
Contract assets	1,744,000	2,299,000
Note receivable, current portion	318,000	13,000
Prepaid expenses and other	1,982,000	1,593,000
Total current assets	35,481,000	41,276,000
Property and equipment, less accumulated depreciation of $4,234 and $4,155, respectively	5,973,000	11,242,000
Goodwill	13,089,000	17,641,000
Other intangible assets, less accumulated amortization of $13,190 and $11,900, respectively	13,861,000	15,568,000
Restricted cash	523,000
Note receivable, less current portion		317,000
Convertible notes receivable	655,000
Deposits and other assets	585,000	1,865,000
Total assets	70,167,000	87,909,000
Current Liabilities:
Accounts payable	6,480,000	5,110,000
Short-term overdraft facility	1,344,000
Line of credit	979,000
Mortgage note payable, current portion		94,000
Accrued expenses	4,851,000	4,186,000
Current contract liabilities	2,226,000	8,829,000
Refund liabilities	2,417,000	695,000
Deferred gain on leaseback, current portion	289,000
Total current liabilities	18,586,000	18,914,000
Long term note payable, related party	5,304,000	5,304,000
Long term mortgage note payable, less current portion		3,256,000
Derivative liability		356,000
Deferred tax liabilities	1,922,000	2,414,000
Deferred gain on leaseback, less current portion	2,599,000
Other long-term liabilities	218,000	179,000
Total liabilities	28,629,000	30,423,000
Commitments and contingencies
Stockholders' Equity:
Preferred stock, par value $0.001; 10,000,000 shares authorized; no shares issued at December 31, 2018 or December 31, 2017
Common stock, par value $0.001; 325,000,000 shares authorized; 28,552,886 shares issued and outstanding at December 31, 2018 and 28,406,856 shares issued and outstanding at December 31, 2017	29,000	28,000
Additional paid-in capital	169,898,000	169,527,000
Accumulated deficit	(123,993,000)	(108,559,000)
Accumulated other comprehensive loss	(4,396,000)	(3,510,000)
Total stockholders' equity	41,538,000	59,377,000
Total liabilities and stockholders' equity	$ 70,167,000	87,909,000
Accounting Standards Update 2014-09 [Member]
Current Assets:
Inventories, net of allowance of $2,495 and $946, respectively		(1,064,000)
Contract assets		(516,000)
Total current assets		(1,580,000)
Total assets		(1,580,000)
Current Liabilities:
Current contract liabilities		(4,168,000)
Refund liabilities		870,000
Total current liabilities		(3,298,000)
Deferred tax liabilities		(173,000)
Total liabilities		(3,471,000)
Stockholders' Equity:
Accumulated deficit		1,891,000
Total stockholders' equity		1,891,000
Total liabilities and stockholders' equity		(1,580,000)
Previously Reported [Member] | Accounting Standards Update 2014-09 [Member]
Stockholders' Equity:
Total stockholders' equity		$ 57,486,000

XML

Consolidated Balance Sheets (Parentheticals) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Trade accounts receivable, allowance	$ 167	$ 135
Inventory allowance	2,495	946
Accumulated depreciation	4,234	4,155
Accumulated amortization	$ 13,190	$ 11,900
Preferred stock, par value (in dollars per share)	$ 0.001	$ 0.001
Preferred stock, authorized (in shares)	10,000,000	10,000,000
Preferred stock, issued (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, authorized (in shares)	325,000,000	325,000,000
Common stock, issued (in shares)	28,552,886	28,406,856
Common stock, outstanding (in shares)	28,552,886	28,406,856

XML

Consolidated Statements of Operations - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Total revenues	$ 96,789,000	$ 83,275,000	$ 86,461,000
Cost of revenues	67,879,000	55,406,000	54,200,000
Gross profit	28,910,000	27,869,000	32,261,000
Operating expenses:
Selling, general and administrative	36,341,000	33,921,000	34,239,000
Depreciation and amortization	2,152,000	2,163,000	2,366,000
Research and development	2,802,000	2,525,000	2,016,000
Provision (credit) for bad debt	33,000	(13,000)	93,000
Impairment of goodwill and other intangible assets	4,347,000	3,155,000
Other operating expenses	13,000	47,000	57,000
Total operating expenses	45,688,000	41,798,000	38,771,000
Loss from operations	(16,778,000)	(13,929,000)	(6,510,000)
Other (expense) income	(251,000)	234,000	(251,000)
Interest expense	(502,000)	(500,000)	(467,000)
Loss before taxes	(17,531,000)	(14,195,000)	(7,228,000)
Income tax (benefit) expense	(206,000)	(1,606,000)	38,000
Net loss	$ (17,325,000)	$ (12,589,000)	$ (7,266,000)
Basic and diluted weighted average number of shares outstanding (in shares)	28,517,339	22,397,865	20,897,812
Basic and diluted loss per common share (in dollars per share)	$ (0.61)	$ (0.56)	$ (0.35)

XML

Consolidated Statements of Comprehensive Income and (Loss) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Net loss	$ (17,325)	$ (12,589)	$ (7,266)
Other comprehensive income (loss)
Foreign currency translation adjustment	(886)	2,080	(4,150)
Comprehensive loss	$ (18,211)	$ (10,509)	$ (11,416)

XML

Consolidated Statements of Changes in Stockholders' Equity - USD ($) $ in Thousands		Previously Reported [Member] Common Stock [Member]	Previously Reported [Member] Additional Paid-in Capital [Member]	Previously Reported [Member] Retained Earnings [Member]	Previously Reported [Member] AOCI Attributable to Parent [Member]	Previously Reported [Member]	Restatement Adjustment [Member] Common Stock [Member]	Restatement Adjustment [Member] Additional Paid-in Capital [Member]	Restatement Adjustment [Member] Retained Earnings [Member]	Restatement Adjustment [Member] AOCI Attributable to Parent [Member]	Restatement Adjustment [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balance (in shares)												20,806,219
Balance (in shares) at Dec. 31, 2015												20,806,219
Balance at Dec. 31, 2015												$ 21	$ 149,639	$ (88,704)	$ (1,440)	$ 59,516
Options granted for services and compensation													227			227
Common stock issued for exercises of options (in shares)												718
Common stock issued for exercises of options
Common stock issued for compensation, royalties, and services payments (in shares)												109,911
Common stock issued for compensation, royalties, and services payments													308			308
Net loss														(7,266)		(7,266)
Other comprehensive loss															(4,150)	(4,150)
Balance (in shares)												20,806,219
Balance (in shares) at Dec. 31, 2016												20,916,848
Balance at Dec. 31, 2016												$ 21	150,174	(95,970)	(5,590)	48,635
Balance (in shares)												20,916,848
Common stock issued for exercises of options (in shares)												245
Common stock issued for exercises of options
Common stock issued for compensation, royalties, and services payments (in shares)												96,907
Common stock issued for compensation, royalties, and services payments													455			455
Net loss														(12,589)		(12,589)
Other comprehensive loss															2,080	2,080
Balance (in shares) | Accounting Standards Update 2014-09 [Member]		28,406,856
Balance (in shares)												20,916,848
Issuance of common stock, net (in shares)												7,392,856
Issuance of common stock, net												$ 7	18,898			18,905
Balance (in shares) (Accounting Standards Update 2014-09 [Member]) at Dec. 31, 2017		28,406,856
Balance (in shares) at Dec. 31, 2017												28,406,856
Balance (Accounting Standards Update 2014-09 [Member]) at Dec. 31, 2017		$ 28	$ 169,527	$ (108,559)	$ (3,510)	$ 57,486										1,891
Balance at Dec. 31, 2017												$ 28	169,527	(106,668)	(3,510)	59,377
Balance (in shares) | Accounting Standards Update 2014-09 [Member]		28,406,856
Balance (in shares)												28,406,856
Common stock issued for compensation, royalties, and services payments (in shares)												146,030
Net loss														(17,325)		(17,325)
Other comprehensive loss															(886)	(886)
Balance (in shares) | Accounting Standards Update 2014-09 [Member]		28,406,856
Balance (in shares)												28,406,856
Cumulative effect of accounting change (Accounting Standards Update 2014-09 [Member]) at Dec. 31, 2017	[1]								$ 1,891		$ 1,891
Common stock issued for compensation, services, and royalty payments												$ 1	371			372
Balance (in shares) at Dec. 31, 2018												28,552,886
Balance at Dec. 31, 2018												$ 29	$ 169,898	$ (123,993)	$ (4,396)	$ 41,538
Balance (in shares)												28,552,886

[1] Represents adjustment to accumulated deficit upon the adoption of Accounting Standards Codification Topic 606.

XML

Consolidated Statements of Cash Flows - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (17,325,000)	$ (12,589,000)	$ (7,266,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	1,103,000	1,009,000	925,000
Amortization of intangibles	1,902,000	1,841,000	1,923,000
Stock issued and stock to be issued for compensation, royalties and services	229,000	425,000	734,000
Non-cash gain and unrealized gain on derivative liability	(129,000)	(111,000)	(113,000)
Non-cash royalties, net (see Note 2 - Investment and note receivable)	(7,000)	(3,000)	19,000
Provision (credit) for bad debt expense	33,000	(13,000)	93,000
Deferred income taxes	(352,000)	(1,767,000)	(107,000)
Non-cash unrealized foreign currency loss (gain)	246,000	(362,000)	172,000
Impairment of goodwill and other intangible assets	4,347,000	3,155,000
Inventory reserves	1,592,000	138,000	312,000
Impairment of deposits and other assets	1,509,000
Loss on disposal of assets	13,000	47,000	57,000
(Increase) decrease in operating assets:
Trade accounts receivable	(3,841,000)	(1,150,000)	4,432,000
Inventories	(2,235,000)	(411,000)	(1,672,000)
Contract assets	(61,000)	591,000	(1,454,000)
Prepaid expenses and other current assets	(392,000)	(421,000)	105,000
Deposits and other assets	(59,000)	(506,000)	(25,000)
Increase (decrease) in operating liabilities:
Accounts payable	1,436,000	(1,163,000)	495,000
Accrued expenses	1,116,000	(464,000)	(518,000)
Refund liabilities	852,000	130,000	(30,000)
Contingent consideration		3,000	(54,000)
Contract liabilities	(2,260,000)	2,252,000	1,371,000
NET CASH USED IN OPERATING ACTIVITIES	(12,283,000)	(9,369,000)	(601,000)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds on sale of building, net	7,720,000
Payment for restricted investment	(400,000)
Purchases of property and equipment	(1,042,000)	(893,000)	(824,000)
Proceeds from sale of property and equipment		8,000	27,000
Investment in other intangible assets	(492,000)	(638,000)	(850,000)
Investment in convertible notes receivable	(655,000)
Proceeds from notes receivable	19,000	39,000
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES	5,150,000	(1,484,000)	(1,647,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from overdraft facility	19,532,000	9,782,000
Payments on overdraft facility	(18,122,000)	(9,782,000)
Proceeds from line of credit	19,955,000	22,332,000
Payments on line of credit	(18,976,000)	(22,332,000)
Payments on capital lease obligations	(3,000)	(29,000)	(41,000)
Payments on mortgage note payable	(3,350,000)	(89,000)	(85,000)
Payment to closeout derivative liability	(227,000)
Payments on contingent consideration	(45,000)	(61,000)	(59,000)
Proceeds from sales of common stock, net of offering costs		18,905,000
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES	(1,236,000)	18,726,000	(185,000)
Effect of exchange rate changes on cash	225,000	156,000	(217,000)
Net (decrease) increase in cash, cash equivalents and restricted cash	(8,144,000)	8,029,000	(2,650,000)
Cash, cash equivalents and restricted cash at beginning of year	12,646,000	4,617,000	7,267,000
CASH, CASH EQUIVALENTS AND RESTRICTED CASH AT END OF YEAR	4,502,000	12,646,000	4,617,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid	237,000	158,000	211,000
Interest paid, net of capitalized interest	520,000	500,000	469,000
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Common stock issued and issuable for royalties payable pursuant to product agreements, related party	14,000	16,000	38,000
Common stock issued and to be issued for consulting services and compensation in common stock	358,000	439,000	270,000
Exchange of investment in TPI in return for note receivable (Note 2)			385,000
Accrued property and equipment purchases at December 31	8,000	27,000	45,000
Accrued investment in other intangible assets at December 31	55,000	15,000	48,000
Assets acquired via capital leases			$ 19,000

XML

Note 1 - Nature of Operations, Basis of Presentation and Company Conditions

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Business Description and Basis of Presentation [Text Block]

1.

NATURE OF OPERATIONS AND BASIS OF PRESENTATION

CUI Global Inc. (CUI Global) is a platform company composed of

two

segments, the Power and Electromechanical segment and the Energy segment.

The Power and Electromechanical segment is made up of the wholly owned subsidiaries: CUI Inc. (CUI), based in Tualatin, Oregon; CUI Japan, based in Tokyo, Japan; and CUI-Canada, based in Toronto, Canada. All

three

subsidiaries are providers of power and electromechanical components including power supplies, transformers, converters, connectors and industrial controls for Original Equipment Manufacturers (OEMs).

The Power and Electromechanical segment defines its product offerings into

two

categories: 

power supply solutions

, which consists of external and embedded ac-dc power supplies, dc-dc converters, and advanced power supply solutions including the ICE products, and

components 

including connectors, speakers, buzzers, and control solutions including encoders and sensors. These offerings provide a technology architecture that addresses power and related accessories to industries as broadly ranging as consumer electronics, medical and defense, among others.

The Company’s Energy segment is made up of Orbital Gas Systems Ltd. (Orbital-UK) and Orbital Gas Systems, North America, Inc. (Orbital North America), collectively referred to as Orbital Gas Systems (Orbital). This business segment was formed when in

April 2013,

CUI Global acquired 

100%

of the capital stock of Orbital-UK, a United Kingdom-based provider of natural gas infrastructure and advanced technology, including metering, odorization, remote telemetry units (‘‘RTU’’) and a diverse range of personalized gas engineering solutions to the gas utilities, power generation, emissions, manufacturing and automotive industries. In

January 2015,

CUI Global formed and opened Orbital Gas Systems, North America, Inc. a wholly owned subsidiary, to represent the Energy segment in the North American market. GasPT® and VE®

Technology

products are sold through Orbital.

During the year ended

December 

31,

2018,

total revenues at CUI Global consisted of 

79%

from the Power and Electromechanical segment and

21%

 from the Energy segment.

XML

Note 2 - Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Significant Accounting Policies [Text Block]

2.

     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to review the Company’s goodwill, impairments and estimations of long-lived assets, revenue recognition on cost-to-cost type contracts, allowances for uncollectible accounts, inventory valuation, warranty reserves, valuations of non-cash capital stock issuances and the valuation allowance on deferred tax assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are

not

readily apparent from other sources. Actual results

may

differ from these estimates under different assumptions or conditions.

Company Conditions

The continued delays in shipment of GasPTs on a significant project due to governmental delays and the related slower than expected acceptance of this new disruptive technology has caused a delay in our expected profitability.

The Company had losses of

$17.3

million and cash used in operating activities of

$12.3

million during the year ended

December 31, 2018.

As of

December 31, 2018,

our accumulated deficit is

$124.0

million.

Management believes the Company's present cash flows will

not

enable it to meet its obligations for

twelve

months from the date these financial statements are available to be issued. However, management has developed a plan to address this issue. The plan included obtaining a new long-term financing in the form of a new line of credit, and utilizing the cash received from our recent sale/leaseback of our Tualatin headquarters. As part of this plan the Company has obtained a firm commitment from Bank of American for a

$10.0

million credit facility. The new line of credit is expected to close in

April

of

2019.

For more information on the Company's new line of credit, see Note

16

Subsequent Events. In addition, as of

December 31, 2018,

the Company has unused availability of

$2.0

million on its current line of credit and unused availability of

$0.6

million under its Overdraft Facility. However, our new credit facility will replace these facilities. Including our cash balance, we further have

$16.9

million of positive working capital primarily related to trade accounts receivable and our inventory less current liabilities that we will manage in the next

twelve

 months to create positive cash flow. Considering the above factors and the new line of credit, management believes it is probable that management’s plans will be achieved and will enable the Company to meet its obligations for the

twelve

-month period from the date the financial statements are available to be issued.

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of CUI Global, Inc. and its wholly owned subsidiaries CUI Inc., CUI Japan, CUI-Canada, CUI Properties, LLC, Orbital Gas Systems, Ltd. and Orbital Gas Systems, North America, Inc. hereafter referred to as the ‘‘Company.’’ Significant intercompany accounts and transactions have been eliminated in consolidation.

Fair Value of Financial Instruments

Accounting Standards Codification (‘‘ASC’’)

820

‘‘Fair Value Measurements and Disclosures’’ (‘‘ASC

820’’

) defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles in the U.S., and enhances disclosures about fair value measurements. ASC

820

describes a fair value hierarchy based on

three

levels of inputs, of which the

first

two

are considered observable and the last unobservable, that

may

be used to measure fair value, which are the following:

• Level 1 – Pricing inputs are quoted prices available in active markets for identical assets or liabilities as of the reporting date.

• Level 2 – Pricing inputs are quoted for similar assets, or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data. Level 2 includes assets or liabilities valued at quoted prices adjusted for legal or contractual restrictions specific to these investments.

• Level 3 – Pricing inputs are unobservable for the assets or liabilities; that is, the inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability.

The Company determines when a financial instrument transfers between levels based on management’s judgment of the significance of unobservable inputs used to calculate the fair value of the financial instrument.

Management believes the carrying amounts of the short-term financial instruments, including cash and cash equivalents, investment, note receivable, accounts receivable, contract assets, prepaid expense and other assets, accounts payable, accrued liabilities, contract liabilities, refund liabilities, and other liabilities reflected in the accompanying consolidated balance sheet approximate fair value at

December 

31,

2018

and

2017

due to the relatively short-term nature of these instruments. Mortgage debt and related notes payable approximate fair value based on current market conditions. The Company measures its derivative liability on a recurring basis using significant observable inputs (Level

2

). The Company’s derivative liability is valued using a LIBOR swap curve. As of

December 31, 2018,

the mortgage debt and derivative liability were repaid and had

zero

balances.

Cash and Cash Equivalents

Cash includes deposits at financial institutions with maturities of

three

months or less. The Company at times has cash in banks in excess of FDIC insurance limits and places its temporary cash investments with high credit quality financial institutions. The Company considers all highly liquid marketable securities with maturities of

90

days or less at the date of acquisition to be cash equivalents. Cash equivalents include money market funds, certificates of deposit and commercial paper. At

December 

31,

2018

and

2017,

the Company had 

$0.3

million and

$0.9

million, respectively, of cash and cash equivalents balances at domestic financial institutions that were covered under the FDIC insured deposits programs and 

$68

thousand and

$0.2

million, respectively, at foreign financial institutions covered under the United Kingdom Financial Services Compensation (FSC) and the Canada Deposit Insurance Corporation (CDIC). At

December 

31,

2018

and

2017,

the Company held

$0.3

million and

$0.1

million, respectively, in Japanese foreign bank accounts and

$1

thousand and

$0.1

million, respectively, in European foreign bank accounts and

$67

thousand and

$0.1

million, respectively, in Canadian bank accounts. In addition to the Company's unrestricted cash and cash equivalents, the Company has

$523

thousand of long-term restricted cash on its balance sheet related to a contract guarantee. The restricted cash is classified as long term in nature because the contract guarantee extends to the end of

2021.

Restricted cash is combined with other cash and cash equivalents in reconciling the change in cash on the Company's Consolidated Statements of Cash Flows.

Investments and Notes Receivable

Test Products International, Inc. ("TPI") is a provider of handheld test and measurement equipment. Through the acquisition of CUI Inc., the Company obtained

352,589

common shares (representing an

8.94%

interest from

January 1

to

March 31, 2014

and

8.5%

thereafter). Through

September 30, 2015,

CUI Global enjoyed a close association with TPI through common related parties, IED, Inc. and James McKenzie as well as through participation that allowed for a significant amount of influence over TPI’s business decisions. Accordingly, through

September 30, 2015,

for financial statement purposes, the Company recognized its investment in TPI under the equity method. Following a determination of reduction in influence and control, the investment was recorded using the cost method.

During the

first

quarter of

2016,

the investment in TPI was exchanged for a note receivable from TPI of

$0.4

million, which was the carrying value of the investment, earning interest at

5%

per annum, due

June 30, 2019.

The Company recorded interest income on the note of

$17

thousand,

$18

thousand and

$19

thousand for the years ended

December 31, 2018,

2017

and

2016,

respectively. The interest receivable has been settled on a quarterly basis via a non-cash offset against the finders-fee royalties earned by TPI on GasPT sales. Finders-fee royalties of

$10

thousand,

$16

thousand and

$37

thousand were earned by TPI in the years ended

December 

31,

2018,

2017

and

2016,

respectively, and offset against the note receivable on a quarterly basis. Also, in

2018

and

2017,

the Company received

$19

thousand and

$39

thousand, respectively, in cash payments against the note.  The balance on the note receivable at

December 31, 2018

and

2017

was

$318

thousand and

$330

thousand, respectively. CUI Global reviewed the note receivable for non-collectability as of

December 

31,

2018

and concluded that

no

allowance was necessary.

During

2018,

the Company made

two

strategic investments in convertible notes receivable with Virtual Power Systems ("VPS") for a total of

$655

thousand. CUI Inc. is the exclusive

third

-party design and development provider of VPS's ICE (Intelligent Control of Energy) products. See Note

3,

Investments and Fair Value Measurements for more information on these convertible notes.

Accounts Receivable and Allowance for Uncollectible Accounts

Accounts receivable consist of the receivables associated with revenue derived from product sales including present amounts due to contracts accounted for under cost-to-cost method. An allowance for uncollectible accounts is recorded to allow for any amounts that

may

not

be recoverable, based on an analysis of prior collection experience, customer credit worthiness and current economic trends. Based on management’s review of accounts receivable, an allowance for doubtful accounts of

$0.2

million and

$0.1

million at

December 

31,

2018

and

2017,

respectively, is considered adequate. The reserve in both periods considers aged receivables that management believes should be specifically reserved for as well as historic experience with bad debts to determine the total reserve appropriate for each period. Receivables are determined to be past due based on the payment terms of original invoices. The Company grants credit to its customers, with standard terms of Net

30

days. The Company routinely assesses the financial strength of its customers and, therefore, believes that its accounts receivable credit risk exposure is limited. Additionally, the Company maintains a foreign credit receivables insurance policy that covers many of the CUI Inc. foreign customer receivable balances in an effort to further reduce credit risk exposure.

Activity in the allowance for doubtful accounts for the years ended

December 

31,

2018,

2017

and

2016

is as follows:

(In thousands)	For the Years ended December 31,
	2018			2017			2016
Allowance for doubtful accounts, beginning of year	$	135		$	151		$	90
Charge (credit) to costs and expenses		33			(13	)		93
Deductions		(1	)		(3	)		(32	)
Allowance for doubtful accounts, end of year	$	167		$	135		$	151

Inventories

Inventories consist of finished and unfinished products and are stated at the lower of cost or market through either the

first

-in,

first

-out (FIFO) method as a cost flow convention or through the moving average cost method.

At

December 

31,

2018,

and

2017,

inventory is presented on the balance sheet net of reserves. The Company provides reserves for inventories estimated to be excess, obsolete or unmarketable. The Company’s estimation process for assessing the net realizable value is based upon its known backlog, projected future demand, historical usage and expected market conditions. Manufactured inventory includes material, labor and overhead. Inventory by category consists of:

(In thousands)	As of December 31,
	2018			2017
Finished goods	$	10,143		$	10,792
Raw materials		4,200			3,287
Work-in-process		1,194			759
Inventory reserves		(2,495	)		(946	)
Total inventories	$	13,042		$	13,892

Activity in inventory reserves is as follows:

(In thousands)	For the Years ended December 31,
	2018			2017		2016
Inventory reserves, beginning of year	$	946		$	774	$	483
Charge to costs and expenses		1,592			138		312
Other (deductions) additions		(43	)		34		(21	)
Inventory reserves, end of year	$	2,495		$	946	$	774

In the

fourth

quarter of

2018,

the Company recorded an additional inventory reserve of

$1.4

million related to slow-moving inventory in the Energy segment.

Land, Buildings, Improvements, Furniture, Vehicles, Equipment, and Leasehold Improvements

Land is recorded at cost and includes expenditures made to ready it for use. Land is considered to have an infinite useful life.

Buildings and improvements are recorded at cost.

Furniture, vehicles, and equipment are recorded at cost and include major expenditures, which increase productivity or substantially increase useful lives.

Leasehold improvements are recorded at cost and are depreciated over the lesser of the lease term, estimated useful life, or

ten

years.

The cost of buildings, improvements, furniture, vehicles, and equipment is depreciated over the estimated useful lives of the related assets.

Depreciation is computed using the straight-line method for financial reporting purposes. The estimated useful lives for buildings, improvements, furniture, vehicles, and equipment are as follows:

	Estimated Useful Life (years)
Buildings and improvements		5	to	39
Furniture and equipment		3	to	10
Vehicles		3	to	5

Maintenance, repairs and minor replacements are charged to expenses when incurred. When buildings, improvements, furniture, equipment and vehicles are sold or otherwise disposed of, the asset and related accumulated depreciation are removed from this account, and any gain or loss is included in the statement of operations or as a deferred gain liability on the balance sheets.

Long-Lived Assets

Long-lived assets including finite-lived intangible assets are periodically reviewed for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts

may

not

be recoverable. In performing the review for recoverability, the future cash flows expected to result from the use of the asset and its eventual disposition are estimated. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the long-lived asset, an impairment loss is recognized as the excess of the carrying amount over the fair value. Otherwise, an impairment loss is

not

recognized. Management estimates the fair value and the estimated future cash flows expected. Any changes in these estimates could impact whether there was impairment and the amount of the impairment.

In the

fourth

quarter of

2018,

the Company determined that certain long-term prepaid assets classified on the balance sheet as deposits and other assets, which were reliant on future revenue within the Energy segment in order to be amortized to expense, did

not

have adequate forecasted revenue to justify the current valuation. This was primarily driven by the lack of substantial sales over the last

two

years within the Energy segment and uncertainty regarding the level of future sales. For that reason, the Company recorded a

$1.5

million impairment to deposits and other assets and reclassified

$0.1

million to prepaid assets. The amount reclassified to prepaid assets related to prepaid royalties associated with expected

2019

revenue.

In

2018,

the Company also performed an undiscounted cash flows impairment analysis as prescribed under ASC

360

Property, Plant and Equipment

on its long-lived fixed assets and its finite lived intangible assets at Orbital-UK due to an indication that the overall carrying value of the operating unit was

not

recoverable. Based upon that analysis,

no

impairment was identified for those assets.

No

impairments were recognized in

2017

or

2016.

Identifiable Intangible Assets

Intangible assets are stated at cost net of accumulated amortization and impairment. The fair value for intangible assets acquired through acquisitions is measured at the time of acquisition utilizing the following inputs, as needed:

1. Inputs used to measure fair value are unadjusted quote prices available in active markets for the identical assets or liabilities if available.

2. Inputs used to measure fair value, other than quoted prices included in 1, are either directly or indirectly observable as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in inactive markets. This includes assets and liabilities valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full life of the asset.

3.	Inputs used to measure fair value are unobservable inputs supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.
4.	Expert appraisal and fair value measurement as completed by third -party experts.

 The following are the estimated useful life for the intangible assets:

	Estimated
	Useful
	Life (years)
Finite-lived intangible assets
Order backlog			2
Trade name - Orbital			10
Trade name - V-Infinity			5
Trade name - CUI-Canada			3
Customer list - Orbital			10
Customer list - CUI-Canada			7
Technology rights			20 (1)
Technology-Based Asset - Know How			12
Technology-Based Asset - Software			10
Technology-Based Asset - Power			7
Software		3	to	5  (2)
Patents	See endnote (3)
Other intangible assets	See endnote (4)
Indefinite-lived intangible assets
Trade name - CUI	See endnote (5)
Customer list - CUI	See endnote (5)
Patents pending technology	See endnote (5)

( 1 ) Technology rights are amortized over a  20 -year life or the term of the rights agreement.

( 2 ) Software assets are recorded at cost and include major expenditures, which increase productivity or substantially increase useful lives.

( 3 ) Patents are amortized over the life of the patent. Any patents not approved will be expensed at that time.

( 4 ) Other intangible assets are amortized over an appropriate useful life, as determined by management in relation to the other intangible asset characteristics.

( 5 ) Indefinite-lived intangible assets are reviewed annually for impairment and when circumstances suggest.

Indefinite-Lived Intangibles and Goodwill Assets

The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC

805,

‘‘Business Combinations,’’ where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values. The purchase price is allocated using the information currently available, and

may

be adjusted, up to

one

year from acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates. The purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill.

Annual Test.

The Company tests for impairment of indefinite-lived intangibles and Goodwill in the

second

quarter of each year and whenever events or circumstances indicate that the carrying amount of Goodwill exceeds its fair value and

may

not

be recoverable. The Company’s qualitative assessment for indefinite-lived assets at

May 31, 2018,

followed the guidance in ASC

350

-

30

-

35

-

18A

and

18B.

Under current accounting guidance, CUI Global is

not

required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than

not

that its fair value is less than its carrying amount. The guidance includes a number of factors to consider in conducting the qualitative assessment. The Company tests for goodwill impairment in the

second

quarter of each year and whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its fair value and

may

not

be recoverable.

As detailed in ASC

350

-

20

-

35

-

3A,

in performing its testing for Goodwill as of

May 31, 2018,

management completed a qualitative analysis to determine whether it was more likely than

not

that the fair value of a reporting unit is less than its carrying amount, including Goodwill. To complete the qualitative review, management follows the steps in ASC

350

-

20

-

35

-

3C

to evaluate the fair values of the Goodwill and considers all known events and circumstances that might trigger an impairment of Goodwill.

During our review of Goodwill as of

May 31, 2018,

the Company determined that there were indicators present to suggest that it was more likely than

not

that the fair value of the Orbital-UK reporting unit was less than its carrying amount.

The significant changes for the Orbital-UK reporting unit subsequent to the most recent impairment test performed as of

December 31, 2017

included a decline in the

2018

actual revenue, operating income and cash flows compared to prior forecasts for the same period and a negative change in the

2018

forecasted revenue, operating income and cash flows for the remainder of the year due in part to the longer than expected temporary halt in shipping of its GasPT product to a major customer in Italy and market uncertainty due to the continuing effects of Brexit.

To test the Orbital-UK reporting unit for impairment as of

May 31, 2018,

the Company used a quantitative test. The Company estimated the fair value of the Orbital-UK reporting unit using a blend of a market approach and an income approach, which was deemed to be the most indicative of fair value in an orderly transaction between market participants. Under the income approach, the Company determined fair value based on estimated future cash flows of the Orbital-UK reporting unit discounted by an estimated weighted-average cost of capital, reflecting the overall level of inherent risk of the Orbital-UK reporting unit and the rate of return an outside investor would expect to earn. The Company based its cash flow projections for the Orbital-UK reporting unit using a forecast of cash flows and a terminal value developed by capitalizing an assumed stabilized cash flow figure. The forecast and related assumptions were derived from an updated financial forecast prepared during the

second

quarter of

2018.

At that time, a key assumption related to the recoverability of the Orbital-UK reporting unit Goodwill was the resumption of delivery of GasPT product to

one

of our major customers and continued strengthening of our integration revenues. Under the market approach, appropriate valuation multiples were derived from the historical operating data of selected guideline companies. The valuation multiples were evaluated and adjusted based on the strengths and weaknesses of the Company relative to the selected guideline companies and the multiple was then applied to the appropriate operating data of the Company to arrive at an indication of fair market value. As a result of the analysis, the Company concluded that the carrying value of the Orbital-UK reporting unit exceeded its estimated fair value. The quantitative test for the Orbital-UK reporting unit resulted in an impairment for the Orbital-UK reporting unit, and the Company recorded a Goodwill impairment charge of

$1.3

million during the

second

quarter of

2018.

December 2018

Interim Test.

During the

fourth

quarter of

2018,

the Company determined there were indicators present to suggest that it was more likely than

not

that the fair value of the Orbital-UK reporting unit was less than its carrying amount. The significant changes for the Orbital-UK reporting unit subsequent to the annual goodwill impairment test performed as of

May 31, 2018

were driven by a slower recovery in the Energy segment than originally forecasted. Actual GasPT revenue continued to lag behind forecasted revenue as acceptance of the technology continued to be slower than anticipated and delays associated with existing customer contracts that have

not

yet resumed. This slower than expected recovery, led to lower

2018

Energy segment revenue, operating income and cash flows than originally forecasted.

To test the Orbital-UK reporting unit for impairment, the Company used a quantitative test similar to the

one

used at

May 31, 2018

with updated financial forecasts and assumptions based on the information available at

December 31, 2018.

As a result of the analysis, the Company concluded that the carrying value of the Orbital-UK reporting unit exceeded its estimated fair value. The quantitative test for the Orbital-UK reporting unit resulted in an impairment for the Orbital-UK reporting unit, and the Company recorded a goodwill impairment charge of

$3.1

million during the

fourth

quarter of

2018,

which was a write-off of the remaining Energy segment goodwill. In addition, the reporting units in the Power and Electromechanical segment were also tested for impairment due to the overall decrease in market capitalization experienced in

2018.

 

As of

December 31, 2018,

there was goodwill remaining for CUI Inc., CUI-Canada and CUI-Japan reporting units, which are included in the Power and Electromechanical segment.

December 2017

Interim Test.

During the

fourth

quarter of

2017,

the Company determined that there were indicators present to suggest that it was more likely than

not

that the fair value of the Orbital-UK reporting unit was less than its carrying amount. The significant changes for the Orbital-UK reporting unit subsequent to the annual goodwill impairment test performed as of

May 31, 2017

included a decline in the

2017

actual revenue, operating income and cash flows compared to previously forecasted results and a decline in the

2018

forecasted revenue, operating income and cash flows due in part to the longer than expected temporary halt in shipping of its GasPT product to a major customer in Italy and market uncertainty due to the continuing effects of Brexit.

To test the Orbital-UK reporting unit for impairment, the Company used a quantitative test. The Company estimated the fair value of the Orbital-UK reporting unit using a blend of a market approach and an income approach, which was deemed to be the most indicative of fair value in an orderly transaction between market participants. Under the income approach, the Company determined fair value based on estimated future cash flows of the Orbital-UK reporting unit discounted by an estimated weighted-average cost of capital, reflecting the overall level of inherent risk of the Orbital-UK reporting unit and the rate of return an outside investor would expect to earn. The Company based its cash flow projections for the Orbital-UK reporting unit using a forecast of cash flows and a terminal value developed by capitalizing an assumed stabilized cash flow figure. The forecast and related assumptions were derived from an updated financial forecast prepared during the

fourth

quarter of

2017.

Under the market approach, appropriate valuation multiples were derived from the historical operating data of selected guideline companies. The valuation multiples were evaluated and adjusted based on the strengths and weaknesses of the Company relative to the selected guideline companies and the multiple was then applied to the appropriate operating data of the Company to arrive at an indication of fair market value. As a result of the analysis, the Company concluded that the carrying value of the Orbital-UK reporting unit exceeded its estimated fair value. The quantitative test for the Orbital-UK reporting unit resulted in an impairment for the Orbital-UK reporting unit, and the Company recorded a goodwill impairment charge of

$3.2

million during the

fourth

quarter of

2017.

2016

Annual Test.

In

2016,

the analysis, determined there was

no

impairment necessary to goodwill. Through these reviews, management concluded there were

no

events or circumstances that triggered an impairment (and there was

no

expectation that a reporting unit or a significant portion of a reporting unit would be sold or otherwise disposed of in the following year), therefore,

no

further analysis was necessary to prepare for goodwill impairment beyond the steps in

350

-

20

-

35

-

3C

in accordance with current accounting guidance. On a periodic basis, we will also perform a quantitative analysis of goodwill impairment and in

2016,

in addition to the qualitative analysis, we performed a quantitative analysis of goodwill impairment and concluded

no

impairment of goodwill was required.

Patent Costs

The Company estimates the patents it has filed have a future beneficial value; therefore it capitalizes the costs associated with filing for its patents. At the time the patent is approved, the patent costs associated with the patent are amortized over the useful life of the patent. If the patent is

not

approved, at that time the costs will be expensed.

Accrued expenses

Accrued expenses are liabilities that reflect expenses on the statement of operations that have

not

been paid or recorded in accounts payable at the end of the period. At

December 

31,

2018

and

December 

31,

2017,

accrued expenses of

$4.9

million and

$4.2

million, respectively, included

$1.7

million and

$1.9

million, respectively, of accrued compensation and

$1.7

million and

$1.3

million, respectively, of accrued inventory payable.

Derivative instruments

The Company uses various derivative instruments including forward currency contracts, and interest rate swaps to manage certain exposures. These instruments are entered into under the Company’s corporate risk management policy to minimize exposure and are

not

for speculative trading purposes. The Company recognizes all derivatives as either assets or liabilities in the consolidated balance sheet and measures those instruments at fair value. Changes in the fair value of derivatives are recognized in earnings. The Company has limited involvement with derivative instruments and does

not

trade them. From time to time, the Company

may

enter into foreign currency exchange contracts to minimize the risk associated with foreign currency exchange rate exposure from expected future cash flows. The Company had entered into

one

interest rate swap, which had a maturity date of

ten

years from the date of inception, and was used to minimize the interest rate risk on the variable rate mortgage. During the years ended

December 

31,

2018,

2017

and

2016,

the Company had a non-cash gain and unrealized gains of

$129

thousand,

$111

thousand, and

$113

thousand, respectively, related to the derivative liabilities. During the year ended

December 31, 2018,

the Company paid

$227

thousand to close out the interest rate swap in conjunction with the repayment of the related variable rate mortgage.

Derivative Liabilities

The Company evaluates embedded conversion features pursuant to FASB Accounting Standards Codification

No.

815

(‘‘FASB ASC

815’’

), ‘‘Derivatives and Hedging,’’ which requires a periodic valuation of the fair value of derivative instruments and a corresponding recognition of liabilities associated with such derivatives.

Stock-Based Compensation

The Company records its stock-based compensation expense under its stock option plans and also issues stock for services. The Company accounts for stock-based compensation using FASB Accounting Standards Codification

No.

718

(‘‘FASB ASC

718’’

), ‘‘Compensation – Stock Compensation.’’ FASB ASC

718

requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related vesting period.

Stock bonuses issued to employees are recorded at fair value using the market price of the stock on the date of grant and expensed over the vesting period or immediately if fully vested on date of issuance. Employee stock options are recorded at fair value using the Black-Scholes option pricing model. The underlying assumptions used in the Black-Scholes option pricing model by the Company are taken from publicly available sources including: (

1

) volatility, which is calculated using historic stock price information from online finance websites such as Google Finance and Yahoo Finance; (

2

) the stock price on the date of grant is obtained from online finance websites such as those previously noted; (

3

) the appropriate discount rates are obtained from the United States Federal Reserve economic research and data website; and (

4

) other inputs are determined based on previous experience and related estimates. With regards to expected volatility, the Company utilizes an appropriate period for historical share prices for CUI Global that best reflect the expected volatility for determining the fair value of its stock options.

See Note 

10

Stockholders' Equity for additional disclosure and discussion of the employee stock plan and activity.

Common stock, stock options and common stock warrants issued to other than employees or directors are also recorded on the basis of their fair value, as required by FASB ASC

505,

which is measured as of the date required by FASB ASC

505,

‘‘Equity – Based Payments to Non-Employees.’’ In accordance with FASB ASC

505,

the stock options or common stock warrants are valued using the Black-Scholes option pricing model on the basis of the market price of the underlying common stock on the ‘‘valuation date,’’ which for options and warrants related to contracts that have substantial disincentives to non-performance is the date of the contract, and for all other contracts is the performance completion date. Expense related to the options and warrants is recognized on a straight-line basis over the shorter of the period over which services are to be received or the vesting period. Where expense must be recognized prior to a valuation date, the expense is computed based off an estimate of the fair value of the stock award as valued under the Black-Scholes option pricing model on the basis of the market price of the underlying common stock at the end of the period, and any subsequent changes in the market price of the underlying common stock up through the valuation date is reflected in the expense recorded in the subsequent period in which that change occurs.

Common stock issued to other than employees or directors subject to performance (performance based awards) require interpretation to include ASC

505

-

50

-

30

-

13

as to when the counterparty’s performance is complete based on delivery, or other relevant performance criteria in accordance with the relevant agreement. When performance is complete, the common stock is issued and the expense recorded on the basis of their value as required by FASB ASC

505

on the date the performance requirement is achieved.

Defined Contribution Plans

The Company has a

401

(k) retirement savings plan that allows employees to contribute to the plan after they have completed

60

days of service and are

18

years of age. The Company matches the employee's contribution up to

6%

of total compensation. CUI Inc., Orbital Gas Systems, North America, Inc., and CUI Global made total employer contributions, net of forfeitures, of

$0.5

million,

$0.4

million, and

$0.4

million for

2018,

2017

and

2016,

respectively.

Orbital-UK operates a defined contribution retirement benefit plan for employees who have been employed with the company at least

12

months and who chose to enroll in the plan. Orbital-UK contributes to its plan the equivalent of

5%

of the employee's salary and the employee has the option to contribute pre-tax earnings. Orbital-UK made total employer contributions of

$0.3

million,

$0.2

million and

$0.3

million during

2018,

2017,

and

2016,

respectively.

Revenue Recognition

On

January 1, 2018,

we adopted the new accounting standard ASC

606,

“Revenue from Contracts with Customers” and all the related amendments (“new revenue standard"), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. This guidance includes the required steps to achieve the core principle that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new revenue standard was applied using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to accumulated deficit as of

January 1, 2018.

As a result of the adoption of this standard, certain changes have been made to the consolidated balance sheets. We expect the ongoing impact of the adoption of the new standard to primarily affect the timing of revenue recognition. The most significant impact was on Power and Electromechanical segment revenue with certain distribution customers that was previously recorded as “sell through." Under the new accounting guidance, we record the revenue upon sale to the distributor with an appropriate amount reserved for estimated returns and allowances as the Company recognizes revenue at the time the related performance obligation is satisfied by transferring a promised good or service to its customers. For the Power and Electromechanical segment, their revenue is based upon the transfer of goods and satisfaction of its performance obligations as of a point in time. During the transition this had the effect of having a certain amount of revenue

not

recorded as revenue but as part of the cumulative effect of the accounting change. For the majority of contracts in the Energy segment, revenue is still measured over time using the cost-to-cost method. The change that most affected the transition adjustment on Energy segment revenue was the requirement to limit revenue recognition on contracts without an enforceable right to payment for performance completed to date. Revenue on contracts without a specific enforceable right to payment on work performed to date was "clawed back" as part of the Company's transition adjustment. The cumulative effect adjustment recorded as of

January 1, 2018

was a net

$1.9

million decrease to accumulated deficit due to a

$2.8

million transition adjustment from the Power and Electromechanical segment partially offset by a $(

0.9

) million transition adjustment from the Energy segment, net of deferred tax.

As a result of the adoption of ASC

606,

the following items have been reclassified from the captions in the

December 31, 2017

consolidated balance sheet included in our Form

10

-K for the year ended

December 31, 2017

to the captions in the

December 31, 2017

consolidated balance sheet appearing herein:

Captions in December 31, 2017 consolidated balance sheet within Form 10 -K	Reclassified to	Captions in December 31, 2017 consolidated balance sheet herein
Costs in excess of billings		Contract assets
Billings in excess of costs		Contract liabilities
Unearned revenue		Contract liabilities
Unearned revenue		Refund liabilities

Changes in these accounts as reclassified are reflected on the consolidated statement of cash flows for the years ended

December 31, 2017

and

2016.

As mentioned above, on

January 1, 2018,

we adopted ASC Topic

606

and the related amendments ("ASC

606"

) using the modified retrospective method applied to those contracts which were

not

completed as of

December 31, 2017.

Results for operating periods beginning after

January 1, 2018

are presented under ASC

606,

while comparative information has

not

been restated and continues to be reported in accordance with the accounting standards in effect for those periods. We recognized the cumulative effect of initially applying ASC

606

as an adjustment to accumulated deficit in the balance sheet as of

January 1, 2018

as follows:

(in thousands)	Balance at December 31, 2017			Adjustments Due to ASC 606			Balance at January 1, 2018
Balance Sheet
Assets:
Inventories	$	13,892		$	(1,064	)	$	12,828
Contract assets		2,299			(516	)		1,783
Total current assets		41,276			(1,580	)		39,696
Total assets	$	87,909		$	(1,580	)	$	86,329
Liabilities:
Contract liabilities	$	8,829		$	(4,168	)	$	4,661
Refund liabilities		695			870			1,565
Total current liabilities		18,914			(3,298	)		15,616
Deferred tax liabilities		2,414			(173	)		2,241
Total liabilities		30,423			(3,471	)		26,952
Stockholders' Equity:
Accumulated deficit		(108,559	)		1,891			(106,668	)
Total stockholders' equity		57,486			1,891			59,377
Total liabilities and stockholders' equity	$	87,909		$	(1,580	)	$	86,329

The impact of adoption on our consolidated balance sheet and consolidated statement of operations as of and for the year ended

December 31, 2018

was as follows:

(In thousands, except per share amounts)	For the Year Ended December 31, 2018
	As Reported			Balances Without Adoption of ASC 606			Effect of Change Higher / (Lower)
Statement of Operations
Total revenues	$	96,789		$	91,417		$	5,372
Cost of revenues		67,879			64,495			3,384
Gross profit		28,910			26,922			1,988
Loss from operations		(16,778	)		(18,766	)		1,988
Loss before taxes		(17,531	)		(19,519	)		1,988
Income tax (benefit) expense		(206	)		(462	)		256
Net loss	$	(17,325	)	$	(19,057	)	$	1,732
Basic and diluted loss per common share	$	(0.61	)	$	(0.67	)	$	0.06

(in thousands)	As of December 31, 2018
	As Reported			Balances Without Adoption of ASC 606			Effect of Change Higher / (Lower)
Balance Sheet
Assets:
Inventories	$	13,042		$	17,578		$	(4,536	)
Contract assets		1,744			2,109			(365	)
Total current assets		35,481			40,382			(4,901	)
Total assets	$	70,167		$	75,068		$	(4,901	)
Liabilities:
Contract liabilities	$	2,226		$	12,203		$	(9,977	)
Refund liabilities		2,417			1,063			1,354
Total current liabilities		18,586			27,209			(8,623	)
Deferred tax liabilities		1,922			1,823			99
Total liabilities		28,629			37,153			(8,524	)
Stockholders' Equity:
Accumulated deficit		(123,993	)		(127,616	)		3,623
Total stockholders' equity		41,538			37,915			3,623
Total liabilities and stockholders' equity	$	70,167		$	75,068		$	(4,901	)

The adoption of ASC

606

had

no

impact on the Company’s cash flows from operations.

Power and Electromechanical segment

The Power and Electromechanical segment generates its revenue from

two

categories of products:

power supply solutions

 - including external and embedded ac-dc power supplies, dc-dc converters, basic digital point of load modules, ICE (Intelligent Control of Energy) products enabled by the VPS patented software system and offering a technology architecture that addresses power and related accessories; and 

components

 - including connectors, speakers, buzzers, and industrial control solutions including encoders and sensors. These offerings provide a technology architecture that addresses power and related accessories to industries as broadly ranging as telecommunications, consumer electronics, medical and defense, among others. The production and delivery of these products are considered single performance obligations. Revenue is recognized when we satisfy a performance obligation and this occurs upon shipment and ownership transfer of our products to our customers at a point in time.

Energy segment

The Energy segment subsidiaries, collectively referred to as Orbital Gas Systems (Orbital), generate their revenue from a portfolio of products, services and resources that offer a diverse range of personalized gas engineering solutions to the gas utilities, power generation, petrochemical, emissions, manufacturing and automotive industries, among others.

Orbital accounts for a majority of its contract revenue proportionately over time. For our performance obligations satisfied over time, we recognize revenue by measuring the progress toward complete satisfaction of that performance obligation. The selection of the method to measure progress towards completion can be either an input method or an output method and requires judgment based on the nature of the goods or services to be provided.

For our construction contracts, revenue is generally recognized over time as our performance creates or enhances an asset that the customer controls. Our fixed price construction projects generally use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.

The timing of revenue recognition for Energy products also depends on the payment terms of the contract, as our performance does

not

create an asset with an alternative use to us. For those contracts which we have a right to payment for performance completed to date at all times throughout our performance, inclusive of a cancellation, we recognize revenue over time. As discussed above, these performance obligations use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer. However, for those contracts for which we do

not

have a right, at all times, to payment for performance completed to date, we recognize revenue at the point in time when control is transferred to the customer.

For our service contracts, revenue is also generally recognized over time as the customer simultaneously receives and consumes the benefits of our performance as we perform the service. For our fixed price service contracts with specified service periods, revenue is generally recognized on a straight-line basis over such service period when our inputs are expended evenly, and the customer receives and consumes the benefits of our performance throughout the contract term.

For certain of our revenue streams, such as call-out repair and service work, and outage services, that are performed under time and materials contracts, our progress towards complete satisfaction of such performance obligations is measured using an output method as the customer receives and consumes the benefits of our performance completed to date.

Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicate a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident.

Product-type contracts (for example, sale of GasPT units) for which revenue does

not

qualify to be recognized over time are recognized at a point in time. Revenues from warranty and maintenance activities are recognized ratably over the term of the warranty and maintenance period.

Accounts Receivable, Contract Assets and Contract Liabilities

Accounts receivable are recognized in the period when our right to consideration is unconditional. Accounts receivable are recognized net of an allowance for doubtful accounts. A considerable amount of judgment is required in assessing the likelihood of realization of receivables.

The timing of revenue recognition

may

differ from the timing of invoicing to customers. Contract assets include unbilled amounts from our construction projects when revenue recognized under the cost-to-cost measure of progress exceed the amounts invoiced to our customers, as the amounts cannot be billed under the terms of our contracts. Such amounts are recoverable from our customers based upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of a contract. Also included in contract assets are amounts we seek or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders or modifications in dispute or unapproved as to both scope and/or price or other customer-related causes of unanticipated additional contract costs (claims and unapproved change orders). Our contract assets do

not

include capitalized costs to obtain and fulfill a contract. Contract assets are generally classified as current within the Consolidated Balance Sheets.

Contract liabilities from our construction contracts occur when amounts invoiced to our customers exceed revenues recognized under the cost-to-cost measure of progress. Contract liabilities additionally include advanced payments from our customers on certain contracts. Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation and are recorded as either current or long-term, depending upon when we expect to recognize such revenue.

Activity in the current contract liabilities for the year ended

December 31, 2018

was as follows:

(In thousands)
Current contract liabilities - January 1, 2018	$	4,661
Long-term contract liabilities - January 1, 2018 (1)		84
Total contract liabilities - January 1, 2018	$	4,745
Total contract liabilities - January 1, 2018	$	4,745
Contract additions, net		2,168
Revenue recognized		(4,356	)
Translation		(202	)
Total contract liabilities - December 31, 2018	$	2,355
Current contract liabilities - December 31, 2018	$	2,226
Long-term contract liabilities - December 31, 2018 (1)		129
Total contract liabilities - December 31, 2018	$	2,355

(

1

)

Long-term contract liabilities are included in Other long-term liabilities on the Consolidated Balance Sheets.

Refund Liabilities and Corresponding Inventory Adjustment

Refund liabilities primarily represent estimated future new product introduction returns and estimated future scrap returns. Estimated future returns and allowances are reserved based on historical return rates. In addition to the refund liabilities recorded for future returns, the Company also records an adjustment to inventory and corresponding adjustment to cost of revenue for the Company's right to recover products from customers upon settling the refund liability.

Performance Obligations

Remaining Performance Obligations

Remaining performance obligations, represents the transaction price of firm orders for which work has

not

been performed and excludes unexercised contract options and potential orders under ordering-type contracts. As of 

December 31, 2018, 

the Company's remaining performance obligations are generally expected to be filled within the next

12

months.

Any adjustments to net revenues, cost of revenues, and the related impact to operating income are recognized as necessary in the period they become known. These adjustments

may

result from positive program performance, and

may

result in an increase in operating income during the performance of individual performance obligations, if we determine we will be successful in mitigating risks surrounding the technical, schedule and cost aspects of those performance obligations. Likewise, these adjustments

may

result in a decrease in operating income if we determine we will

not

be successful in mitigating these risks. Changes in estimates of net revenues, cost of revenues and the related impact to operating income are recognized on a cumulative catch-up basis in the period they become known, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation's percentage of completion. A significant change in

one

or more of these estimates could affect the profitability of

one

or more of our performance obligations. For separately priced extended warranty or product maintenance performance obligations, when estimates of total costs to be incurred on the performance obligation exceed total estimates of revenue to be earned, a provision for the entire loss on the performance obligation is recognized in the period the loss is determined.

Performance Obligations Satisfied Over Time

To determine the proper revenue recognition method for contracts for our Energy segment, we evaluate whether a single contract should be accounted for as more than

one

performance obligation. This evaluation requires significant judgment and the decision to separate the single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period.

For most of our contracts, the customer contracts with us to provide a significant service of integrating a complex set of tasks and components into a single project or capability (even if that single project results in the delivery of multiple units). Hence, the entire contract is accounted for as

one

performance obligation. Less commonly, however, we

may

promise to provide distinct goods or services within a contract in which case we separate the contract into more than

one

performance obligation. If a contract is separated into more than

one

performance obligation, we allocate the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. We infrequently sell standard products with observable standalone sales. In cases where we do, the observable standalone sales are used to determine the standalone selling price. More frequently, we sell a customized customer specific solution, and in these cases we typically use the expected cost plus a margin approach to estimate the standalone selling price of each performance obligation.

Performance Obligations Satisfied at a Point in Time.

Revenue from goods and services transferred to customers at a single point in time accounted for 

84%

of revenues for the year ended

December 31, 2018.

The majority of our revenue recognized at a point in time is in our Power and Electromechanical segment. Revenue on these contracts is recognized when the product is shipped and the customer takes ownership of the product. Determination of ownership and control transfer is determined by shipping terms delineated on the customer purchase orders.

Variable Consideration

The nature of our contracts gives rise to several types of variable consideration, including new product introduction returns and scrap return allowances primarily in our Power and Electromechanical segment. In rare instances in our Energy segment, we include in our contract estimates, additional revenue for submitted contract modifications or claims against the customer when we believe we have an enforceable right to the modification or claim, the amount can be estimated reliably and its realization is probable. In evaluating these criteria, we consider the contractual/legal basis for the claim, the cause of any additional costs incurred, the reasonableness of those costs and the objective evidence available to support the claim. We include new product introduction and scrap return estimates in our calculation of net revenue when there is a basis to reasonably estimate the amount of the returns. These estimates are based on historical return experience, anticipated returns and our best judgment at the time. These amounts are included in our calculation of net revenue recorded for our contracts and the associated remaining performance obligations.

The following table presents our revenues disaggregated by revenue source for the year ended

December 31, 2018:

(In thousands)	Power and Electromechanical		Energy		Total
Distributor sales	$	43,795	$	—	$	43,795
Direct Sales		32,652		20,342		52,994
Total revenues	$	76,447	$	20,342	$	96,789

The following table presents our revenues disaggregated by timing of revenue recognition for the year ended

December 31, 2018:

(In thousands)	Power and Electromechanical		Energy		Total
Revenues recognized at point in time	$	76,447	$	4,391	$	80,838
Revenues recognized over time		—		15,951		15,951
Total revenues	$	76,447	$	20,342	$	96,789

The following table presents our revenues disaggregated by region for the year ended

December 31, 2018:

(In thousands)	Power and Electromechanical		Energy		Total
North America	$	58,006	$	4,311	$	62,317
Europe		4,195		15,620		19,815
Asia		13,727		205		13,932
Other		519		206		725
Total revenues	$	76,447	$	20,342	$	96,789

Revenue Recognition -

2017

and

2016

As discussed above, ASC

606

was adopted on a modified retrospective basis and accordingly the

2017

and

2016

financial statements were

not

restated for ASC

606.

For

2017

and

2016,

revenue was recognized as follows.

Power and Electromechanical segment

Product revenue was recognized in the period when persuasive evidence of an arrangement with a customer existed, the products were shipped and title had transferred to the customer, the price was fixed or determinable, and collection was reasonably assured. The Company sells to distributors pursuant to distribution agreements that have certain terms and conditions such as the right of return and price protection, which inhibited revenue recognition unless they could be reasonably estimated as we could

not

assert the price was fixed and determinable and estimate returns. For

one

distributor that comprises

26%

of consolidated revenue in

2017,

we had such history and ability to estimate and therefore recognized revenue upon sale to the distributor and recorded a corresponding reserve for the estimated returns. For

three

other distributor arrangements that represented a combined

15%

of revenue in

2017,

we recognized revenue on a sell-through basis, and accordingly deferred revenue and the related costs until such time as the distributor resold the product.

Energy segment

For production-type contracts meeting the Company’s minimum threshold, revenues and related costs on these contracts were recognized using the ‘‘percentage of completion method’’ of accounting in accordance with ASC

605

-

35,

 

Accounting for Performance of Construction-Type and Certain Production Type Contracts 

(‘‘ASC

605

-

35’’

). Under this method, contract revenues and related expenses were recognized over the performance period of the contract in direct proportion to the costs incurred as a percentage of total estimated costs for the entirety of the contract. Costs included direct material, direct labor, subcontract labor and any allocable indirect costs. The Company captured certain job costs as work progressed, including labor, material and costs

not

invoiced. Margin adjustments were made as information pertaining to contracts changed. All un-allocable indirect costs and corporate general and administrative costs were charged to the periods as incurred. The amount of costs

not

invoiced were captured to ensure an estimated margin consistent with that expected at the completion of the project. In the event a loss on a contract was foreseen, the Company recognized the loss when it was determined. Contract costs plus recognized profits were accumulated as deferred assets, and billings and/or cash received were recorded to a deferred revenue liability account. The net of these

two

accounts for any individual project was presented as ‘‘Costs in excess of billings,’’ an asset account, or ‘‘Billings in excess of costs,’’ a liability account.

Production-type contracts that did

not

qualify for use of the percentage of completion method were accounted for using the ‘‘completed contract method’’ of accounting in accordance with ASC

605

-

35

-

25

-

57.

Under this method, contract costs were accumulated as deferred assets, and billings and/or cash received was recorded to a deferred revenue liability account, during the periods of construction, but

no

revenues, costs, or profits were recognized in operations until the period within which completion of the contract occurred. A contract was considered complete when all costs except insignificant items were incurred; the equipment was operating according to specifications and was accepted by the customer.

For product sales in the Energy segment, revenue was recognized in the period when persuasive evidence of an arrangement with a customer existed, the products were shipped and title had transferred to the customer, the price was fixed or determinable, and collection was reasonably assured.

Revenues from warranty and maintenance activities were recognized ratably over the term of the warranty and maintenance period and the unrecognized portion was recorded as deferred revenue.

Shipping and Handling Costs

Amounts billed to customers in sales transactions related to shipping and handling represent revenues earned for the goods provided and are included in sales, and were approximately

$27

thousand,

$17

thousand, and

$23

thousand, for the years ended

December 

31,

2018,

2017

and

2016,

respectively. The Company expenses inbound shipping and handling costs as cost of revenues.

Warranty Reserves

A warranty reserve liability is recorded based on estimates of future costs on sales recognized. At

December 

31,

2018

and

2017,

the balance of approximately

$37

thousand and

$40

thousand, respectively, for warranty reserve liability is included in accrued expenses on the balance sheet.

Advertising

The costs incurred for producing and communicating advertising are charged to operations as incurred. Advertising expense for the years ended

December 

31,

2018,

2017

 and

2016

were

$2.0

million,

$1.8

million, and

$1.7

million, respectively. In addition to these advertising costs, the Company also incurs advertising related costs for advertising completed in partnership with its distributors. These costs are offset against revenues. During

2018,

2017

and

2016,

the advertising costs offset against revenues were

$0.6

million,

$0.3

million, and

$0.3

million, respectively.

Income Taxes

Income taxes are accounted for under the asset and liability method of FASB Accounting Standards Codification

No.

740

(‘‘FASB ASC

740’’

), ‘‘Income Taxes.’’ Under FASB ASC

740,

deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance to the extent that management believes it is more likely than

not

that such deferred tax assets will

not

be realized.

Valuation allowances have been established against all domestic based deferred tax assets and U.K. based deferred tax assets due to uncertainties in the Company’s ability to generate sufficient taxable income in future periods to make realization of such assets more likely than

not.

  In future periods, tax benefits and related domestic and U.K. deferred tax assets will be recognized when management considers realization of such amounts to be more likely than

not.

The Company has

not

provided for valuation allowances on deferred tax assets in any other jurisdiction.

The Company recognizes interest and penalties, if any, related to its tax positions in income tax expense.

CUI Global files consolidated income tax returns with its U.S. based subsidiaries for federal and many state jurisdictions in addition to separate subsidiary income tax returns in Japan, the United Kingdom and Canada. As of

December 

31,

2018,

the Company is

not

under examination by any income tax jurisdiction. The Company is

no

longer subject to USA examination for years prior to

2015.

Net Loss per Share

In accordance with FASB Accounting Standards Codification

No.

260

(‘‘FASB ASC

260’’

), ‘‘Earnings per Share,’’ basic net loss per share is computed by dividing the net loss available to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of diluted shares outstanding during the period calculated using the treasury stock method. Due to the Company’s net loss in

2018,

2017

and

2016,

the assumed exercise of stock options using the treasury stock method would have had an antidilutive effect and therefore all options for each of the

three

years were excluded from the calculation of diluted net loss per share. Accordingly, diluted net loss per share is the same as basic net loss per share for

2018,

2017

and

2016.

The weighted average shares outstanding included 

1,844;

63,602

and

25,811

of shares that are considered outstanding, but unissued as of

December 

31,

2018,

2017

and

2016,

respectively, for shares to be issued in accordance with a royalty agreement pertaining to sales of the GasPT devices and unpaid equity share bonuses in

2017

and

2016.

The following table summarizes the number of stock options outstanding excluding amounts applicable to contingent conversion option, which

may

dilute future earnings per share:

	As of December 31,
	2018		2017		2016
Options, outstanding		923,898		964,180		966,681

Any common shares issued as a result of stock options would come from newly issued common shares as granted under our equity incentive plans.

The following is the calculation of basic and diluted earnings per share:

	For the Years Ended December 31,
(In thousands, except share and per share amounts)	2018			2017			2016
Net loss	$	(17,325	)	$	(12,589	)	$	(7,266	)
Basic and diluted weighted average number of shares outstanding		28,517,339			22,397,865			20,897,812
Basic loss per common share	$	(0.61	)	$	(0.56	)	$	(0.35	)
Diluted loss per common share	$	(0.61	)	$	(0.56	)	$	(0.35	)

Foreign Currency Translation

The financial statements of the Company's foreign offices have been translated into U.S. dollars in accordance with FASB ASC

830,

‘‘Foreign Currency Matters’’ (FASB ASC

830

). All balance sheet accounts have been translated using the exchange rate in effect at the balance sheet date.  Statement of Operations amounts have been translated using an appropriately weighted average exchange rate for the year. The translation gains and losses resulting from the changes in exchange rates during

2018,

2017

and

2016

have been reported in accumulated other comprehensive income (loss), except for gains and losses resulting from the translation of intercompany receivables and payables, which are included in earnings for the period.

Segment Reporting

Operating segments are defined in accordance with ASC

280

-

10

as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The measurement basis of segment profit or loss is income (loss) from operations. Management has identified

six

operating segments based on the activities of the Company in accordance with ASC

280

-

10.

These operating segments have been aggregated into

three

reportable segments. The

three

reportable segments are Power and Electromechanical, Energy and Other. The Power and Electromechanical segment is focused on the operations of CUI Inc., CUI-Canada, Inc. and CUI Japan for the sale of internal and external power supplies and related components and industrial controls. The Energy segment is focused on the operations of Orbital Gas Systems Ltd. and Orbital Gas Systems, North America, Inc. which includes gas related test and measurement systems, including the GasPT. The Other segment represents the remaining activities that are

not

included as part of the other reportable segments and represent primarily corporate activity.

The following information represents segment activity as of and for the year ended

December 

31,

2018:

(In thousands)	Power and Electro- mechanical		Energy			Other			Total
Revenues from external customers	$	76,447	$	20,342		$	—		$	96,789
Depreciation and amortization (1)		1,480		1,525			—			3,005
Interest expense		221		23			258			502
Impairment of goodwill and other intangible assets		—		4,347			—			4,347
Income (loss) from operations		5,332		(17,168	)		(4,942	)		(16,778	)
Segment assets		45,553		19,034			5,580			70,167
Other intangibles assets, net		8,547		5,314			—			13,861
Goodwill		13,089		—			—			13,089
Expenditures for segment assets (2)		1,299		235			—			1,534

The following information represents segment activity as of and for the year ended

December 

31,

2017:

(In thousands)	Power and Electro- mechanical		Energy			Other			Total
Revenues from external customers	$	64,432	$	18,843		$	—		$	83,275
Depreciation and amortization (1)		1,505		1,345			—			2,850
Interest expense		249		1			250			500
Impairment of goodwill and other intangible assets		3		3,152			—			3,155
Income (loss) from operations		2,355		(11,366	)		(4,918	)		(13,929	)
Segment assets		49,392		26,512			12,005			87,909
Other intangibles assets, net		8,899		6,669			—			15,568
Goodwill		13,092		4,549			—			17,641
Expenditures for segment assets (2)		955		576			—			1,531

The following information represents segment activity as of and for the year ended

December 

31,

2016:

(In thousands)	Power and Electro- mechanical		Energy			Other			Total
Revenues from external customers	$	58,403	$	28,058		$	—		$	86,461
Depreciation and amortization (1)		1,445		1,401			2			2,848
Interest expense		221		6			240			467
Income (loss) from operations		645		(1,676	)		(5,479	)		(6,510	)
Segment assets		49,830		29,632			381			79,843
Other intangibles assets, net		9,262		6,939			—			16,201
Goodwill		13,083		7,042			—			20,125
Expenditures for segment assets (2)		1,032		642			—			1,674

( 1 ) For the years ended December  31, 2018, 2017 and 2016, depreciation and amortization totals included $0.9 million, $0.7 million and $0.5 million, respectively that were classified as cost of revenues in the Consolidated Statements of Operations.

( 2 ) Includes purchases of property, plant and equipment and investment in other intangible assets.

The following information represents revenue by country:

	For the Years Ended December 31,
(In thousands)	2018					2017					2016
	Amount		%			Amount		%			Amount		%
USA	$	59,319		61	%	$	50,875		61	%	$	46,514		54	%
United Kingdom		15,185		16	%		14,522		17	%		17,337		20	%
China		5,463		6	%		5,381		7	%		5,930		7	%
All Others		16,822		17	%		12,497		15	%		16,680		19	%
Total	$	96,789		100	%	$	83,275		100	%	$	86,461		100	%

The following information represents long-lived assets (excluding deferred tax assets) by country:

	As of December 31,
(In thousands)	2018		2017
USA	$	23,544	$	27,662
United Kingdom		9,647		17,739
Other		1,495		1,232
	$	34,686	$	46,633

Reclassifications

Certain reclassifications have been made to the

2017

consolidated balance sheet, and

2017

and

2016

statements of operations and statements of cash flows in order to conform to the

2018

presentation.

Recent Accounting Pronouncements

In

August 2018,

the FASB issued Accounting Standards Update ("ASU")

No.

2018

-

15,

 

Intangibles - Goodwill and Other - Internal-Use Software (Subtopic

350

-

40

): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract 

("ASU

2018

-

15"

). The amendments in ASU

2018

-

15

align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The guidance will be effective for the fiscal year beginning after

December 15, 2019,

including interim periods within that year. The Company is currently assessing the impact of this ASU on its consolidated financial statements and will adopt the standard in

2020.

In

August 2018,

the FASB issued ASU

No.

2018

-

13,

 Fair Value Measurement (Topic

820

): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement

 (“ASU

2018

-

13”

). The amendments in this update modify the disclosure requirements on fair value measurements in Topic

820,

Fair Value Measurement, including requiring the disclosure of the range and weighted average of significant unobservable inputs used to develop Level

3

fair value measurements. The guidance will be effective for the fiscal year beginning after

December 15, 2019,

including interim periods within that year. The Company is currently assessing the impact of this ASU on its consolidated financial statements and will adopt the standard in

2020.

In

June 2018,

the FASB issued ASU

No.

2018

-

07,

 

Compensation-Stock

 

Compensation (Topic

718

): Improvements to Nonemployee Share-Based Payment Accounting

 ("ASU

2018

-

07"

). These amendments expand the scope of Topic

718,

Compensation—Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The guidance will be effective for the fiscal year beginning after

December 15, 2018,

including interim periods within that year. The Company does

not

expect there to be a material impact of this ASU on its consolidated financial statements and will adopt the standard in

2019.

In

June 2016,

the FASB issued ASU

No.

2016

-

13,

 

Financial Instruments – Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments

 (“ASU

2016

-

13”

). ASU

2016

-

13

is intended to provide financial statement users with more useful information about expected credit losses on financial assets held by a reporting entity at each reporting date. The new standard replaces the existing incurred loss impairment methodology with a methodology that requires consideration of a broader range of reasonable and supportable forward-looking information to estimate all expected credit losses. This ASU is effective for fiscal years and interim periods within those years beginning after

December 15, 2019

and early adoption is permitted for fiscal years and interim periods within those years beginning after

December 15, 2018.

The Company is currently assessing the impact of this ASU on its consolidated financial statements and will adopt the standard in

2020.

In

February 2016,

the FASB issued ASU

No.

2016

-

02,

 

Leases (Topic

842

)

 (‘‘ASU

2016

-

02’’

). ASU

2016

-

02

requires lessees to present right-of-use assets and lease liabilities on the balance sheet. The new guidance will be effective for public business entities for fiscal years beginning after

December 15, 2018

including interim periods within that fiscal year. We will adopt the standard in the

first

quarter of

2019.

As part of the transition, we will utilize the effective date method of implementation. Under the effective date method, we will include the new required disclosures for the current period and provide the disclosures required by the previous guidance found in ASC

840

for the prior year comparative periods. In addition, we will elect to utilize the package of practical expedients permitted under the transition guidance within the new standard, which among other things, will allow us to carry forward the historical lease classifications and allow us to exclude leases with an initial term of

12

months or less from being recorded on the Company's balance sheet; we will recognize lease expense for these short-term leases on a straight-line basis over the lease term.

Upon adoption, we expect to record a right-of-use asset and a corresponding lease liability for the Company's operating leases where the Company is the lessee. The potential effect on the Company's consolidated financial statements is largely based on the present value of future minimum lease payments, the amount of which will depend upon the population of leases in effect at the date of adoption. The present value of future minimum lease payments totaled

$7.8

million as of

December 31, 2018.

In addition, we will have a

$2.9

million adjustment to retained earnings at

January 1, 2019

as a result of recognizing the gain on the sale-leaseback transaction. We do

not

expect material changes to the recognition of operating lease expense in the Company's consolidated statements of operation.

XML

Note 3 - Investments and Fair Value Measurements

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Fair Value Disclosures [Text Block]

3.

      INVESTMENTS AND FAIR VALUE MEASUREMENTS

The Company’s fair value hierarchy for its cash equivalents, marketable securities and derivative instruments as of

December 

31,

2018

and

December 

31,

2017,

respectively, was as follows:

(In thousands)
December 31, 2018	Level 1		Level 2		Level 3		Total
Money market securities	$	16	$	—	$	—	$	16
Certificate of deposit - restricted cash		523		—		—		523
Certificate of deposit - restricted investment (1)		400		—		—		400
Convertible notes receivable		—		—		655		655
Total assets	$	939	$	—	$	655	$	1,594

December 31, 2017	Level 1		Level 2		Level 3		Total
Money market securities	$	16	$	—	$	—	$	16
Total assets	$	16	$	—	$	—	$	16
Derivative instrument payable	$	—	$	356	$	—	$	356
Contingent consideration		—		—		45		45
Total liabilities	$	—	$	356	$	45	$	401

(

1

) Investment is a

12

-month certificate of deposit classified as available for sale and included in Deposits and other assets on the balance sheet.

Fair Value Measurements

Using Significant Unobservable Inputs (Level

3

- recurring basis)

(In thousands)	Contingent			Convertible Notes
	Consideration			Receivable
Balance at December 31, 2017	$	45		$	—
Payments		(45	)		—
Investments		—			655
Fair value adjustments		—			—
Balance at December 31, 2018	$	—		$	655

There were

no

transfers between Level

3

and Level

2

in

2018

as determined at the end of the reporting period. The convertible notes receivable balance is with Virtual Power Systems ("VPS"). The convertible notes receivable are considered a restricted security. The fair value measurement of a restricted security includes consideration of whether the restriction would be factored in by market participants in pricing the asset. The fair value of a restricted security could be based on the quoted price for an otherwise identical unrestricted security of the same issuer that trades in a public market, adjusted to reflect the effect of the restriction. The adjustment would reflect the amount market participants would demand because of the risk relating to the inability to access a public market for the security for the specified period. The Company concluded based on the history of VPS having raised substantial funds under its bridge loan/purchase agreement prior to and subsequent to CUI’s investments, that the value of the notes have neither increased significantly or decreased significantly. While VPS continues to grow and continues to develop and sell its products, it is reasonable to conclude that the value of VPS is increasing. However, since VPS continues to sell restricted convertible notes, it is also a consideration that the value per note has been diluted somewhat as well. We have concluded that any dilution has been offset by the increased value of VPS. This is evidenced by the fact that VPS continues to be able to market and sell its restricted securities at the same terms as CUI had participated previously in. Since there are

not

unrestricted securities with similar terms to the restricted ones that CUI has invested in, we have concluded, that the fair value of CUI’s convertible notes receivable with VPS remain the face value of the initial investments of

$500,000

and

$155,000

plus the accrued interest earned through

December 31, 2018.

The contingent consideration liability was associated with the acquisition of Tectrol in

March 2015

and represented the present value of the expected future contingent payments based on revenue projections of select Tectrol legacy products. The inputs used to measure the convertible notes receivable and the contingent consideration are classified as Level

3

within the valuation hierarchy. These valuations are

not

supported by market criteria.

The Company's valuation of the contingent consideration reflected the Company’s internal revenue forecasts. Since the valuation was

not

supported by market criteria, the valuation was completely dependent on unobservable inputs. During quarterly updates of the valuation, the calculation of the value was based on actual and reasonably estimated future revenues. The contingent consideration was fully satisfied in

2018.

The fair values of the reporting units subject to the Company’s quantitative impairment analysis were determined utilizing a blend of a market and an income approach to determine the estimated fair values of the reporting units, as discussed in Note

2.

The fair value measurements and models were classified as non-recurring Level

3

measurements.

XML

Note 4 - Property and Equipment, Net

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Property, Plant and Equipment Disclosure [Text Block]

4.

             PROPERTY AND EQUIPMENT, NET

Property and equipment is summarized as follows:

	At December 31,
(In thousands)	2018			2017
Land	$	382		$	1,205
Buildings and improvements		4,085			8,476
Equipment		5,740			5,716
Property and equipment, gross		10,207			15,397
Less accumulated depreciation		(4,234	)		(4,155	)
Property and equipment, net	$	5,973		$	11,242

Depreciation expense for the years ended

December 

31,

2018,

2017

 and

2016

was 

$1.1

million,

$1.0

million, and

$0.9

million, respectively.

During the year ended

December 

31,

2018,

the Company disposed of

$5.7

million of property and equipment with an accumulated depreciation at disposal of

$0.9

million. Included in disposals in

2018,

was the sale of the Company's headquarters building. The building sale was for

$8.1

million with a

ten

-year lease back and, accordingly, included a deferred gain of

$2.9

million that was net of

$0.4

million of sale-related expenses.

During the year ended

December 

31,

2017,

the Company disposed of

$0.3

million of property and equipment with an accumulated depreciation at disposal of

$0.3

million.

XML

Note 5 - Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Goodwill and Intangible Assets Disclosure [Text Block]

5.

             GOODWILL AND OTHER INTANGIBLE ASSETS

At

December 

31,

2018

and

2017,

the gross carrying amount and accumulated amortization of intangible assets, other than goodwill, are as follows:

				December 31, 2018					Identifiable Intangible		December 31, 2017					Identifiable Intangible
(In thousands)	*Estimated			Gross					Assets, less		Gross					Assets, less
	Useful			Carrying		Accumulated			Accumulated		Carrying		Accumulated			Accumulated
	Life (years)			Amount		Amortization			Amortization		Amount		Amortization			Amortization
Finite-lived intangible assets
Power and Electromechanical Segment:
Trademark and trade name - V-Infinity		5		$	1,095	$	(1,095	)	$	—	$	1,095	$	(1,095	)	$	—
Trademark and trade name - AMP Group		3			28		(28	)		—		27		(23	)		4
Trademark and trade name - CUI-Canada		3			128		(128	)		—		128		(121	)		7
Technology rights	7	and	20**		1,291		(746	)		545		1,291		(578	)		713
Computer software	3	to	5		956		(857	)		99		971		(850	)		121
Product certifications		3			1,667		(1,187	)		480		1,412		(820	)		592
Customer relationships - CUI-Canada		7			267		(146	)		121		267		(108	)		159
Other intangible assets		***			114		(114	)		—		114		(113	)		1
Total Power and Electromechanical Segment					5,546		(4,301	)		1,245		5,305		(3,708	)		1,597
Energy Segment:
Order backlog		2			2,837		(2,837	)		—		3,006		(3,006	)		—
Trade name - Orbital-UK		10			1,526		(877	)		649		1,616		(768	)		848
Customer list - Orbital-UK		10			5,931		(3,411	)		2,520		6,284		(2,985	)		3,299
Technology rights		20			318		(173	)		145		337		(150	)		187
Technology-Based Asset - Know How		12			2,403		(1,151	)		1,252		2,546		(1,008	)		1,538
Technology-Based Asset - Software		10			521		(300	)		221		552		(262	)		290
Computer software	3	to	5		667		(140	)		527		520		(13	)		507
Other intangible assets		***			—		—			—		—		—			—
Total Energy Segment					14,203		(8,889	)		5,314		14,861		(8,192	)		6,669
Indefinite-lived intangible assets
Power and Electromechanical Segment:
Trade mark and trade name - CUI Inc.					4,893		—			4,893		4,893		—			4,893
Customer list - CUI Inc.					1,857		—			1,857		1,857		—			1,857
Patents pending - Technology					552		—			552		552		—			552
					7,302		—			7,302		7,302		—			7,302
Total Identifiable other intangible assets				$	27,051	$	(13,190	)	$	13,861	$	27,468	$	(11,900	)	$	15,568

* All intangibles are reviewed annually for impairment, or sooner if circumstances change.

** Technology rights include

$1.0

million of capitalized costs that are related to our CUI-Canada acquisition in

March 2015. 

The CUI-Canada technology rights are amortized over a

7

-year life. The rest of the technology rights are amortized over a

20

-year life.

*** Other intangible assets are amortized over an appropriate useful life, as determined by management in relation to the other intangible asset characteristics.

Intangible asset amortization by category was as follows:

	For the Years Ended December 31,
(In thousands)	2018		2017		2016
Trademarks and trade name		172		316		434
Customer lists/relationships		660		638		669
Technology rights		201		198		193
Technology-based assets		264		255		269
Computer software		191		83		76
Product certifications		413		343		260
Other intangibles		1		8		22
Total amortization	$	1,902	$	1,841	$	1,923

Estimated future amortization by category of finite-lived intangible assets at

December 

31,

2018

was as follows:

	For the Years Ending December 31,
(In thousands)	2019		2020		2021		2022		2023		2024 and thereafter		Totals
Trademarks and trade name	$	153	$	153	$	153	$	153	$	37	$	—	$	649
Customer lists/relationships		631		631		631		600		148		—		2,641
Technology rights		191		183		183		65		28		40		690
Technology-based assets		252		252		252		252		214		251		1,473
Computer software		222		197		110		77		20		—		626
Product certifications		287		154		39		—		—		—		480
Other intangibles		—		—		—		—		—		—		—
Total amortization	$	1,736	$	1,570	$	1,368	$	1,147	$	447	$	291	$	6,559

Management reviews other intangible assets for impairment when facts or circumstances suggest. As of

December 

31,

2018,

management has evaluated the finite-lived and indefinite-lived intangible assets and believes

no

impairment exists.

The following table reflects the carrying amount of goodwill as of

December 

31,

2018

and

2017,

and the

2018

and

2017

activity:

(In thousands)	Power and Electro - mechanical			Energy			Other		Total
Balance, December 31, 2016	$	13,083		$	7,042		$	—	$	20,125
Currency translation adjustments		9			659			—		668
Goodwill impairment		—			(3,152	)		—		(3,152	)
Balance, December 31, 2017		13,092			4,549			—		17,641
Currency translation adjustments		(3	)		(202	)		—		(205	)
Goodwill impairment		—			(4,347	)		—	$	(4,347	)
Balance, December 31, 2018	$	13,089		$	—		$	—	$	13,089

See Note

2

Summary of Significant Accounting Policies - Indefinite-Lived Intangibles and Goodwill Assets for information on the impairment to goodwill in

2018

and

2017.

XML

Note 6 - Instruments and Risk Management

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Derivative Instruments and Hedging Activities Disclosure [Text Block]

6.

          INSTRUMENTS AND RISK MANAGEMENT

The Company has limited involvement with derivative instruments and does

not

trade them. The Company does use derivatives to manage certain interest rate and foreign currency exchange rate exposures.

At

December 

31,

2018

and

2017,

 the Company had

no

 derivative instruments designated as effective hedges.

From time to time, to minimize risk associated with foreign currency exposures on receivables for sales denominated in foreign currencies, the Company enters into various foreign currency forward exchange contracts, which are intended to minimize the currency exchange rate exposure from expected future cash flows. The forward currency contracts have maturity dates of up to 

one

year at the date of inception. At

December 

31,

2018

and

2017,

no

foreign currency forward exchange contracts were outstanding.

In conjunction with the mortgage note payable for the purchase of the headquarters facility completed in

2013,

the Company entered into a Swap Transaction Confirmation agreement effective

October 1, 2013,

which had a maturity date of

ten

years incorporating the terms and definitions of the International Swaps and Derivatives Association, Inc. (ISDA) that effectively fixed our effective annual interest rate at 

6.27%.

In

December 2018,

the Company closed out the swap upon the sale and leaseback of the Company's headquarters since the underlying mortgage note payable was paid off.

The amount of gain recognized in income on the statement of operations is summarized below:

	Location of Gain
	Recognized in Income	For the Years Ended December 31,
(In thousands)		2018		2017		2016
Interest rate swap:	Other income (expense)	$	129	$	111	$	113

XML

Note 7 - Notes Payable

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Debt Disclosure [Text Block]

7.

         NOTES PAYABLE

Notes payable is summarized as follows:

	As of December 31,
(In thousands)	2018		2017
(a) Mortgage note payable	$	—	$	3,350
(b) Acquisition Note Payable - related party		5,304		5,304
Ending balance	$	5,304	$	8,654

(a) On October 1, 2013, the funding of the purchase of the Company’s Tualatin, Oregon corporate offices from Barakel, LLC was completed. The purchase price for this asset was $5.1 million. The purchase was funded, in part, by a promissory note payable to Wells Fargo Bank in the amount of $3.7 million plus interest at the rate of 2% above LIBOR, payable over ten years with a balloon payment due at maturity. It was secured by a deed of trust on the purchased property, which was executed by CUI Properties, LLC and guaranteed by CUI Global, Inc. During 2018 and 2017, the Company made principal payments of approximately $3.4 million and $89 thousand, respectively, against the mortgage promissory note payable. In December 2018, this note was paid off as part of a sale-leaseback transaction. At December  31, 2017, the balance owed on the mortgage promissory note payable was $3.4 million of which $94 thousand and $3.3 million were in current and long-term liabilities, respectively.

(b) The note payable to International Electronic Devices, Inc. (IED) (formerly CUI Inc.) is associated with the acquisition of CUI Inc. The promissory note is due May 15, 2020 and includes a 5% interest rate per annum, with interest payable monthly and the principal due as a balloon payment at maturity. The note contains a contingent conversion feature, such that in the event of default on the note the holder of the note can, at the holder’s option, convert the note principal into common stock at $0.001 per share. As of December  31, 2018, the Company is in compliance with all terms of this promissory note and the conversion feature is not effective.

The following table details the maturity of the notes payable for CUI Global, Inc.:

(In thousands)
	As of December 31, 2018
2019	$	—
2020		5,304
2021		—
2022		—
2023		—
Thereafter		—
Total	$	5,304

XML

Note 8 - Working Capital Line of Credit and Overdraft Facility

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Working Capital, Line of Credit and Overdraft Facility [Text Block]

8.

          WORKING CAPITAL LINE OF CREDIT AND OVERDRAFT FACILITY

On

October 5, 2016,

Orbital Gas Systems Ltd. signed a

five

-year agreement with the London branch of Wells Fargo Bank N.A. for a multi-currency variable rate overdraft facility with the following terms:

(In thousands)
Credit Limit	December 31, 2018 Balance		Expiration Date	Interest rate
£1,500 pounds sterling ($1,910 at December 31, 2018)	$	1,344	October 5, 2021	Base rate plus a 2.25% margin (2.5% as of December 31, 2018).

The London branch of Wells Fargo Bank N.A. can demand repayment of amounts on overdraft at any time. The overdraft facility is primarily secured by land, equipment, intellectual property rights, and rights to potential future insurance proceeds held by Orbital Gas Systems, Ltd.

CUI, Inc. and CUI-Canada have a line of credit (LOC) whose terms with Wells Fargo Bank are as follows:

(In thousands)
Credit Limit			December 31, 2018 balance			Expiration Date	Interest rate
$	5,000	(1)	$	979	(2)	June 1, 2019	Fixed rate at 2.25% above the LIBOR in effect on the first day of the applicable fixed-rate term, or variable rate at 2.25% above the daily one-month LIBOR rate.

(

1

)

$2

million of the line of credit is reserved to guarantee the obligation of Orbital Gas Systems, Ltd. under its Overdraft Facility.

(

2

) As a result of the Company’s cash management system, checks issued but

not

presented to the bank for payment

may

create negative book cash balances. When those checks are presented for payment if there isn't sufficient cash in the bank account, the checks would be honored by the bank with a corresponding increase to CUI Inc's draw on its line of credit. The balance shown above includes the effect of a

$27

thousand negative book cash balance at CUI Inc. as of

December 

31,

2018.

At

December 

31,

2018,

the LOC is secured by the following collateral via a security agreement on CUI Inc. and CUI-Canada:

(In thousands)
CUI Inc. and CUI-Canada General intangibles, net	$	8,546
CUI Inc. and CUI-Canada Accounts receivable, net		9,102
CUI Inc. and CUI-Canada Inventory, net		11,403
CUI Inc. and CUI-Canada Equipment, net		1,438

CUI Global, Inc., the parent company, is a payment guarantor of the LOC. Other terms included in this revolving line of credit for CUI Inc./CUI-Canada limit capital expenditures by CUI Inc. and CUI-Canada to

$1.75

million in any fiscal year. The LOC is supported by a single long-term note that does

not

require repayment until maturity although the Company at its option can repay and re-borrow amounts up to the LOC limit. Since the maturity date is

June 1, 2019,

which is less than

one

year in the future, the LOC is classified as short term.

The LOC contains certain financial covenants. Under the terms of CUI Inc./CUI-Canada's credit agreement with Wells Fargo Bank, the Company incurred a specified default limited to the breach of the EBITDA financial covenant of CUI Global as the guarantor for the fiscal quarter ended

December 31, 2018. 

CUI Inc./CUI-Canada has received a forbearance of this event of default through

April 30, 2019,

subject to certain terms and conditions. Under the terms of the forbearance, CUI Inc./CUI-Canada has agreed to terminate the Orbital Gas Systems Ltd. overdraft facility with Wells Fargo Bank’s London branch by

April 30, 2019.

In efforts to replace the Wells Fargo Bank credit facilities, on

March 13, 2019, 

CUI Inc. and CUI-Canada entered into and signed a firm commitment letter received from Bank of America for a new

two

-year credit facility for CUI Inc. and CUI-Canada, perfected by a

first

security lien on all assets of CUI Inc. and CUI-Canada. The facility would also include a

$3

million sub-limit for use by CUI-Global non-loan party subsidiaries as a reserve under the borrowing base. The credit facility is to provide for working capital and general corporate purposes. The credit facility would provide up to

$10

million in a Revolving Line of Credit Facility (“Revolver”), including a sub-limit for letters of credit. Interest will be based upon Daily Floating LIBOR at LIBOR +

2.00%.

 The Company expects to close on the credit agreement in

April 2019.

XML

Note 9 - Commitments and Contingencies

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

9.

          COMMITMENTS AND CONTINGENCIES

Legal Matters

The Company

may

be involved in certain legal actions arising from the ordinary course of business. While it is

not

feasible to predict or determine the outcome of these matters, we do

not

anticipate that any of these matters, or these matters in the aggregate, will have a material adverse effect on the financial position or results of operations.

Commissions, Royalty and License Fee Agreements

The Company has minimum commitments under certain royalty agreements. Royalty and license fees are paid in accordance with their related agreements, either on a monthly or quarterly basis. We deal with a number of independent licensors for whose intellectual property we compete with other manufacturers. Rights to such intellectual property, when acquired by us, are usually exclusive and the agreements require us to pay the licensor a royalty on our net sales of the item. These license agreements, in some cases, also provide for advance royalties and minimum guarantees in order to maintain technical rights and exclusivity. As of

December 

31,

2018

and

2017,

 

$17

thousand and

$36

thousand, respectively, was accrued for royalty and license fees payable in accrued expenses.

External Sales Representative Commissions

Commissions to external sales representatives are paid in accordance with their related agreements, either on a monthly or annual basis. As of

December 

31,

2018

and

2017,

$0.3

million and

$0.3

 million, respectively, was accrued for commissions to external sales representatives, and is reported as a current liability in accrued expenses.

Employment Agreements

As of the year ended

December 

31,

2018,

the following employment agreements were in place:

William J. Clough, President/Chief Executive Officer and General Counsel of CUI Global, Inc., Chief Executive Officer of all CUI Global subsidiaries

Mr. Clough is employed under a multi-year employment contract with the Company, which became effective

July 1, 2013,

and which was recently extended to run to and through

December 31, 2019.

Said contract provides, in relevant part, for salary in

2018

of

$560

thousand, and includes bonus provisions for each calendar year up to

one hundred twenty-five

percent of base salary to be based on performance objectives, goals and milestones for each calendar year including revenue performance and entitles Mr. Clough to a

two

-year severance package and an annual

4%

cost of living adjustment. Bonuses are approved quarterly based on various performance-related factors and an evaluation of current performance and includes a discretionary bonus of up to

twenty-five

percent of salary based upon the reasonable judgment of the compensation committee. Employee has the ability to earn a larger bonus based on the performance criteria set forth and the reasonable judgment and discretion of the compensation committee. All such bonus payments shall be paid to Mr. Clough in equal monthly installments following the period in which the bonus is earned and shall be paid on the

15th

day of each month. At 

December 

31,

2018,

2017,

and

2016,

there was an accrual of

$30

thousand,

$33

thousand, and

$29

thousand, respectively, for compensation owed to Mr. Clough.

Daniel N. Ford, Chief Financial Officer of CUI Global Inc. and Subsidiaries, Chief Operating Officer of the Energy Division

Mr. Ford is employed under a multi-year employment contract with the Company, which became effective

July 1, 2013

and which was extended to run to and through

December 31, 2019.

Said contract provides, in relevant part, for salary in

2018

of

$350

thousand, an annual

4%

cost of living adjustment, an

eighteen

-month severance package and bonus provisions up to

one hundred twenty-five

percent of base salary to be based on performance objectives, goals and milestones for each calendar year including revenue performance. The bonus includes a discretionary bonus of up to

twenty-five

percent of salary based upon the reasonable judgment of the compensation committee. Employee has the ability to earn a larger bonus based on the performance criteria set forth and the reasonable judgment and discretion of the compensation committee. Bonuses are approved quarterly based on the above factors and an evaluation of current performance. All such bonus payments shall be paid to Mr. Ford in equal monthly installments following the period in which the bonus is earned and shall be paid on the

15th

day of each month. At

December 

31,

2018,

2017,

and

2016,

there was an accrual of

$21

thousand,

$22

thousand, and

$19

thousand, respectively, for compensation owed to Mr. Ford.

Matthew M. McKenzie, President of CUI Inc., Chief Operating Officer of the Power and Electromechanical Division and Corporate Secretary of CUI Global, Inc.

Mr. McKenzie is employed under a multi-year employment contract with the Company, which became effective

July 1, 2013

and which was extended to run to and through

December 31, 2019.

Said contract provides, in relevant part, for salary in

2018

of

$320

thousand, an annual

4%

cost of living adjustment, an

eighteen

-month severance package and bonus provisions up to

one hundred twenty-five

percent of base salary to be based on performance objectives, goals, and milestones for each calendar year, including revenue performance in the Power and Electromechanical segment. The bonus includes a discretionary bonus of up to

twenty-five

percent of salary based upon the reasonable judgment of the compensation committee. Employee has the ability to earn a larger bonus based on the performance criteria set forth and the reasonable judgment and discretion of the compensation committee. Bonuses are approved quarterly based on the above factors and an evaluation of current performance. All such bonus payments shall be paid to Mr. McKenzie in equal monthly installments following the period in which the bonus is earned and shall be paid on the

15th

day of each month. At

December 

31,

2018,

2017,

and

2016,

there was an accrual of

$18

thousand,

$12

thousand, and

$5

thousand, respectively, for compensation owed to Mr. McKenzie.

Paul D. White, President of Orbital Gas Systems, Limited

Mr. White is employed under a

three

-year employment contract with the Company through

December 1, 2020

and provides, in relevant part, for an initial annual salary of

$225

thousand in year

1

along with a

$30

thousand

one

-time signing bonus, and increases to

$250

thousand and

$275

thousand in years

2

and

3,

respectively, a severance of the Executive’s salary for the remainder of his severance term upon termination, bonus provisions to be based on performance objectives, goals, and milestones for each calendar year, including revenue performance at Orbital-UK. Mr. White served as President of Orbital Gas Systems, Ltd. since

July 2017,

initially in a consulting role. Upon accepting the permanent role of President of Orbital Gas Systems, Ltd. effective

December 1, 2017,

Mr. White ceased to be independent as a director of the Company. The bonus includes a discretionary bonus of up to

twenty-five

percent of salary based upon the reasonable judgment of the compensation committee. Employee has the ability to earn a larger bonus based on the performance criteria set forth and the reasonable judgment and discretion of the compensation committee. Bonuses are approved on an ongoing basis based on the above factors and an evaluation of current performance. All such bonus payments shall be paid to Mr. White following the period in which the bonus is earned. At

December 

31,

2018

and

2017,

there was an accrual of

$155

thousand, and

$40

thousand, respectively, for compensation owed to Mr. White.

Leases

CUI executed a sale-leaseback transaction of its Tualatin, OR headquarters facility in

December

of

2018.

There was

$16

thousand of rent expense associated with this lease in

2018,

and monthly rent expense in

2019

will be approximately

$51

thousand per month.

Orbital-UK has a number of leases, on vehicles, equipment, and on accommodations for visiting personnel. During the year ended

December 

31,

2018,

the total monthly rent on these leases was approximately

$32

thousand.

In

January 2015,

the Company rented office and warehouse space in Houston, TX for its Orbital North America operations. During the year ended

December 

31,

2017,

the monthly rent of this lease, which terminated in

January 2018,

was approximately

$10

thousand. In

November 2017,

the Company relocated to another rented office and warehouse space in Houston, TX. Rent expense on this lease is approximately

$30

thousand per month.

In

March 2015,

as part of the Tectrol acquisition, the Company leased the Toronto facility. During the year ended

December 

31,

2018,

the monthly rent of this lease was approximately

$34

thousand dollars per month.

Additionally, CUI Japan leases office space. During the year ended

December 

31,

2018,

the monthly base rent of this lease was approximately

$3

thousand.

Rental expense was 

$1.2

million,

$0.9

million, and

$0.8

million in

2018,

2017

and

2016,

respectively, and is included in selling, general and administrative on the statement of operations.

Future minimum operating lease obligations are as follows:

(In thousands)	As of December 31, 2018
2019	$	1,482
2020		1,129
2021		1,031
2022		1,013
2023		605
Thereafter		3,307
Total	$	8,567

XML

Note 10 - Stockholders' Equity

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

10.

          STOCKHOLDERS’ EQUITY

Common Stock Dividend Restrictions

As of

December 

31,

2018,

there are

no

restrictions on common stock dividends. Also, at

December 

31,

2018

and

2017,

retained earnings were

not

restricted upon involuntary liquidation.

Common Stock Issuances

(Dollars in thousands)
Date of issuance	Type of issuance	Expense/ Prepaid/ Cash	Stock issuance recipient	Reason for issuance	Total no. of shares		Grant date fair value or net proceeds recorded at issuance
January, April, July and October 2018	Vested restricted common stock	Expense	Four board members	Director compensation		72,157	$	175
January and July 2018	Common stock	Expense	Three Employees	Approved bonuses		68,118		183	(1)
July and December 2018	Common stock	Expense	Related Party, James McKenzie	Pursuant to royalty agreement		5,755		14	(1)
Total 2018 issuances						146,030	$	372	(2) (3)
									(11)
January, April, August and October 2017	Vested restricted common stock	Expense	Four board members	Director compensation		49,980	$	200
January, February and June 2017	Common stock	Expense	Three Employees	Approved bonuses		28,634		182	(4)
January and December 2017	Common stock	Expense	Related party, James McKenzie	Pursuant to royalty agreement		3,293		16	(4)
January and February 2017	Common stock	Expense	Two Employees	Cashless stock option exercises		245		—	(5)
May 2017	Common stock	Prepaid expense/expense	Third-party consultant	Strategic investor marketing services		15,000		57	(6)
October 2017	Common stock	Cash	Various third-party shareholders	Equity raise		7,392,856		18,905
Total 2017 issuances						7,490,008	$	19,360	(7)
January, April, July and October 2016	Vested restricted common stock	Expense	Five board members	Director compensation		46,854	$	267	(8)
January and July 2016	Vested restricted common stock	Expense	Four Employees	Approved bonuses		56,782		381	(9)
January, March September and December 2016	Common stock	Expense	Related party, James McKenzie	Pursuant to royalty agreement		6,275		38
February and April 2016	Common stock	Expense	Three Employees	Cashless stock option exercise		718		—	(5)
Total 2016 issuances						110,629	$	686	(10)

( 1 )	Includes bonus and royalty of $170 thousand that was accrued and expensed in 2017.
( 2 )	Total excludes $3 thousand of stock compensation related to royalties that were recorded as expense but not issued and outstanding as of December 31, 2018.

( 3 )	Excludes $24 thousand of stock compensation for stock issued in 2017 that was amortized from prepaid expense in 2018.
( 4 )	Includes bonuses and royalty of $176 thousand that were accrued and expensed in 2016.
( 5 )	The Company received $0 for the issuance in the cashless option exercises.
( 6 )	Amount includes $24 thousand that was included in prepaid expense at December 31, 2017.

( 7 )	Does not include stock expense of $170 thousand included in accrued liabilities at December 31, 2017 for unissued stock.
( 8 )	Includes $38 thousand of stock-based expense related to 2015 director fees accrued and expensed in the fourth quarter of 2015.

( 9 ) Bonuses of $366 thousand were accrued and expensed in the fourth quarter of 2015.

( 10 ) Does not include stock expense of $176 thousand included in accrued liabilities at December 31, 2016.

( 11 ) The second phase of a 2014 consulting agreement could result in up to an additional 150,000 shares of common stock being granted subject to sales related performance criteria being achieved. At December 31, 2018, those criteria have not been achieved and no shares have been granted for the second phase of the agreement.

S-

3

registration

The Company filed an S-

3

registration statement on

March 14, 2017

containing a prospectus that was effective

March 29, 2017.

With this filing, CUI Global

may

from time to time issue various types of securities, including common stock, preferred stock, debt securities and/or warrants, up to an aggregate amount of

$100

million.

On

October 23, 2017,

the Company closed on an underwritten public offering of

7,392,856

shares at a public offering price of

$2.80

per share, including

964,285

shares sold at the public offering price pursuant to the underwriter's exercise in full of its option to purchase additional shares to cover over-allotments. The net proceeds to CUI Global (after deducting underwriting discount and other expenses payable by the Company) were approximately

$18.9

million. The Company has used the net proceeds from the offering primarily for general corporate purposes, which includes operating expenses, working capital to improve and promote its commercially available products, advance product candidates, to expand international presence and commercialization.

Employee Stock Options

All options issued are presented at post reverse quantities.

On

May 16, 2008

the Company’s board of directors adopted the Waytronx, Inc.

2008

Equity Incentive Plan (the ‘‘Equity Incentive Plan’’) and authorized 

1,500,000

 shares of Common Stock to fund the Plan. At the

2008

Annual Meeting of Shareholders held on

September 15, 2008,

the Equity Incentive Plan was approved by the Company shareholders. At the

2009

Annual Meeting of Shareholders held on

September 29, 2009,

the shareholders approved an amendment to the

2008

Equity Incentive Plan to increase the number of common shares issuable under the plan from 

1,500,000

 to 

3,000,000.

 All of these shares have been registered under Form S-

8.

The

2008

Equity Incentive Plan is intended to: (a) provide incentive to employees of the Company and its affiliates to stimulate their efforts toward the continued success of the Company and to operate and manage the business in a manner that will provide for the long-term growth and profitability of the Company; (b) encourage stock ownership by employees, directors and independent contractors by providing them with a means to acquire a proprietary interest in the Company by acquiring shares of stock or to receive compensation, which is based upon appreciation in the value of Stock; and (c) provide a means of obtaining and rewarding employees, directors, independent contractors and advisors.

The

2008

Equity Incentive Plan provides for the issuance of incentive stock options (ISOs) and Non-Statutory Options (NSOs) to employees, directors and independent contractors of the Company. The Board shall determine the exercise price per share in the case of an ISO at the time an option is granted and such price shall be

not

less than the fair market value or 

110%

of fair market value in the case of a

ten

percent or greater stockholder. In the case of an NSO, the exercise price shall

not

be less than the fair market value of

one

share of stock on the date the option is granted. Unless otherwise determined by the Board, ISOs and NSOs granted under both plans have a maximum duration of 

ten

 years.

On

January 5, 2009

the Company board of directors received and approved a written report and recommendations of the Compensation Committee, which included a detailed executive equity compensation report and market analysis and the recommendations of Compensia, Inc., a management consulting firm that provides executive compensation advisory services to compensation committees and senior management of knowledge-based companies. The Compensation Committee used the report and analysis as a basis for its formal written recommendation to the board. Pursuant to a

January 8, 2009

board resolution the 

2009

Equity Incentive Plan (Executive), a Non-Qualified Stock Option Plan, was created and funded with 

4,200,000

 shares of

$0.001

 par value common stock. The Compensation Committee was appointed as the Plan Administrator to manage the plan. On

October 11, 2010,

CUI Global authorized an additional 

3,060,382

 options under the

2009

Equity Incentive Plan (Executive). On

September 21, 2012,

CUI Global authorized an additional 

330,000

 options under the

2009

Equity Incentive Plan (Executive).

The

2009

Equity Incentive Plan (Executive) provides for the issuance of Incentive Non Statutory Options to attract, retain and motivate executive and management employees and directors and to encourage these individuals to acquire an equity interest in the Company, to make monetary payments to certain management employees and directors based upon the value of the Company’s stock and to provide these individuals with an incentive to maximize the success of the Company and further the interest of the shareholders. The Administrator of the plan is authorized to determine the exercise price per share at the time the option is granted, but the exercise price shall

not

be less than the fair market value on the date the option is granted. Stock options granted under the

2009

Plan have a maximum duration of 

ten

 years.

During the years ended

2018,

2017

and

2016,

the Company recorded expense for services and compensation in the amount of

$0,

$0

and

$0.2

million, respectively, for stock options that the requisite service was performed during the year. The compensation expense was recorded over the vesting period based upon fair market value of the options using the Black-Scholes option model in accordance with FASB ASC

718

as discussed in section Employee Stock Options.

All expense related to option awards was fully recognized as of

December 

31,

2016.

A summary of the options issued to employees and directors and changes during the years are presented below:

	For the Year Ended December 31, 2016
	Number of Options			Weighted Average Exercise Price ($)		Weighted Average Remaining Contract Life (years)	Aggregate Intrinsic Value ($ '000)
Balance at beginning of year		970,847		$	6.32	6.54	$	850
Exercised		(2,333	)		5.46			4
Expired		(1,833	)		5.40
Balance at end of year		966,681		$	6.32	5.55		751
Exercisable		966,681		$	6.32	5.55		751

	For the Year Ended December 31, 2017
	Number of Options			Weighted Average Exercise Price ($)		Weighted Average Remaining Contract Life (years)	Aggregate Intrinsic Value ($ '000)
Balance at beginning of year		966,681		$	6.32	5.55	$	751
Exercised		(2,001	)		5.70
Expired		(500	)		4.58
Balance at end of year		964,180		$	6.32	4.56		—
Exercisable		964,180		$	6.32	4.56		—

	For the Year Ended December 31, 2018
	Number of Options			Weighted Average Exercise Price ($)		Weighted Average Remaining Contract Life (years)	Aggregate Intrinsic Value ($ '000)
Balance at beginning of year		964,180		$	6.32	4.56	$	—
Expired		(40,282	)		6.47
Balance at end of year		923,898		$	6.32	3.64		—
Exercisable		923,898		$	6.32	3.64		—

As of

December 

31,

2018

and

2017,

and

2016

all issued and outstanding stock options were fully vested. There were

no

options granted during

2018,

2017

or

2016.

As of

December 31, 2018,

there are

no

remaining shares available to grant under these equity incentive plans.

XML

Note 11 - Related Party Transactions

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

11.

      RELATED PARTY TRANSACTIONS

The Company has a

$0.3

million short-term note receivable related to a former ownership interest in Test Products International (‘‘TPI’’). For further details regarding TPI, see Note

2

discussion - Investment and Note Receivable.

During

2018,

2017

and

2016,

$0.3

million,

$0.3

million and

$0.3

million, respectively in interest payments were made in relation to the promissory notes issued to related party, IED, see Note

7

Notes Payable, for further details.

Chief Executive Officer, and Chairman of the Board of Directors, William J. Clough’s son Nicholas J. Clough, serves as President at Orbital Gas Systems, North America, Inc., a wholly owned subsidiary of the Company, and as Chief Sales Officer for the Energy Division. In

2018,

2017,

and

2016,

Mr. Clough received an aggregate salary of

$213

thousand,

$200

thousand, and

$188

thousand, respectively, and received a cash bonus of

$150

thousand,

$150

thousand and

$113

thousand in fiscal

2018,

2017,

and

2016,

respectively. He also received stock compensation in

2016

valued at

$50

thousand, and other benefits valued at

$49

thousand,

$41

thousand and

$30

thousand in

2018,

2017

and

2016,

respectively. As of

December 31, 2018

and

2017,

there was an accrual of

$13

thousand and

$13

thousand, respectively, for compensation accrued to Nicholas Clough. Nicholas Clough does

not

report to the Chief Executive Officer nor does the Chief Executive Officer have input regarding Mr. Clough’s salary, bonus, or performance. Mr. Clough’s salary and bonus is set by his direct supervisor and relevant market conditions, while his performance is evaluated and monitored by his direct supervisor. In addition, pursuant to Company policy, any related-party bonus and/or salary change in excess of

$50,000

is independently reviewed and approved by the Company’s Compensation Committee, comprised of independent members of the Company’s Board of Directors.

Orbital employs

three

owners of EnDet, Ltd. from which the Company licenses its VE Technology. See Note

9

- Commitments and Contingencies - Commissions, Royalty and License Fee Agreements for more information on license fee agreements.

XML

Note 12 - Accumulated Other Comprehensive Income (Loss)

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Comprehensive Income (Loss) Note [Text Block]

12.

     ACCUMULATED OTHER COMPREHENSIVE LOSS

The components of accumulated other comprehensive loss are as follows:

(In thousands)	As of December 31,
	2018			2017			2016
Foreign currency translation adjustment	$	(4,396	)	$	(3,510	)	$	(5,590	)
Accumulated other comprehensive loss	$	(4,396	)	$	(3,510	)	$	(5,590	)

XML

Note 13 - Capitalized Interest

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Interest Paid Capitalized [Text Block]

13.

      CAPITALIZED INTEREST

The cost of constructing facilities, equipment and project assets includes interest costs incurred during the assets’ construction period. The components of interest expense and capitalized interest are as follows:

(In thousands)	For the Years Ended December 31,
	2018			2017			2016
Interest cost incurred	$	511		$	521		$	492
Interest cost capitalized - property and equipment		(9	)		(21	)		(25	)
Interest expense, net	$	502		$	500		$	467

XML

Note 14 - Income Taxes

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

14.

      INCOME TAXES

Consolidated loss before income taxes consisted of the following:

(In thousands)	For the Years Ended December 31,
	2018			2017			2016
U.S. operations	$	(5,187	)	$	(7,420	)	$	(8,442	)
Foreign operations		(12,344	)		(6,775	)		1,214
(Loss) before income taxes	$	(17,531	)	$	(14,195	)	$	(7,228	)

The income tax (benefit) expense consisted of the following:

(In thousands)	For the Years Ended December 31,
	2018			2017			2016
Current:
Federal	$	—		$	—		$	—
State and local		81			60			81
Foreign		65			101			64
Total current provision		146			161			145
Deferred:
Federal		—			(887	)		—
State and local		—			—			—
Foreign		(352	)		(880	)		(107	)
Total deferred (benefit)		(352	)		(1,767	)		(107	)
Total income tax (benefit) expense	$	(206	)	$	(1,606	)	$	38

The following table provides a reconciliation of the federal statutory tax rate to the recorded tax provision (benefit):

(In thousands)	For the Years Ended December 31,
	2018			2017			2016
Computed federal income taxes at the statutory rate (benefit)	$	(3,681	)	$	(4,826	)	$	(2,457	)
State income taxes (net of federal benefit)		63			39			53
Permanent tax differences		(122	)		(262	)		(415	)
Foreign tax rates and tax credits differing from USA		763			887			4
Purchased goodwill impairment		828			1,072			—
Research and development credits		(202	)		—			—
Net operating loss and other adjustment		(717	)		(256	)		216
Change in enacted tax rates applied to foreign deferred taxes		242			122			(38	)
Change in valuation allowance		2,620			2,505			2,675
Change in enacted tax rates applied to USA deferred taxes		—			(887	)		—
Total income tax (benefit) provision	$	(206	)	$	(1,606	)	$	38

The Company accounts for income taxes under the asset-liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Valuation allowances are provided when it is ‘‘more likely than

not’’

that the benefits of existing deferred tax assets will

not

be realized in a future period. Significant components of the Company’s deferred tax assets and liabilities are as follows:

(In thousands)	As of December 31,
	2018			2017
Deferred tax assets:
Net operating loss carryforwards	$	19,754		$	16,905
Contribution and other carryforwards		197			218
Inventory and accounts receivable reserves		668			549
Other		578			676
Valuation allowance		(20,281	)		(17,662	)
Deferred tax assets after valuation allowance		916			686
Deferred tax liabilities
Intangible assets		(2,765	)		(2,914	)
Property, plant and equipment		(73	)		(186	)
Total deferred tax liabilities		(2,838	)		(3,100	)
Net deferred tax liabilities	$	(1,922	)	$	(2,414	)

The Company adopted the provisions of ASU

2015

-

17

in

2015.

ASU

2015

-

17

requires that all deferred tax assets and liabilities be classified as noncurrent on the balance sheet. The net deferred tax liability is recorded as follows:

(In thousands)	As of December 31,
	2018			2017
Noncurrent deferred tax assets	$	—		$	—
Noncurrent deferred tax liability		(1,922	)		(2,414	)
Net deferred tax liability	$	(1,922	)	$	(2,414	)

The Company’s consolidated gross deferred tax liability relates to intangibles recorded in connection with prior acquisitions. As of

December 

31,

2018,

approximately

$1.9

million of the liability relates to indefinite-lived intangibles, which will only reverse at the time of ultimate sale or impairment of the underlying intangible assets. Additionally,

$0.8

million of the deferred tax liability relates to finite-lived intangibles as a result of a foreign acquisition, which reverses as the intangibles are amortized.

As of

December 

31,

2018

and

2017,

the Company recorded a consolidated valuation allowance of

$20.3

million and

$17.7

million, respectively. During the years ended

December 

31,

2018,

2017

and

2016,

the Company recorded an increase in valuation allowance of

$2.6

million, a decrease in valuation allowance of

$5.8

million, and an increase in valuation allowance of

$2.7

million, respectively. The Company has provided for a full valuation on existing deferred tax assets in the United States and United Kingdom. Prior to

2018,

the valuation allowance was on the deferred tax assets of the United States only. As of

December 

31,

2018,

the Company has available federal, state and foreign net operating loss carry forwards of approximately

$67.8

million,

$62.8

million, and

$2.2

million respectively, which the federal and state net operating loss carry-forwards will expire between

2019

and

2038.

Our ability to utilize federal net operating loss (NOL) carry-forwards to reduce future taxable income

may

be limited under Section

382

of the Internal Revenue Code if certain ownership changes in our company occur during a rolling

three

-year period.  If such ownership changes by

5

-percent-shareholders result in aggregate increases that exceed

50

percentage points during the

three

-year period, then Section

382

imposes an annual limitation on the amount of our taxable income that

may

be offset by the federal NOL carry forwards or tax credit carry-forwards at the time of ownership change.

CUI Global files consolidated income tax returns with its domestic subsidiaries for federal and many state jurisdictions in addition to separate subsidiary income tax returns in Canada, Japan, and the United Kingdom. As of

December 

31,

2018,

the Company is

not

under examination by any income tax jurisdiction. The Company is

no

longer subject to examination in the USA for years prior to

2015.

The Company accounts for income tax uncertainties using a threshold of ‘‘more-likely-than-

not’’

in accordance with the provisions of ASC Topic

740,

 

Income Taxes

 (‘‘ASC

740’’

). As of

December 

31,

2018,

the Company has reviewed all of its tax filings and positions taken on its returns and has

not

identified any material current or future effect on its consolidated results of operations, cash flows or financial position. As such, the Company has

not

recorded any tax, penalties or interest on tax uncertainties. It is Company policy to record any interest on tax uncertainties as a component of income tax expense.

On

December 22, 2017,

the USA passed sweeping tax legislation, which reduced the federal corporate tax rate for years beginning after

December 31, 2017

to a flat

21%

(with an approximate

5%

state tax effect) in addition to requiring the deemed repatriation of all foreign undistributed earnings. As such, as of

December 22, 2017,

the Company restated existing USA deferred tax assets and liabilities to

26%

resulting in a net income tax benefit of approximately

$887

thousand. As of

December 31, 2017,

the Company does

not

have any undistributed foreign earnings subject to deemed repatriation. The Company has

no

plans to repatriate any excess cash balances which

may

be available from its foreign subsidiaries in the foreseeable future. The new tax provisions surrounding the repatriation of foreign earnings are extremely complex and

may

require further evaluation to determine the correct reporting and inclusion for USA purposes. The Company does

not

anticipate any material changes to the amounts determined as of

December 31, 2017.

The Company adopted ASU

2016

-

09,

 

Compensation - Stock Compensation (Topic

718

)

 effective

January 1, 2017

on a modified retrospective basis, whereby a cumulative-effect adjustment to equity as of the beginning of the period is required. Upon evaluation,

no

adjustment was required as of

January 1, 2017.

XML

Note 15 - Concentrations

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Concentration Risk Disclosure [Text Block]

15.

     CONCENTRATIONS

During

2018,

36%

of revenues were derived from

two

customers that individually had over

10%

of our total revenues: Digi-Key Electronics with

24%

and Future Electronics with

12%

in the Power and Electromechanical segment. During

2017,

36%

of revenues were derived from

two

customers that individually had over

10%

of our total revenues: Digi-Key Electronics with

26%

and Future Electronics with

10%.

During

2016,

 

19%

 of revenues were derived from 

one

 customer that individually had over

10%

of our total revenues: Digi-Key Electronics.

The Company’s major product lines in

2018,

2017

and

2016

were power and electromechanical products and natural gas infrastructure and high-tech solutions.

At

December 31, 2018,

of the gross trade accounts receivable totaling approximately

$14.6

million, there were

no

individual customers that made up greater than

10%

of the Company's total trade accounts receivable. At

December 

31,

2017,

of the gross trade accounts receivable totaling approximately

$11.0

million, approximately

21%

was due from

two

customers: GL Industrial Services UK Ltd. in the Energy segment at

11%

and Digi-Key Electronics in the Power and Electromechanical segment at

10%.

There was

one

supplier that supplied

12%

of our purchases in

2017

from a vendor in the Power and Electromechanical segment and

no

supplier concentration greater than

10%

in

2018

or

2016.

With the United Kingdom operations of Orbital, the Company also has foreign revenue and trade accounts receivable concentrations in the United Kingdom of 

16%

and

29%,

respectively for the year ended and at

December 

31,

2018.

In

2017,

the Company had foreign revenue and trade accounts receivable in the United Kingdom of

17%

and 

28%,

respectively. In

2016,

the Company had foreign revenue and trade accounts receivable in the United Kingdom of

20%

and 

27%,

respectively. Additionally, at

December 

31,

2017

the Company had accounts receivable concentrations of

11%

in Canada and at

December 

31,

2016,

the Company had accounts receivable concentrations of

11%

in China and

10%

in Italy.

Currently,

20%

of our total labor force and

55%

of our labor force in Canada is subject to a collective bargaining agreement.

XML

Note 16 - Subsequent Events

12 Months Ended

Dec. 31, 2018

Notes to Financial Statements

Subsequent Events [Text Block]

16.

     SUBSEQUENT EVENTS

Management has reviewed for subsequent events and identified the following:

Stock Issuances in

2019

On

January 14, 2019,

pursuant to board service agreements,

three

independent board members were issued a total of

29,067

shares of common stock with a grant date fair value of

$38

thousand for

first

quarter

2019

board fees.

On

March 13, 2019,

CUI Inc. and CUI-Canada received and signed a firm commitment letter from Bank of America for a new

two

-year credit facility, perfected by a

first

security lien on all assets of CUI Inc. and CUI-Canada. The facility would also include a

$3

million sub-limit for use by CUI-Global non-loan party subsidiaries as a reserve under the borrowing base. The credit facility is to provide for working capital and general corporate purposes. The credit facility would provide up to

$10

million in a Revolving Line of Credit Facility (“Revolver”), including a sub-limit for letters of credit. Interest will be based upon Daily Floating LIBOR at LIBOR +

2.00%.

 The Company expects to close on the credit agreement in

April 2019.

Also, during

March 2019,

CUI Global agreed to terms with Virtual Power Systems (“VPS”) for an approximate 

20%

equity interest in VPS. In exchange for the equity interest, CUI will invest another

$345

thousand into VPS, convert its

$655

thousand of convertible notes receivable to equity, contribute ICE related inventory, lab equipment, certifications, intellectual property and other related assets to VPS. In conjunction with the equity position in VPS, CUI will receive a board seat and also place an observational non-voting advisor to the VPS board. 

XML

Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2018

Accounting Policies [Abstract]

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to review the Company’s goodwill, impairments and estimations of long-lived assets, revenue recognition on cost-to-cost type contracts, allowances for uncollectible accounts, inventory valuation, warranty reserves, valuations of non-cash capital stock issuances and the valuation allowance on deferred tax assets. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are

not

readily apparent from other sources. Actual results

may

differ from these estimates under different assumptions or conditions.

Company Conditions, Policy [Policy Text Block]

Company Conditions

The continued delays in shipment of GasPTs on a significant project due to governmental delays and the related slower than expected acceptance of this new disruptive technology has caused a delay in our expected profitability.

The Company had losses of

$17.3

million and cash used in operating activities of

$12.3

million during the year ended

December 31, 2018.

As of

December 31, 2018,

our accumulated deficit is

$124.0

million.

Management believes the Company's present cash flows will

not

enable it to meet its obligations for

twelve

months from the date these financial statements are available to be issued. However, management has developed a plan to address this issue. The plan included obtaining a new long-term financing in the form of a new line of credit, and utilizing the cash received from our recent sale/leaseback of our Tualatin headquarters. As part of this plan the Company has obtained a firm commitment from Bank of American for a

$10.0

million credit facility. The new line of credit is expected to close in

April

of

2019.

For more information on the Company's new line of credit, see Note

16

Subsequent Events. In addition, as of

December 31, 2018,

the Company has unused availability of

$2.0

million on its current line of credit and unused availability of

$0.6

million under its Overdraft Facility. However, our new credit facility will replace these facilities. Including our cash balance, we further have

$16.9

million of positive working capital primarily related to trade accounts receivable and our inventory less current liabilities that we will manage in the next

twelve

 months to create positive cash flow. Considering the above factors and the new line of credit, management believes it is probable that management’s plans will be achieved and will enable the Company to meet its obligations for the

twelve

-month period from the date the financial statements are available to be issued.

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of CUI Global, Inc. and its wholly owned subsidiaries CUI Inc., CUI Japan, CUI-Canada, CUI Properties, LLC, Orbital Gas Systems, Ltd. and Orbital Gas Systems, North America, Inc. hereafter referred to as the ‘‘Company.’’ Significant intercompany accounts and transactions have been eliminated in consolidation.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value of Financial Instruments

Accounting Standards Codification (‘‘ASC’’)

820

‘‘Fair Value Measurements and Disclosures’’ (‘‘ASC

820’’

) defines fair value, establishes a framework for measuring fair value under generally accepted accounting principles in the U.S., and enhances disclosures about fair value measurements. ASC

820

describes a fair value hierarchy based on

three

levels of inputs, of which the

first

two

are considered observable and the last unobservable, that

may

be used to measure fair value, which are the following:

• Level 1 – Pricing inputs are quoted prices available in active markets for identical assets or liabilities as of the reporting date.

• Level 2 – Pricing inputs are quoted for similar assets, or inputs that are observable, either directly or indirectly, for substantially the full term through corroboration with observable market data. Level 2 includes assets or liabilities valued at quoted prices adjusted for legal or contractual restrictions specific to these investments.

• Level 3 – Pricing inputs are unobservable for the assets or liabilities; that is, the inputs reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability.

The Company determines when a financial instrument transfers between levels based on management’s judgment of the significance of unobservable inputs used to calculate the fair value of the financial instrument.

Management believes the carrying amounts of the short-term financial instruments, including cash and cash equivalents, investment, note receivable, accounts receivable, contract assets, prepaid expense and other assets, accounts payable, accrued liabilities, contract liabilities, refund liabilities, and other liabilities reflected in the accompanying consolidated balance sheet approximate fair value at

December 

31,

2018

and

2017

due to the relatively short-term nature of these instruments. Mortgage debt and related notes payable approximate fair value based on current market conditions. The Company measures its derivative liability on a recurring basis using significant observable inputs (Level

2

). The Company’s derivative liability is valued using a LIBOR swap curve. As of

December 31, 2018,

the mortgage debt and derivative liability were repaid and had

zero

balances.

Cash and Cash Equivalents, Policy [Policy Text Block]

Cash and Cash Equivalents

Cash includes deposits at financial institutions with maturities of

three

months or less. The Company at times has cash in banks in excess of FDIC insurance limits and places its temporary cash investments with high credit quality financial institutions. The Company considers all highly liquid marketable securities with maturities of

90

days or less at the date of acquisition to be cash equivalents. Cash equivalents include money market funds, certificates of deposit and commercial paper. At

December 

31,

2018

and

2017,

the Company had 

$0.3

million and

$0.9

million, respectively, of cash and cash equivalents balances at domestic financial institutions that were covered under the FDIC insured deposits programs and 

$68

thousand and

$0.2

million, respectively, at foreign financial institutions covered under the United Kingdom Financial Services Compensation (FSC) and the Canada Deposit Insurance Corporation (CDIC). At

December 

31,

2018

and

2017,

the Company held

$0.3

million and

$0.1

million, respectively, in Japanese foreign bank accounts and

$1

thousand and

$0.1

million, respectively, in European foreign bank accounts and

$67

thousand and

$0.1

million, respectively, in Canadian bank accounts. In addition to the Company's unrestricted cash and cash equivalents, the Company has

$523

thousand of long-term restricted cash on its balance sheet related to a contract guarantee. The restricted cash is classified as long term in nature because the contract guarantee extends to the end of

2021.

Restricted cash is combined with other cash and cash equivalents in reconciling the change in cash on the Company's Consolidated Statements of Cash Flows.

Investment, Policy [Policy Text Block]

Investments and Notes Receivable

Test Products International, Inc. ("TPI") is a provider of handheld test and measurement equipment. Through the acquisition of CUI Inc., the Company obtained

352,589

common shares (representing an

8.94%

interest from

January 1

to

March 31, 2014

and

8.5%

thereafter). Through

September 30, 2015,

CUI Global enjoyed a close association with TPI through common related parties, IED, Inc. and James McKenzie as well as through participation that allowed for a significant amount of influence over TPI’s business decisions. Accordingly, through

September 30, 2015,

for financial statement purposes, the Company recognized its investment in TPI under the equity method. Following a determination of reduction in influence and control, the investment was recorded using the cost method.

During the

first

quarter of

2016,

the investment in TPI was exchanged for a note receivable from TPI of

$0.4

million, which was the carrying value of the investment, earning interest at

5%

per annum, due

June 30, 2019.

The Company recorded interest income on the note of

$17

thousand,

$18

thousand and

$19

thousand for the years ended

December 31, 2018,

2017

and

2016,

respectively. The interest receivable has been settled on a quarterly basis via a non-cash offset against the finders-fee royalties earned by TPI on GasPT sales. Finders-fee royalties of

$10

thousand,

$16

thousand and

$37

thousand were earned by TPI in the years ended

December 

31,

2018,

2017

and

2016,

respectively, and offset against the note receivable on a quarterly basis. Also, in

2018

and

2017,

the Company received

$19

thousand and

$39

thousand, respectively, in cash payments against the note.  The balance on the note receivable at

December 31, 2018

and

2017

was

$318

thousand and

$330

thousand, respectively. CUI Global reviewed the note receivable for non-collectability as of

December 

31,

2018

and concluded that

no

allowance was necessary.

During

2018,

the Company made

two

strategic investments in convertible notes receivable with Virtual Power Systems ("VPS") for a total of

$655

thousand. CUI Inc. is the exclusive

third

-party design and development provider of VPS's ICE (Intelligent Control of Energy) products. See Note

3,

Investments and Fair Value Measurements for more information on these convertible notes.

Receivables, Policy [Policy Text Block]

Accounts Receivable and Allowance for Uncollectible Accounts

Accounts receivable consist of the receivables associated with revenue derived from product sales including present amounts due to contracts accounted for under cost-to-cost method. An allowance for uncollectible accounts is recorded to allow for any amounts that

may

not

be recoverable, based on an analysis of prior collection experience, customer credit worthiness and current economic trends. Based on management’s review of accounts receivable, an allowance for doubtful accounts of

$0.2

million and

$0.1

million at

December 

31,

2018

and

2017,

respectively, is considered adequate. The reserve in both periods considers aged receivables that management believes should be specifically reserved for as well as historic experience with bad debts to determine the total reserve appropriate for each period. Receivables are determined to be past due based on the payment terms of original invoices. The Company grants credit to its customers, with standard terms of Net

30

days. The Company routinely assesses the financial strength of its customers and, therefore, believes that its accounts receivable credit risk exposure is limited. Additionally, the Company maintains a foreign credit receivables insurance policy that covers many of the CUI Inc. foreign customer receivable balances in an effort to further reduce credit risk exposure.

Activity in the allowance for doubtful accounts for the years ended

December 

31,

2018,

2017

and

2016

is as follows:

(In thousands)	For the Years ended December 31,
	2018			2017			2016
Allowance for doubtful accounts, beginning of year	$	135		$	151		$	90
Charge (credit) to costs and expenses		33			(13	)		93
Deductions		(1	)		(3	)		(32	)
Allowance for doubtful accounts, end of year	$	167		$	135		$	151

Inventory, Policy [Policy Text Block]

Inventories

Inventories consist of finished and unfinished products and are stated at the lower of cost or market through either the

first

-in,

first

-out (FIFO) method as a cost flow convention or through the moving average cost method.

At

December 

31,

2018,

and

2017,

inventory is presented on the balance sheet net of reserves. The Company provides reserves for inventories estimated to be excess, obsolete or unmarketable. The Company’s estimation process for assessing the net realizable value is based upon its known backlog, projected future demand, historical usage and expected market conditions. Manufactured inventory includes material, labor and overhead. Inventory by category consists of:

(In thousands)	As of December 31,
	2018			2017
Finished goods	$	10,143		$	10,792
Raw materials		4,200			3,287
Work-in-process		1,194			759
Inventory reserves		(2,495	)		(946	)
Total inventories	$	13,042		$	13,892

Activity in inventory reserves is as follows:

(In thousands)	For the Years ended December 31,
	2018			2017		2016
Inventory reserves, beginning of year	$	946		$	774	$	483
Charge to costs and expenses		1,592			138		312
Other (deductions) additions		(43	)		34		(21	)
Inventory reserves, end of year	$	2,495		$	946	$	774

In the

fourth

quarter of

2018,

the Company recorded an additional inventory reserve of

$1.4

million related to slow-moving inventory in the Energy segment.

Property, Plant and Equipment, Policy [Policy Text Block]

Land, Buildings, Improvements, Furniture, Vehicles, Equipment, and Leasehold Improvements

Land is recorded at cost and includes expenditures made to ready it for use. Land is considered to have an infinite useful life.

Buildings and improvements are recorded at cost.

Furniture, vehicles, and equipment are recorded at cost and include major expenditures, which increase productivity or substantially increase useful lives.

Leasehold improvements are recorded at cost and are depreciated over the lesser of the lease term, estimated useful life, or

ten

years.

The cost of buildings, improvements, furniture, vehicles, and equipment is depreciated over the estimated useful lives of the related assets.

Depreciation is computed using the straight-line method for financial reporting purposes. The estimated useful lives for buildings, improvements, furniture, vehicles, and equipment are as follows:

	Estimated Useful Life (years)
Buildings and improvements		5	to	39
Furniture and equipment		3	to	10
Vehicles		3	to	5

Maintenance, repairs and minor replacements are charged to expenses when incurred. When buildings, improvements, furniture, equipment and vehicles are sold or otherwise disposed of, the asset and related accumulated depreciation are removed from this account, and any gain or loss is included in the statement of operations or as a deferred gain liability on the balance sheets.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

Long-Lived Assets

Long-lived assets including finite-lived intangible assets are periodically reviewed for impairment whenever circumstances and situations change such that there is an indication that the carrying amounts

may

not

be recoverable. In performing the review for recoverability, the future cash flows expected to result from the use of the asset and its eventual disposition are estimated. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the long-lived asset, an impairment loss is recognized as the excess of the carrying amount over the fair value. Otherwise, an impairment loss is

not

recognized. Management estimates the fair value and the estimated future cash flows expected. Any changes in these estimates could impact whether there was impairment and the amount of the impairment.

In the

fourth

quarter of

2018,

the Company determined that certain long-term prepaid assets classified on the balance sheet as deposits and other assets, which were reliant on future revenue within the Energy segment in order to be amortized to expense, did

not

have adequate forecasted revenue to justify the current valuation. This was primarily driven by the lack of substantial sales over the last

two

years within the Energy segment and uncertainty regarding the level of future sales. For that reason, the Company recorded a

$1.5

million impairment to deposits and other assets and reclassified

$0.1

million to prepaid assets. The amount reclassified to prepaid assets related to prepaid royalties associated with expected

2019

revenue.

In

2018,

the Company also performed an undiscounted cash flows impairment analysis as prescribed under ASC

360

Property, Plant and Equipment

on its long-lived fixed assets and its finite lived intangible assets at Orbital-UK due to an indication that the overall carrying value of the operating unit was

not

recoverable. Based upon that analysis,

no

impairment was identified for those assets.

No

impairments were recognized in

2017

or

2016.

Goodwill and Intangible Assets, Intangible Assets, Policy [Policy Text Block]

Identifiable Intangible Assets

Intangible assets are stated at cost net of accumulated amortization and impairment. The fair value for intangible assets acquired through acquisitions is measured at the time of acquisition utilizing the following inputs, as needed:

1. Inputs used to measure fair value are unadjusted quote prices available in active markets for the identical assets or liabilities if available.

2. Inputs used to measure fair value, other than quoted prices included in 1, are either directly or indirectly observable as of the reporting date through correlation with market data, including quoted prices for similar assets and liabilities in active markets and quoted prices in inactive markets. This includes assets and liabilities valued using models or other pricing methodologies that do not require significant judgment since the input assumptions used in the models, such as interest rates and volatility factors, are corroborated by readily observable data from actively quoted markets for substantially the full life of the asset.

3.	Inputs used to measure fair value are unobservable inputs supported by little or no market activity and reflect the use of significant management judgment. These values are generally determined using pricing models for which the assumptions utilize management’s estimates of market participant assumptions.
4.	Expert appraisal and fair value measurement as completed by third -party experts.

 The following are the estimated useful life for the intangible assets:

	Estimated
	Useful
	Life (years)
Finite-lived intangible assets
Order backlog			2
Trade name - Orbital			10
Trade name - V-Infinity			5
Trade name - CUI-Canada			3
Customer list - Orbital			10
Customer list - CUI-Canada			7
Technology rights			20 (1)
Technology-Based Asset - Know How			12
Technology-Based Asset - Software			10
Technology-Based Asset - Power			7
Software		3	to	5  (2)
Patents	See endnote (3)
Other intangible assets	See endnote (4)
Indefinite-lived intangible assets
Trade name - CUI	See endnote (5)
Customer list - CUI	See endnote (5)
Patents pending technology	See endnote (5)

( 1 ) Technology rights are amortized over a  20 -year life or the term of the rights agreement.

( 2 ) Software assets are recorded at cost and include major expenditures, which increase productivity or substantially increase useful lives.

( 3 ) Patents are amortized over the life of the patent. Any patents not approved will be expensed at that time.

( 4 ) Other intangible assets are amortized over an appropriate useful life, as determined by management in relation to the other intangible asset characteristics.

( 5 ) Indefinite-lived intangible assets are reviewed annually for impairment and when circumstances suggest.

Goodwill and Intangible Assets, Policy [Policy Text Block]

Indefinite-Lived Intangibles and Goodwill Assets

The Company accounts for business combinations under the acquisition method of accounting in accordance with ASC

805,

‘‘Business Combinations,’’ where the total purchase price is allocated to the tangible and identified intangible assets acquired and liabilities assumed based on their estimated fair values. The purchase price is allocated using the information currently available, and

may

be adjusted, up to

one

year from acquisition date, after obtaining more information regarding, among other things, asset valuations, liabilities assumed and revisions to preliminary estimates. The purchase price in excess of the fair value of the tangible and identified intangible assets acquired less liabilities assumed is recognized as goodwill.

Annual Test.

The Company tests for impairment of indefinite-lived intangibles and Goodwill in the

second

quarter of each year and whenever events or circumstances indicate that the carrying amount of Goodwill exceeds its fair value and

may

not

be recoverable. The Company’s qualitative assessment for indefinite-lived assets at

May 31, 2018,

followed the guidance in ASC

350

-

30

-

35

-

18A

and

18B.

Under current accounting guidance, CUI Global is

not

required to calculate the fair value of a reporting unit unless the entity determines, based on a qualitative assessment, that it is more likely than

not

that its fair value is less than its carrying amount. The guidance includes a number of factors to consider in conducting the qualitative assessment. The Company tests for goodwill impairment in the

second

quarter of each year and whenever events or changes in circumstances indicate that the carrying amount of the asset exceeds its fair value and

may

not

be recoverable.

As detailed in ASC

350

-

20

-

35

-

3A,

in performing its testing for Goodwill as of

May 31, 2018,

management completed a qualitative analysis to determine whether it was more likely than

not

that the fair value of a reporting unit is less than its carrying amount, including Goodwill. To complete the qualitative review, management follows the steps in ASC

350

-

20

-

35

-

3C

to evaluate the fair values of the Goodwill and considers all known events and circumstances that might trigger an impairment of Goodwill.

During our review of Goodwill as of

May 31, 2018,

the Company determined that there were indicators present to suggest that it was more likely than

not

that the fair value of the Orbital-UK reporting unit was less than its carrying amount.

The significant changes for the Orbital-UK reporting unit subsequent to the most recent impairment test performed as of

December 31, 2017

included a decline in the

2018

actual revenue, operating income and cash flows compared to prior forecasts for the same period and a negative change in the

2018

forecasted revenue, operating income and cash flows for the remainder of the year due in part to the longer than expected temporary halt in shipping of its GasPT product to a major customer in Italy and market uncertainty due to the continuing effects of Brexit.

To test the Orbital-UK reporting unit for impairment as of

May 31, 2018,

the Company used a quantitative test. The Company estimated the fair value of the Orbital-UK reporting unit using a blend of a market approach and an income approach, which was deemed to be the most indicative of fair value in an orderly transaction between market participants. Under the income approach, the Company determined fair value based on estimated future cash flows of the Orbital-UK reporting unit discounted by an estimated weighted-average cost of capital, reflecting the overall level of inherent risk of the Orbital-UK reporting unit and the rate of return an outside investor would expect to earn. The Company based its cash flow projections for the Orbital-UK reporting unit using a forecast of cash flows and a terminal value developed by capitalizing an assumed stabilized cash flow figure. The forecast and related assumptions were derived from an updated financial forecast prepared during the

second

quarter of

2018.

At that time, a key assumption related to the recoverability of the Orbital-UK reporting unit Goodwill was the resumption of delivery of GasPT product to

one

of our major customers and continued strengthening of our integration revenues. Under the market approach, appropriate valuation multiples were derived from the historical operating data of selected guideline companies. The valuation multiples were evaluated and adjusted based on the strengths and weaknesses of the Company relative to the selected guideline companies and the multiple was then applied to the appropriate operating data of the Company to arrive at an indication of fair market value. As a result of the analysis, the Company concluded that the carrying value of the Orbital-UK reporting unit exceeded its estimated fair value. The quantitative test for the Orbital-UK reporting unit resulted in an impairment for the Orbital-UK reporting unit, and the Company recorded a Goodwill impairment charge of

$1.3

million during the

second

quarter of

2018.

December 2018

Interim Test.

During the

fourth

quarter of

2018,

the Company determined there were indicators present to suggest that it was more likely than

not

that the fair value of the Orbital-UK reporting unit was less than its carrying amount. The significant changes for the Orbital-UK reporting unit subsequent to the annual goodwill impairment test performed as of

May 31, 2018

were driven by a slower recovery in the Energy segment than originally forecasted. Actual GasPT revenue continued to lag behind forecasted revenue as acceptance of the technology continued to be slower than anticipated and delays associated with existing customer contracts that have

not

yet resumed. This slower than expected recovery, led to lower

2018

Energy segment revenue, operating income and cash flows than originally forecasted.

To test the Orbital-UK reporting unit for impairment, the Company used a quantitative test similar to the

one

used at

May 31, 2018

with updated financial forecasts and assumptions based on the information available at

December 31, 2018.

As a result of the analysis, the Company concluded that the carrying value of the Orbital-UK reporting unit exceeded its estimated fair value. The quantitative test for the Orbital-UK reporting unit resulted in an impairment for the Orbital-UK reporting unit, and the Company recorded a goodwill impairment charge of

$3.1

million during the

fourth

quarter of

2018,

which was a write-off of the remaining Energy segment goodwill. In addition, the reporting units in the Power and Electromechanical segment were also tested for impairment due to the overall decrease in market capitalization experienced in

2018.

 

As of

December 31, 2018,

there was goodwill remaining for CUI Inc., CUI-Canada and CUI-Japan reporting units, which are included in the Power and Electromechanical segment.

December 2017

Interim Test.

During the

fourth

quarter of

2017,

the Company determined that there were indicators present to suggest that it was more likely than

not

that the fair value of the Orbital-UK reporting unit was less than its carrying amount. The significant changes for the Orbital-UK reporting unit subsequent to the annual goodwill impairment test performed as of

May 31, 2017

included a decline in the

2017

actual revenue, operating income and cash flows compared to previously forecasted results and a decline in the

2018

forecasted revenue, operating income and cash flows due in part to the longer than expected temporary halt in shipping of its GasPT product to a major customer in Italy and market uncertainty due to the continuing effects of Brexit.

To test the Orbital-UK reporting unit for impairment, the Company used a quantitative test. The Company estimated the fair value of the Orbital-UK reporting unit using a blend of a market approach and an income approach, which was deemed to be the most indicative of fair value in an orderly transaction between market participants. Under the income approach, the Company determined fair value based on estimated future cash flows of the Orbital-UK reporting unit discounted by an estimated weighted-average cost of capital, reflecting the overall level of inherent risk of the Orbital-UK reporting unit and the rate of return an outside investor would expect to earn. The Company based its cash flow projections for the Orbital-UK reporting unit using a forecast of cash flows and a terminal value developed by capitalizing an assumed stabilized cash flow figure. The forecast and related assumptions were derived from an updated financial forecast prepared during the

fourth

quarter of

2017.

Under the market approach, appropriate valuation multiples were derived from the historical operating data of selected guideline companies. The valuation multiples were evaluated and adjusted based on the strengths and weaknesses of the Company relative to the selected guideline companies and the multiple was then applied to the appropriate operating data of the Company to arrive at an indication of fair market value. As a result of the analysis, the Company concluded that the carrying value of the Orbital-UK reporting unit exceeded its estimated fair value. The quantitative test for the Orbital-UK reporting unit resulted in an impairment for the Orbital-UK reporting unit, and the Company recorded a goodwill impairment charge of

$3.2

million during the

fourth

quarter of

2017.

2016

Annual Test.

In

2016,

the analysis, determined there was

no

impairment necessary to goodwill. Through these reviews, management concluded there were

no

events or circumstances that triggered an impairment (and there was

no

expectation that a reporting unit or a significant portion of a reporting unit would be sold or otherwise disposed of in the following year), therefore,

no

further analysis was necessary to prepare for goodwill impairment beyond the steps in

350

-

20

-

35

-

3C

in accordance with current accounting guidance. On a periodic basis, we will also perform a quantitative analysis of goodwill impairment and in

2016,

in addition to the qualitative analysis, we performed a quantitative analysis of goodwill impairment and concluded

no

impairment of goodwill was required.

Intangible Assets, Finite-Lived, Policy [Policy Text Block]

Patent Costs

The Company estimates the patents it has filed have a future beneficial value; therefore it capitalizes the costs associated with filing for its patents. At the time the patent is approved, the patent costs associated with the patent are amortized over the useful life of the patent. If the patent is

not

approved, at that time the costs will be expensed.

Accrued Expenses [Policy Text Block]

Accrued expenses

Accrued expenses are liabilities that reflect expenses on the statement of operations that have

not

been paid or recorded in accounts payable at the end of the period. At

December 

31,

2018

and

December 

31,

2017,

accrued expenses of

$4.9

million and

$4.2

million, respectively, included

$1.7

million and

$1.9

million, respectively, of accrued compensation and

$1.7

million and

$1.3

million, respectively, of accrued inventory payable.

Derivatives, Policy [Policy Text Block]

Derivative instruments

The Company uses various derivative instruments including forward currency contracts, and interest rate swaps to manage certain exposures. These instruments are entered into under the Company’s corporate risk management policy to minimize exposure and are

not

for speculative trading purposes. The Company recognizes all derivatives as either assets or liabilities in the consolidated balance sheet and measures those instruments at fair value. Changes in the fair value of derivatives are recognized in earnings. The Company has limited involvement with derivative instruments and does

not

trade them. From time to time, the Company

may

enter into foreign currency exchange contracts to minimize the risk associated with foreign currency exchange rate exposure from expected future cash flows. The Company had entered into

one

interest rate swap, which had a maturity date of

ten

years from the date of inception, and was used to minimize the interest rate risk on the variable rate mortgage. During the years ended

December 

31,

2018,

2017

and

2016,

the Company had a non-cash gain and unrealized gains of

$129

thousand,

$111

thousand, and

$113

thousand, respectively, related to the derivative liabilities. During the year ended

December 31, 2018,

the Company paid

$227

thousand to close out the interest rate swap in conjunction with the repayment of the related variable rate mortgage.

Derivative Liabilities [Policy Text Block]

Derivative Liabilities

The Company evaluates embedded conversion features pursuant to FASB Accounting Standards Codification

No.

815

(‘‘FASB ASC

815’’

), ‘‘Derivatives and Hedging,’’ which requires a periodic valuation of the fair value of derivative instruments and a corresponding recognition of liabilities associated with such derivatives.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock-Based Compensation

The Company records its stock-based compensation expense under its stock option plans and also issues stock for services. The Company accounts for stock-based compensation using FASB Accounting Standards Codification

No.

718

(‘‘FASB ASC

718’’

), ‘‘Compensation – Stock Compensation.’’ FASB ASC

718

requires the fair value of all stock-based employee compensation awarded to employees to be recorded as an expense over the related vesting period.

Stock bonuses issued to employees are recorded at fair value using the market price of the stock on the date of grant and expensed over the vesting period or immediately if fully vested on date of issuance. Employee stock options are recorded at fair value using the Black-Scholes option pricing model. The underlying assumptions used in the Black-Scholes option pricing model by the Company are taken from publicly available sources including: (

1

) volatility, which is calculated using historic stock price information from online finance websites such as Google Finance and Yahoo Finance; (

2

) the stock price on the date of grant is obtained from online finance websites such as those previously noted; (

3

) the appropriate discount rates are obtained from the United States Federal Reserve economic research and data website; and (

4

) other inputs are determined based on previous experience and related estimates. With regards to expected volatility, the Company utilizes an appropriate period for historical share prices for CUI Global that best reflect the expected volatility for determining the fair value of its stock options.

See Note 

10

Stockholders' Equity for additional disclosure and discussion of the employee stock plan and activity.

Common stock, stock options and common stock warrants issued to other than employees or directors are also recorded on the basis of their fair value, as required by FASB ASC

505,

which is measured as of the date required by FASB ASC

505,

‘‘Equity – Based Payments to Non-Employees.’’ In accordance with FASB ASC

505,

the stock options or common stock warrants are valued using the Black-Scholes option pricing model on the basis of the market price of the underlying common stock on the ‘‘valuation date,’’ which for options and warrants related to contracts that have substantial disincentives to non-performance is the date of the contract, and for all other contracts is the performance completion date. Expense related to the options and warrants is recognized on a straight-line basis over the shorter of the period over which services are to be received or the vesting period. Where expense must be recognized prior to a valuation date, the expense is computed based off an estimate of the fair value of the stock award as valued under the Black-Scholes option pricing model on the basis of the market price of the underlying common stock at the end of the period, and any subsequent changes in the market price of the underlying common stock up through the valuation date is reflected in the expense recorded in the subsequent period in which that change occurs.

Common stock issued to other than employees or directors subject to performance (performance based awards) require interpretation to include ASC

505

-

50

-

30

-

13

as to when the counterparty’s performance is complete based on delivery, or other relevant performance criteria in accordance with the relevant agreement. When performance is complete, the common stock is issued and the expense recorded on the basis of their value as required by FASB ASC

505

on the date the performance requirement is achieved.

Compensation Related Costs, Policy [Policy Text Block]

Defined Contribution Plans

The Company has a

401

(k) retirement savings plan that allows employees to contribute to the plan after they have completed

60

days of service and are

18

years of age. The Company matches the employee's contribution up to

6%

of total compensation. CUI Inc., Orbital Gas Systems, North America, Inc., and CUI Global made total employer contributions, net of forfeitures, of

$0.5

million,

$0.4

million, and

$0.4

million for

2018,

2017

and

2016,

respectively.

Orbital-UK operates a defined contribution retirement benefit plan for employees who have been employed with the company at least

12

months and who chose to enroll in the plan. Orbital-UK contributes to its plan the equivalent of

5%

of the employee's salary and the employee has the option to contribute pre-tax earnings. Orbital-UK made total employer contributions of

$0.3

million,

$0.2

million and

$0.3

million during

2018,

2017,

and

2016,

respectively.

Revenue from Contract with Customer [Policy Text Block]

Revenue Recognition

On

January 1, 2018,

we adopted the new accounting standard ASC

606,

“Revenue from Contracts with Customers” and all the related amendments (“new revenue standard"), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. This guidance includes the required steps to achieve the core principle that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The new revenue standard was applied using the modified retrospective method. We recognized the cumulative effect of initially applying the new revenue standard as an adjustment to accumulated deficit as of

January 1, 2018.

As a result of the adoption of this standard, certain changes have been made to the consolidated balance sheets. We expect the ongoing impact of the adoption of the new standard to primarily affect the timing of revenue recognition. The most significant impact was on Power and Electromechanical segment revenue with certain distribution customers that was previously recorded as “sell through." Under the new accounting guidance, we record the revenue upon sale to the distributor with an appropriate amount reserved for estimated returns and allowances as the Company recognizes revenue at the time the related performance obligation is satisfied by transferring a promised good or service to its customers. For the Power and Electromechanical segment, their revenue is based upon the transfer of goods and satisfaction of its performance obligations as of a point in time. During the transition this had the effect of having a certain amount of revenue

not

recorded as revenue but as part of the cumulative effect of the accounting change. For the majority of contracts in the Energy segment, revenue is still measured over time using the cost-to-cost method. The change that most affected the transition adjustment on Energy segment revenue was the requirement to limit revenue recognition on contracts without an enforceable right to payment for performance completed to date. Revenue on contracts without a specific enforceable right to payment on work performed to date was "clawed back" as part of the Company's transition adjustment. The cumulative effect adjustment recorded as of

January 1, 2018

was a net

$1.9

million decrease to accumulated deficit due to a

$2.8

million transition adjustment from the Power and Electromechanical segment partially offset by a $(

0.9

) million transition adjustment from the Energy segment, net of deferred tax.

As a result of the adoption of ASC

606,

the following items have been reclassified from the captions in the

December 31, 2017

consolidated balance sheet included in our Form

10

-K for the year ended

December 31, 2017

to the captions in the

December 31, 2017

consolidated balance sheet appearing herein:

Captions in December 31, 2017 consolidated balance sheet within Form 10 -K	Reclassified to	Captions in December 31, 2017 consolidated balance sheet herein
Costs in excess of billings		Contract assets
Billings in excess of costs		Contract liabilities
Unearned revenue		Contract liabilities
Unearned revenue		Refund liabilities

Changes in these accounts as reclassified are reflected on the consolidated statement of cash flows for the years ended

December 31, 2017

and

2016.

As mentioned above, on

January 1, 2018,

we adopted ASC Topic

606

and the related amendments ("ASC

606"

) using the modified retrospective method applied to those contracts which were

not

completed as of

December 31, 2017.

Results for operating periods beginning after

January 1, 2018

are presented under ASC

606,

while comparative information has

not

been restated and continues to be reported in accordance with the accounting standards in effect for those periods. We recognized the cumulative effect of initially applying ASC

606

as an adjustment to accumulated deficit in the balance sheet as of

January 1, 2018

as follows:

(in thousands)	Balance at December 31, 2017			Adjustments Due to ASC 606			Balance at January 1, 2018
Balance Sheet
Assets:
Inventories	$	13,892		$	(1,064	)	$	12,828
Contract assets		2,299			(516	)		1,783
Total current assets		41,276			(1,580	)		39,696
Total assets	$	87,909		$	(1,580	)	$	86,329
Liabilities:
Contract liabilities	$	8,829		$	(4,168	)	$	4,661
Refund liabilities		695			870			1,565
Total current liabilities		18,914			(3,298	)		15,616
Deferred tax liabilities		2,414			(173	)		2,241
Total liabilities		30,423			(3,471	)		26,952
Stockholders' Equity:
Accumulated deficit		(108,559	)		1,891			(106,668	)
Total stockholders' equity		57,486			1,891			59,377
Total liabilities and stockholders' equity	$	87,909		$	(1,580	)	$	86,329

The impact of adoption on our consolidated balance sheet and consolidated statement of operations as of and for the year ended

December 31, 2018

was as follows:

(In thousands, except per share amounts)	For the Year Ended December 31, 2018
	As Reported			Balances Without Adoption of ASC 606			Effect of Change Higher / (Lower)
Statement of Operations
Total revenues	$	96,789		$	91,417		$	5,372
Cost of revenues		67,879			64,495			3,384
Gross profit		28,910			26,922			1,988
Loss from operations		(16,778	)		(18,766	)		1,988
Loss before taxes		(17,531	)		(19,519	)		1,988
Income tax (benefit) expense		(206	)		(462	)		256
Net loss	$	(17,325	)	$	(19,057	)	$	1,732
Basic and diluted loss per common share	$	(0.61	)	$	(0.67	)	$	0.06

(in thousands)	As of December 31, 2018
	As Reported			Balances Without Adoption of ASC 606			Effect of Change Higher / (Lower)
Balance Sheet
Assets:
Inventories	$	13,042		$	17,578		$	(4,536	)
Contract assets		1,744			2,109			(365	)
Total current assets		35,481			40,382			(4,901	)
Total assets	$	70,167		$	75,068		$	(4,901	)
Liabilities:
Contract liabilities	$	2,226		$	12,203		$	(9,977	)
Refund liabilities		2,417			1,063			1,354
Total current liabilities		18,586			27,209			(8,623	)
Deferred tax liabilities		1,922			1,823			99
Total liabilities		28,629			37,153			(8,524	)
Stockholders' Equity:
Accumulated deficit		(123,993	)		(127,616	)		3,623
Total stockholders' equity		41,538			37,915			3,623
Total liabilities and stockholders' equity	$	70,167		$	75,068		$	(4,901	)

The adoption of ASC

606

had

no

impact on the Company’s cash flows from operations.

Power and Electromechanical segment

The Power and Electromechanical segment generates its revenue from

two

categories of products:

power supply solutions

 - including external and embedded ac-dc power supplies, dc-dc converters, basic digital point of load modules, ICE (Intelligent Control of Energy) products enabled by the VPS patented software system and offering a technology architecture that addresses power and related accessories; and 

components

 - including connectors, speakers, buzzers, and industrial control solutions including encoders and sensors. These offerings provide a technology architecture that addresses power and related accessories to industries as broadly ranging as telecommunications, consumer electronics, medical and defense, among others. The production and delivery of these products are considered single performance obligations. Revenue is recognized when we satisfy a performance obligation and this occurs upon shipment and ownership transfer of our products to our customers at a point in time.

Energy segment

The Energy segment subsidiaries, collectively referred to as Orbital Gas Systems (Orbital), generate their revenue from a portfolio of products, services and resources that offer a diverse range of personalized gas engineering solutions to the gas utilities, power generation, petrochemical, emissions, manufacturing and automotive industries, among others.

Orbital accounts for a majority of its contract revenue proportionately over time. For our performance obligations satisfied over time, we recognize revenue by measuring the progress toward complete satisfaction of that performance obligation. The selection of the method to measure progress towards completion can be either an input method or an output method and requires judgment based on the nature of the goods or services to be provided.

For our construction contracts, revenue is generally recognized over time as our performance creates or enhances an asset that the customer controls. Our fixed price construction projects generally use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer. Under the cost-to-cost measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation.

The timing of revenue recognition for Energy products also depends on the payment terms of the contract, as our performance does

not

create an asset with an alternative use to us. For those contracts which we have a right to payment for performance completed to date at all times throughout our performance, inclusive of a cancellation, we recognize revenue over time. As discussed above, these performance obligations use a cost-to-cost input method to measure our progress towards complete satisfaction of the performance obligation as we believe it best depicts the transfer of control to the customer. However, for those contracts for which we do

not

have a right, at all times, to payment for performance completed to date, we recognize revenue at the point in time when control is transferred to the customer.

For our service contracts, revenue is also generally recognized over time as the customer simultaneously receives and consumes the benefits of our performance as we perform the service. For our fixed price service contracts with specified service periods, revenue is generally recognized on a straight-line basis over such service period when our inputs are expended evenly, and the customer receives and consumes the benefits of our performance throughout the contract term.

For certain of our revenue streams, such as call-out repair and service work, and outage services, that are performed under time and materials contracts, our progress towards complete satisfaction of such performance obligations is measured using an output method as the customer receives and consumes the benefits of our performance completed to date.

Due to uncertainties inherent in the estimation process, it is possible that estimates of costs to complete a performance obligation will be revised in the near-term. For those performance obligations for which revenue is recognized using a cost-to-cost input method, changes in total estimated costs, and related progress towards complete satisfaction of the performance obligation, are recognized on a cumulative catch-up basis in the period in which the revisions to the estimates are made. When the current estimate of total costs for a performance obligation indicate a loss, a provision for the entire estimated loss on the unsatisfied performance obligation is made in the period in which the loss becomes evident.

Product-type contracts (for example, sale of GasPT units) for which revenue does

not

qualify to be recognized over time are recognized at a point in time. Revenues from warranty and maintenance activities are recognized ratably over the term of the warranty and maintenance period.

Accounts Receivable, Contract Assets and Contract Liabilities

Accounts receivable are recognized in the period when our right to consideration is unconditional. Accounts receivable are recognized net of an allowance for doubtful accounts. A considerable amount of judgment is required in assessing the likelihood of realization of receivables.

The timing of revenue recognition

may

differ from the timing of invoicing to customers. Contract assets include unbilled amounts from our construction projects when revenue recognized under the cost-to-cost measure of progress exceed the amounts invoiced to our customers, as the amounts cannot be billed under the terms of our contracts. Such amounts are recoverable from our customers based upon various measures of performance, including achievement of certain milestones, completion of specified units or completion of a contract. Also included in contract assets are amounts we seek or will seek to collect from customers or others for errors or changes in contract specifications or design, contract change orders or modifications in dispute or unapproved as to both scope and/or price or other customer-related causes of unanticipated additional contract costs (claims and unapproved change orders). Our contract assets do

not

include capitalized costs to obtain and fulfill a contract. Contract assets are generally classified as current within the Consolidated Balance Sheets.

Contract liabilities from our construction contracts occur when amounts invoiced to our customers exceed revenues recognized under the cost-to-cost measure of progress. Contract liabilities additionally include advanced payments from our customers on certain contracts. Contract liabilities decrease as we recognize revenue from the satisfaction of the related performance obligation and are recorded as either current or long-term, depending upon when we expect to recognize such revenue.

Activity in the current contract liabilities for the year ended

December 31, 2018

was as follows:

(In thousands)
Current contract liabilities - January 1, 2018	$	4,661
Long-term contract liabilities - January 1, 2018 (1)		84
Total contract liabilities - January 1, 2018	$	4,745
Total contract liabilities - January 1, 2018	$	4,745
Contract additions, net		2,168
Revenue recognized		(4,356	)
Translation		(202	)
Total contract liabilities - December 31, 2018	$	2,355
Current contract liabilities - December 31, 2018	$	2,226
Long-term contract liabilities - December 31, 2018 (1)		129
Total contract liabilities - December 31, 2018	$	2,355

(

1

)

Long-term contract liabilities are included in Other long-term liabilities on the Consolidated Balance Sheets.

Refund Liabilities and Corresponding Inventory Adjustment

Refund liabilities primarily represent estimated future new product introduction returns and estimated future scrap returns. Estimated future returns and allowances are reserved based on historical return rates. In addition to the refund liabilities recorded for future returns, the Company also records an adjustment to inventory and corresponding adjustment to cost of revenue for the Company's right to recover products from customers upon settling the refund liability.

Performance Obligations

Remaining Performance Obligations

Remaining performance obligations, represents the transaction price of firm orders for which work has

not

been performed and excludes unexercised contract options and potential orders under ordering-type contracts. As of 

December 31, 2018, 

the Company's remaining performance obligations are generally expected to be filled within the next

12

months.

Any adjustments to net revenues, cost of revenues, and the related impact to operating income are recognized as necessary in the period they become known. These adjustments

may

result from positive program performance, and

may

result in an increase in operating income during the performance of individual performance obligations, if we determine we will be successful in mitigating risks surrounding the technical, schedule and cost aspects of those performance obligations. Likewise, these adjustments

may

result in a decrease in operating income if we determine we will

not

be successful in mitigating these risks. Changes in estimates of net revenues, cost of revenues and the related impact to operating income are recognized on a cumulative catch-up basis in the period they become known, which recognizes in the current period the cumulative effect of the changes on current and prior periods based on a performance obligation's percentage of completion. A significant change in

one

or more of these estimates could affect the profitability of

one

or more of our performance obligations. For separately priced extended warranty or product maintenance performance obligations, when estimates of total costs to be incurred on the performance obligation exceed total estimates of revenue to be earned, a provision for the entire loss on the performance obligation is recognized in the period the loss is determined.

Performance Obligations Satisfied Over Time

To determine the proper revenue recognition method for contracts for our Energy segment, we evaluate whether a single contract should be accounted for as more than

one

performance obligation. This evaluation requires significant judgment and the decision to separate the single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period.

For most of our contracts, the customer contracts with us to provide a significant service of integrating a complex set of tasks and components into a single project or capability (even if that single project results in the delivery of multiple units). Hence, the entire contract is accounted for as

one

performance obligation. Less commonly, however, we

may

promise to provide distinct goods or services within a contract in which case we separate the contract into more than

one

performance obligation. If a contract is separated into more than

one

performance obligation, we allocate the total transaction price to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obligation. We infrequently sell standard products with observable standalone sales. In cases where we do, the observable standalone sales are used to determine the standalone selling price. More frequently, we sell a customized customer specific solution, and in these cases we typically use the expected cost plus a margin approach to estimate the standalone selling price of each performance obligation.

Performance Obligations Satisfied at a Point in Time.

Revenue from goods and services transferred to customers at a single point in time accounted for 

84%

of revenues for the year ended

December 31, 2018.

The majority of our revenue recognized at a point in time is in our Power and Electromechanical segment. Revenue on these contracts is recognized when the product is shipped and the customer takes ownership of the product. Determination of ownership and control transfer is determined by shipping terms delineated on the customer purchase orders.

Variable Consideration

The nature of our contracts gives rise to several types of variable consideration, including new product introduction returns and scrap return allowances primarily in our Power and Electromechanical segment. In rare instances in our Energy segment, we include in our contract estimates, additional revenue for submitted contract modifications or claims against the customer when we believe we have an enforceable right to the modification or claim, the amount can be estimated reliably and its realization is probable. In evaluating these criteria, we consider the contractual/legal basis for the claim, the cause of any additional costs incurred, the reasonableness of those costs and the objective evidence available to support the claim. We include new product introduction and scrap return estimates in our calculation of net revenue when there is a basis to reasonably estimate the amount of the returns. These estimates are based on historical return experience, anticipated returns and our best judgment at the time. These amounts are included in our calculation of net revenue recorded for our contracts and the associated remaining performance obligations.

The following table presents our revenues disaggregated by revenue source for the year ended

December 31, 2018:

(In thousands)	Power and Electromechanical		Energy		Total
Distributor sales	$	43,795	$	—	$	43,795
Direct Sales		32,652		20,342		52,994
Total revenues	$	76,447	$	20,342	$	96,789

The following table presents our revenues disaggregated by timing of revenue recognition for the year ended

December 31, 2018:

(In thousands)	Power and Electromechanical		Energy		Total
Revenues recognized at point in time	$	76,447	$	4,391	$	80,838
Revenues recognized over time		—		15,951		15,951
Total revenues	$	76,447	$	20,342	$	96,789

The following table presents our revenues disaggregated by region for the year ended

December 31, 2018:

(In thousands)	Power and Electromechanical		Energy		Total
North America	$	58,006	$	4,311	$	62,317
Europe		4,195		15,620		19,815
Asia		13,727		205		13,932
Other		519		206		725
Total revenues	$	76,447	$	20,342	$	96,789

Revenue Recognition -

2017

and

2016

As discussed above, ASC

606

was adopted on a modified retrospective basis and accordingly the

2017

and

2016

financial statements were

not

restated for ASC

606.

For

2017

and

2016,

revenue was recognized as follows.

Power and Electromechanical segment

Product revenue was recognized in the period when persuasive evidence of an arrangement with a customer existed, the products were shipped and title had transferred to the customer, the price was fixed or determinable, and collection was reasonably assured. The Company sells to distributors pursuant to distribution agreements that have certain terms and conditions such as the right of return and price protection, which inhibited revenue recognition unless they could be reasonably estimated as we could

not

assert the price was fixed and determinable and estimate returns. For

one

distributor that comprises

26%

of consolidated revenue in

2017,

we had such history and ability to estimate and therefore recognized revenue upon sale to the distributor and recorded a corresponding reserve for the estimated returns. For

three

other distributor arrangements that represented a combined

15%

of revenue in

2017,

we recognized revenue on a sell-through basis, and accordingly deferred revenue and the related costs until such time as the distributor resold the product.

Energy segment

For production-type contracts meeting the Company’s minimum threshold, revenues and related costs on these contracts were recognized using the ‘‘percentage of completion method’’ of accounting in accordance with ASC

605

-

35,

 

Accounting for Performance of Construction-Type and Certain Production Type Contracts 

(‘‘ASC

605

-

35’’

). Under this method, contract revenues and related expenses were recognized over the performance period of the contract in direct proportion to the costs incurred as a percentage of total estimated costs for the entirety of the contract. Costs included direct material, direct labor, subcontract labor and any allocable indirect costs. The Company captured certain job costs as work progressed, including labor, material and costs

not

invoiced. Margin adjustments were made as information pertaining to contracts changed. All un-allocable indirect costs and corporate general and administrative costs were charged to the periods as incurred. The amount of costs

not

invoiced were captured to ensure an estimated margin consistent with that expected at the completion of the project. In the event a loss on a contract was foreseen, the Company recognized the loss when it was determined. Contract costs plus recognized profits were accumulated as deferred assets, and billings and/or cash received were recorded to a deferred revenue liability account. The net of these

two

accounts for any individual project was presented as ‘‘Costs in excess of billings,’’ an asset account, or ‘‘Billings in excess of costs,’’ a liability account.

Production-type contracts that did

not

qualify for use of the percentage of completion method were accounted for using the ‘‘completed contract method’’ of accounting in accordance with ASC

605

-

35

-

25

-

57.

Under this method, contract costs were accumulated as deferred assets, and billings and/or cash received was recorded to a deferred revenue liability account, during the periods of construction, but

no

revenues, costs, or profits were recognized in operations until the period within which completion of the contract occurred. A contract was considered complete when all costs except insignificant items were incurred; the equipment was operating according to specifications and was accepted by the customer.

For product sales in the Energy segment, revenue was recognized in the period when persuasive evidence of an arrangement with a customer existed, the products were shipped and title had transferred to the customer, the price was fixed or determinable, and collection was reasonably assured.

Revenues from warranty and maintenance activities were recognized ratably over the term of the warranty and maintenance period and the unrecognized portion was recorded as deferred revenue.

Cost of Goods and Services Sold, Shipping and Handling Cost, Policy [Policy Text Block]

Shipping and Handling Costs

Amounts billed to customers in sales transactions related to shipping and handling represent revenues earned for the goods provided and are included in sales, and were approximately

$27

thousand,

$17

thousand, and

$23

thousand, for the years ended

December 

31,

2018,

2017

and

2016,

respectively. The Company expenses inbound shipping and handling costs as cost of revenues.

Standard Product Warranty, Policy [Policy Text Block]

Warranty Reserves

A warranty reserve liability is recorded based on estimates of future costs on sales recognized. At

December 

31,

2018

and

2017,

the balance of approximately

$37

thousand and

$40

thousand, respectively, for warranty reserve liability is included in accrued expenses on the balance sheet.

Advertising Costs, Policy [Policy Text Block]

Advertising

The costs incurred for producing and communicating advertising are charged to operations as incurred. Advertising expense for the years ended

December 

31,

2018,

2017

 and

2016

were

$2.0

million,

$1.8

million, and

$1.7

million, respectively. In addition to these advertising costs, the Company also incurs advertising related costs for advertising completed in partnership with its distributors. These costs are offset against revenues. During

2018,

2017

and

2016,

the advertising costs offset against revenues were

$0.6

million,

$0.3

million, and

$0.3

million, respectively.

Income Tax, Policy [Policy Text Block]

Income Taxes

Income taxes are accounted for under the asset and liability method of FASB Accounting Standards Codification

No.

740

(‘‘FASB ASC

740’’

), ‘‘Income Taxes.’’ Under FASB ASC

740,

deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance to the extent that management believes it is more likely than

not

that such deferred tax assets will

not

be realized.

Valuation allowances have been established against all domestic based deferred tax assets and U.K. based deferred tax assets due to uncertainties in the Company’s ability to generate sufficient taxable income in future periods to make realization of such assets more likely than

not.

  In future periods, tax benefits and related domestic and U.K. deferred tax assets will be recognized when management considers realization of such amounts to be more likely than

not.

The Company has

not

provided for valuation allowances on deferred tax assets in any other jurisdiction.

The Company recognizes interest and penalties, if any, related to its tax positions in income tax expense.

CUI Global files consolidated income tax returns with its U.S. based subsidiaries for federal and many state jurisdictions in addition to separate subsidiary income tax returns in Japan, the United Kingdom and Canada. As of

December 

31,

2018,

the Company is

not

under examination by any income tax jurisdiction. The Company is

no

longer subject to USA examination for years prior to

2015.

Earnings Per Share, Policy [Policy Text Block]

Net Loss per Share

In accordance with FASB Accounting Standards Codification

No.

260

(‘‘FASB ASC

260’’

), ‘‘Earnings per Share,’’ basic net loss per share is computed by dividing the net loss available to common stockholders for the period by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing net income (loss) available to common stockholders by the weighted average number of diluted shares outstanding during the period calculated using the treasury stock method. Due to the Company’s net loss in

2018,

2017

and

2016,

the assumed exercise of stock options using the treasury stock method would have had an antidilutive effect and therefore all options for each of the

three

years were excluded from the calculation of diluted net loss per share. Accordingly, diluted net loss per share is the same as basic net loss per share for

2018,

2017

and

2016.

The weighted average shares outstanding included 

1,844;

63,602

and

25,811

of shares that are considered outstanding, but unissued as of

December 

31,

2018,

2017

and

2016,

respectively, for shares to be issued in accordance with a royalty agreement pertaining to sales of the GasPT devices and unpaid equity share bonuses in

2017

and

2016.

The following table summarizes the number of stock options outstanding excluding amounts applicable to contingent conversion option, which

may

dilute future earnings per share:

	As of December 31,
	2018		2017		2016
Options, outstanding		923,898		964,180		966,681

Any common shares issued as a result of stock options would come from newly issued common shares as granted under our equity incentive plans.

The following is the calculation of basic and diluted earnings per share:

	For the Years Ended December 31,
(In thousands, except share and per share amounts)	2018			2017			2016
Net loss	$	(17,325	)	$	(12,589	)	$	(7,266	)
Basic and diluted weighted average number of shares outstanding		28,517,339			22,397,865			20,897,812
Basic loss per common share	$	(0.61	)	$	(0.56	)	$	(0.35	)
Diluted loss per common share	$	(0.61	)	$	(0.56	)	$	(0.35	)

Foreign Currency Transactions and Translations Policy [Policy Text Block]

Foreign Currency Translation

The financial statements of the Company's foreign offices have been translated into U.S. dollars in accordance with FASB ASC

830,

‘‘Foreign Currency Matters’’ (FASB ASC

830

). All balance sheet accounts have been translated using the exchange rate in effect at the balance sheet date.  Statement of Operations amounts have been translated using an appropriately weighted average exchange rate for the year. The translation gains and losses resulting from the changes in exchange rates during

2018,

2017

and

2016

have been reported in accumulated other comprehensive income (loss), except for gains and losses resulting from the translation of intercompany receivables and payables, which are included in earnings for the period.

Segment Reporting, Policy [Policy Text Block]

Segment Reporting

Operating segments are defined in accordance with ASC

280

-

10

as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The measurement basis of segment profit or loss is income (loss) from operations. Management has identified

six

operating segments based on the activities of the Company in accordance with ASC

280

-

10.

These operating segments have been aggregated into

three

reportable segments. The

three

reportable segments are Power and Electromechanical, Energy and Other. The Power and Electromechanical segment is focused on the operations of CUI Inc., CUI-Canada, Inc. and CUI Japan for the sale of internal and external power supplies and related components and industrial controls. The Energy segment is focused on the operations of Orbital Gas Systems Ltd. and Orbital Gas Systems, North America, Inc. which includes gas related test and measurement systems, including the GasPT. The Other segment represents the remaining activities that are

not

included as part of the other reportable segments and represent primarily corporate activity.

The following information represents segment activity as of and for the year ended

December 

31,

2018:

(In thousands)	Power and Electro- mechanical		Energy			Other			Total
Revenues from external customers	$	76,447	$	20,342		$	—		$	96,789
Depreciation and amortization (1)		1,480		1,525			—			3,005
Interest expense		221		23			258			502
Impairment of goodwill and other intangible assets		—		4,347			—			4,347
Income (loss) from operations		5,332		(17,168	)		(4,942	)		(16,778	)
Segment assets		45,553		19,034			5,580			70,167
Other intangibles assets, net		8,547		5,314			—			13,861
Goodwill		13,089		—			—			13,089
Expenditures for segment assets (2)		1,299		235			—			1,534

The following information represents segment activity as of and for the year ended

December 

31,

2017:

(In thousands)	Power and Electro- mechanical		Energy			Other			Total
Revenues from external customers	$	64,432	$	18,843		$	—		$	83,275
Depreciation and amortization (1)		1,505		1,345			—			2,850
Interest expense		249		1			250			500
Impairment of goodwill and other intangible assets		3		3,152			—			3,155
Income (loss) from operations		2,355		(11,366	)		(4,918	)		(13,929	)
Segment assets		49,392		26,512			12,005			87,909
Other intangibles assets, net		8,899		6,669			—			15,568
Goodwill		13,092		4,549			—			17,641
Expenditures for segment assets (2)		955		576			—			1,531

The following information represents segment activity as of and for the year ended

December 

31,

2016:

(In thousands)	Power and Electro- mechanical		Energy			Other			Total
Revenues from external customers	$	58,403	$	28,058		$	—		$	86,461
Depreciation and amortization (1)		1,445		1,401			2			2,848
Interest expense		221		6			240			467
Income (loss) from operations		645		(1,676	)		(5,479	)		(6,510	)
Segment assets		49,830		29,632			381			79,843
Other intangibles assets, net		9,262		6,939			—			16,201
Goodwill		13,083		7,042			—			20,125
Expenditures for segment assets (2)		1,032		642			—			1,674

( 1 ) For the years ended December  31, 2018, 2017 and 2016, depreciation and amortization totals included $0.9 million, $0.7 million and $0.5 million, respectively that were classified as cost of revenues in the Consolidated Statements of Operations.

( 2 ) Includes purchases of property, plant and equipment and investment in other intangible assets.

The following information represents revenue by country:

	For the Years Ended December 31,
(In thousands)	2018					2017					2016
	Amount		%			Amount		%			Amount		%
USA	$	59,319		61	%	$	50,875		61	%	$	46,514		54	%
United Kingdom		15,185		16	%		14,522		17	%		17,337		20	%
China		5,463		6	%		5,381		7	%		5,930		7	%
All Others		16,822		17	%		12,497		15	%		16,680		19	%
Total	$	96,789		100	%	$	83,275		100	%	$	86,461		100	%

The following information represents long-lived assets (excluding deferred tax assets) by country:

	As of December 31,
(In thousands)	2018		2017
USA	$	23,544	$	27,662
United Kingdom		9,647		17,739
Other		1,495		1,232
	$	34,686	$	46,633

Reclassification, Policy [Policy Text Block]

Reclassifications

Certain reclassifications have been made to the

2017

consolidated balance sheet, and

2017

and

2016

statements of operations and statements of cash flows in order to conform to the

2018

presentation.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In

August 2018,

the FASB issued Accounting Standards Update ("ASU")

No.

2018

-

15,

 

Intangibles - Goodwill and Other - Internal-Use Software (Subtopic

350

-

40

): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract 

("ASU

2018

-

15"

). The amendments in ASU

2018

-

15

align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The guidance will be effective for the fiscal year beginning after

December 15, 2019,

including interim periods within that year. The Company is currently assessing the impact of this ASU on its consolidated financial statements and will adopt the standard in

2020.

In

August 2018,

the FASB issued ASU

No.

2018

-

13,

 Fair Value Measurement (Topic

820

): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement

 (“ASU

2018

-

13”

). The amendments in this update modify the disclosure requirements on fair value measurements in Topic

820,

Fair Value Measurement, including requiring the disclosure of the range and weighted average of significant unobservable inputs used to develop Level

3

fair value measurements. The guidance will be effective for the fiscal year beginning after

December 15, 2019,

including interim periods within that year. The Company is currently assessing the impact of this ASU on its consolidated financial statements and will adopt the standard in

2020.

In

June 2018,

the FASB issued ASU

No.

2018

-

07,

 

Compensation-Stock

 

Compensation (Topic

718

): Improvements to Nonemployee Share-Based Payment Accounting

 ("ASU

2018

-

07"

). These amendments expand the scope of Topic

718,

Compensation—Stock Compensation (which currently only includes share-based payments to employees) to include share-based payments issued to nonemployees for goods or services. Consequently, the accounting for share-based payments to nonemployees and employees will be substantially aligned. The guidance will be effective for the fiscal year beginning after

December 15, 2018,

including interim periods within that year. The Company does

not

expect there to be a material impact of this ASU on its consolidated financial statements and will adopt the standard in

2019.

In

June 2016,

the FASB issued ASU

No.

2016

-

13,

 

Financial Instruments – Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments

 (“ASU

2016

-

13”

). ASU

2016

-

13

is intended to provide financial statement users with more useful information about expected credit losses on financial assets held by a reporting entity at each reporting date. The new standard replaces the existing incurred loss impairment methodology with a methodology that requires consideration of a broader range of reasonable and supportable forward-looking information to estimate all expected credit losses. This ASU is effective for fiscal years and interim periods within those years beginning after

December 15, 2019

and early adoption is permitted for fiscal years and interim periods within those years beginning after

December 15, 2018.

The Company is currently assessing the impact of this ASU on its consolidated financial statements and will adopt the standard in

2020.

In

February 2016,

the FASB issued ASU

No.

2016

-

02,

 

Leases (Topic

842

)

 (‘‘ASU

2016

-

02’’

). ASU

2016

-

02

requires lessees to present right-of-use assets and lease liabilities on the balance sheet. The new guidance will be effective for public business entities for fiscal years beginning after

December 15, 2018

including interim periods within that fiscal year. We will adopt the standard in the

first

quarter of

2019.

As part of the transition, we will utilize the effective date method of implementation. Under the effective date method, we will include the new required disclosures for the current period and provide the disclosures required by the previous guidance found in ASC

840

for the prior year comparative periods. In addition, we will elect to utilize the package of practical expedients permitted under the transition guidance within the new standard, which among other things, will allow us to carry forward the historical lease classifications and allow us to exclude leases with an initial term of

12

months or less from being recorded on the Company's balance sheet; we will recognize lease expense for these short-term leases on a straight-line basis over the lease term.

Upon adoption, we expect to record a right-of-use asset and a corresponding lease liability for the Company's operating leases where the Company is the lessee. The potential effect on the Company's consolidated financial statements is largely based on the present value of future minimum lease payments, the amount of which will depend upon the population of leases in effect at the date of adoption. The present value of future minimum lease payments totaled

$7.8

million as of

December 31, 2018.

In addition, we will have a

$2.9

million adjustment to retained earnings at

January 1, 2019

as a result of recognizing the gain on the sale-leaseback transaction. We do

not

expect material changes to the recognition of operating lease expense in the Company's consolidated statements of operation.

XML

Note 2 - Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

(In thousands)	For the Years ended December 31,
	2018			2017			2016
Allowance for doubtful accounts, beginning of year	$	135		$	151		$	90
Charge (credit) to costs and expenses		33			(13	)		93
Deductions		(1	)		(3	)		(32	)
Allowance for doubtful accounts, end of year	$	167		$	135		$	151

Schedule of Inventory, Current [Table Text Block]

(In thousands)	As of December 31,
	2018			2017
Finished goods	$	10,143		$	10,792
Raw materials		4,200			3,287
Work-in-process		1,194			759
Inventory reserves		(2,495	)		(946	)
Total inventories	$	13,042		$	13,892

Schedule of Inventory Valuation Reserve [Table Text Block]

(In thousands)	For the Years ended December 31,
	2018			2017		2016
Inventory reserves, beginning of year	$	946		$	774	$	483
Charge to costs and expenses		1,592			138		312
Other (deductions) additions		(43	)		34		(21	)
Inventory reserves, end of year	$	2,495		$	946	$	774

Schedule of Useful Lives for Property Plant Equipment [Table Text Block]

	Estimated Useful Life (years)
Buildings and improvements		5	to	39
Furniture and equipment		3	to	10
Vehicles		3	to	5

Schedule of Estimated Useful Life [Table Text Block]

	Estimated
	Useful
	Life (years)
Finite-lived intangible assets
Order backlog			2
Trade name - Orbital			10
Trade name - V-Infinity			5
Trade name - CUI-Canada			3
Customer list - Orbital			10
Customer list - CUI-Canada			7
Technology rights			20 (1)
Technology-Based Asset - Know How			12
Technology-Based Asset - Software			10
Technology-Based Asset - Power			7
Software		3	to	5  (2)
Patents	See endnote (3)
Other intangible assets	See endnote (4)
Indefinite-lived intangible assets
Trade name - CUI	See endnote (5)
Customer list - CUI	See endnote (5)
Patents pending technology	See endnote (5)

Cumulative Effect of Adjustments for New Accounting Pronouncements on Balance Sheet [Table Text Block]

(in thousands)	Balance at December 31, 2017			Adjustments Due to ASC 606			Balance at January 1, 2018
Balance Sheet
Assets:
Inventories	$	13,892		$	(1,064	)	$	12,828
Contract assets		2,299			(516	)		1,783
Total current assets		41,276			(1,580	)		39,696
Total assets	$	87,909		$	(1,580	)	$	86,329
Liabilities:
Contract liabilities	$	8,829		$	(4,168	)	$	4,661
Refund liabilities		695			870			1,565
Total current liabilities		18,914			(3,298	)		15,616
Deferred tax liabilities		2,414			(173	)		2,241
Total liabilities		30,423			(3,471	)		26,952
Stockholders' Equity:
Accumulated deficit		(108,559	)		1,891			(106,668	)
Total stockholders' equity		57,486			1,891			59,377
Total liabilities and stockholders' equity	$	87,909		$	(1,580	)	$	86,329

Schedule of New Accounting Pronouncements and Changes in Accounting Principles [Table Text Block]

(In thousands, except per share amounts)	For the Year Ended December 31, 2018
	As Reported			Balances Without Adoption of ASC 606			Effect of Change Higher / (Lower)
Statement of Operations
Total revenues	$	96,789		$	91,417		$	5,372
Cost of revenues		67,879			64,495			3,384
Gross profit		28,910			26,922			1,988
Loss from operations		(16,778	)		(18,766	)		1,988
Loss before taxes		(17,531	)		(19,519	)		1,988
Income tax (benefit) expense		(206	)		(462	)		256
Net loss	$	(17,325	)	$	(19,057	)	$	1,732
Basic and diluted loss per common share	$	(0.61	)	$	(0.67	)	$	0.06

(in thousands)	As of December 31, 2018
	As Reported			Balances Without Adoption of ASC 606			Effect of Change Higher / (Lower)
Balance Sheet
Assets:
Inventories	$	13,042		$	17,578		$	(4,536	)
Contract assets		1,744			2,109			(365	)
Total current assets		35,481			40,382			(4,901	)
Total assets	$	70,167		$	75,068		$	(4,901	)
Liabilities:
Contract liabilities	$	2,226		$	12,203		$	(9,977	)
Refund liabilities		2,417			1,063			1,354
Total current liabilities		18,586			27,209			(8,623	)
Deferred tax liabilities		1,922			1,823			99
Total liabilities		28,629			37,153			(8,524	)
Stockholders' Equity:
Accumulated deficit		(123,993	)		(127,616	)		3,623
Total stockholders' equity		41,538			37,915			3,623
Total liabilities and stockholders' equity	$	70,167		$	75,068		$	(4,901	)

Contract with Customer, Asset and Liability [Table Text Block]

(In thousands)
Current contract liabilities - January 1, 2018	$	4,661
Long-term contract liabilities - January 1, 2018 (1)		84
Total contract liabilities - January 1, 2018	$	4,745
Total contract liabilities - January 1, 2018	$	4,745
Contract additions, net		2,168
Revenue recognized		(4,356	)
Translation		(202	)
Total contract liabilities - December 31, 2018	$	2,355
Current contract liabilities - December 31, 2018	$	2,226
Long-term contract liabilities - December 31, 2018 (1)		129
Total contract liabilities - December 31, 2018	$	2,355

Disaggregation of Revenue [Table Text Block]

(In thousands)	Power and Electromechanical		Energy		Total
Distributor sales	$	43,795	$	—	$	43,795
Direct Sales		32,652		20,342		52,994
Total revenues	$	76,447	$	20,342	$	96,789

(In thousands)	Power and Electromechanical		Energy		Total
Revenues recognized at point in time	$	76,447	$	4,391	$	80,838
Revenues recognized over time		—		15,951		15,951
Total revenues	$	76,447	$	20,342	$	96,789

(In thousands)	Power and Electromechanical		Energy		Total
North America	$	58,006	$	4,311	$	62,317
Europe		4,195		15,620		19,815
Asia		13,727		205		13,932
Other		519		206		725
Total revenues	$	76,447	$	20,342	$	96,789

Schedule of Antidilutive Securities Excluded from Computation of Earnings Per Share [Table Text Block]

	As of December 31,
	2018		2017		2016
Options, outstanding		923,898		964,180		966,681

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	For the Years Ended December 31,
(In thousands, except share and per share amounts)	2018			2017			2016
Net loss	$	(17,325	)	$	(12,589	)	$	(7,266	)
Basic and diluted weighted average number of shares outstanding		28,517,339			22,397,865			20,897,812
Basic loss per common share	$	(0.61	)	$	(0.56	)	$	(0.35	)
Diluted loss per common share	$	(0.61	)	$	(0.56	)	$	(0.35	)

Schedule of Segment Reporting Information, by Segment [Table Text Block]

(In thousands)	Power and Electro- mechanical		Energy			Other			Total
Revenues from external customers	$	76,447	$	20,342		$	—		$	96,789
Depreciation and amortization (1)		1,480		1,525			—			3,005
Interest expense		221		23			258			502
Impairment of goodwill and other intangible assets		—		4,347			—			4,347
Income (loss) from operations		5,332		(17,168	)		(4,942	)		(16,778	)
Segment assets		45,553		19,034			5,580			70,167
Other intangibles assets, net		8,547		5,314			—			13,861
Goodwill		13,089		—			—			13,089
Expenditures for segment assets (2)		1,299		235			—			1,534

(In thousands)	Power and Electro- mechanical		Energy			Other			Total
Revenues from external customers	$	64,432	$	18,843		$	—		$	83,275
Depreciation and amortization (1)		1,505		1,345			—			2,850
Interest expense		249		1			250			500
Impairment of goodwill and other intangible assets		3		3,152			—			3,155
Income (loss) from operations		2,355		(11,366	)		(4,918	)		(13,929	)
Segment assets		49,392		26,512			12,005			87,909
Other intangibles assets, net		8,899		6,669			—			15,568
Goodwill		13,092		4,549			—			17,641
Expenditures for segment assets (2)		955		576			—			1,531

(In thousands)	Power and Electro- mechanical		Energy			Other			Total
Revenues from external customers	$	58,403	$	28,058		$	—		$	86,461
Depreciation and amortization (1)		1,445		1,401			2			2,848
Interest expense		221		6			240			467
Income (loss) from operations		645		(1,676	)		(5,479	)		(6,510	)
Segment assets		49,830		29,632			381			79,843
Other intangibles assets, net		9,262		6,939			—			16,201
Goodwill		13,083		7,042			—			20,125
Expenditures for segment assets (2)		1,032		642			—			1,674

Revenue from External Customers by Geographic Areas [Table Text Block]

	For the Years Ended December 31,
(In thousands)	2018					2017					2016
	Amount		%			Amount		%			Amount		%
USA	$	59,319		61	%	$	50,875		61	%	$	46,514		54	%
United Kingdom		15,185		16	%		14,522		17	%		17,337		20	%
China		5,463		6	%		5,381		7	%		5,930		7	%
All Others		16,822		17	%		12,497		15	%		16,680		19	%
Total	$	96,789		100	%	$	83,275		100	%	$	86,461		100	%

Long-lived Assets by Geographic Areas [Table Text Block]

	As of December 31,
(In thousands)	2018		2017
USA	$	23,544	$	27,662
United Kingdom		9,647		17,739
Other		1,495		1,232
	$	34,686	$	46,633

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Note 3 - Investments and Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Fair Value, Assets Measured on Recurring and Nonrecurring Basis [Table Text Block]

(In thousands)
December 31, 2018	Level 1		Level 2		Level 3		Total
Money market securities	$	16	$	—	$	—	$	16
Certificate of deposit - restricted cash		523		—		—		523
Certificate of deposit - restricted investment (1)		400		—		—		400
Convertible notes receivable		—		—		655		655
Total assets	$	939	$	—	$	655	$	1,594

December 31, 2017	Level 1		Level 2		Level 3		Total
Money market securities	$	16	$	—	$	—	$	16
Total assets	$	16	$	—	$	—	$	16
Derivative instrument payable	$	—	$	356	$	—	$	356
Contingent consideration		—		—		45		45
Total liabilities	$	—	$	356	$	45	$	401

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

(In thousands)	Contingent			Convertible Notes
	Consideration			Receivable
Balance at December 31, 2017	$	45		$	—
Payments		(45	)		—
Investments		—			655
Fair value adjustments		—			—
Balance at December 31, 2018	$	—		$	655

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Note 4 - Property and Equipment, Net (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Property, Plant and Equipment [Table Text Block]

	At December 31,
(In thousands)	2018			2017
Land	$	382		$	1,205
Buildings and improvements		4,085			8,476
Equipment		5,740			5,716
Property and equipment, gross		10,207			15,397
Less accumulated depreciation		(4,234	)		(4,155	)
Property and equipment, net	$	5,973		$	11,242

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Note 5 - Goodwill and Other Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Intangible Assets and Goodwill [Table Text Block]

				December 31, 2018					Identifiable Intangible		December 31, 2017					Identifiable Intangible
(In thousands)	*Estimated			Gross					Assets, less		Gross					Assets, less
	Useful			Carrying		Accumulated			Accumulated		Carrying		Accumulated			Accumulated
	Life (years)			Amount		Amortization			Amortization		Amount		Amortization			Amortization
Finite-lived intangible assets
Power and Electromechanical Segment:
Trademark and trade name - V-Infinity		5		$	1,095	$	(1,095	)	$	—	$	1,095	$	(1,095	)	$	—
Trademark and trade name - AMP Group		3			28		(28	)		—		27		(23	)		4
Trademark and trade name - CUI-Canada		3			128		(128	)		—		128		(121	)		7
Technology rights	7	and	20**		1,291		(746	)		545		1,291		(578	)		713
Computer software	3	to	5		956		(857	)		99		971		(850	)		121
Product certifications		3			1,667		(1,187	)		480		1,412		(820	)		592
Customer relationships - CUI-Canada		7			267		(146	)		121		267		(108	)		159
Other intangible assets		***			114		(114	)		—		114		(113	)		1
Total Power and Electromechanical Segment					5,546		(4,301	)		1,245		5,305		(3,708	)		1,597
Energy Segment:
Order backlog		2			2,837		(2,837	)		—		3,006		(3,006	)		—
Trade name - Orbital-UK		10			1,526		(877	)		649		1,616		(768	)		848
Customer list - Orbital-UK		10			5,931		(3,411	)		2,520		6,284		(2,985	)		3,299
Technology rights		20			318		(173	)		145		337		(150	)		187
Technology-Based Asset - Know How		12			2,403		(1,151	)		1,252		2,546		(1,008	)		1,538
Technology-Based Asset - Software		10			521		(300	)		221		552		(262	)		290
Computer software	3	to	5		667		(140	)		527		520		(13	)		507
Other intangible assets		***			—		—			—		—		—			—
Total Energy Segment					14,203		(8,889	)		5,314		14,861		(8,192	)		6,669
Indefinite-lived intangible assets
Power and Electromechanical Segment:
Trade mark and trade name - CUI Inc.					4,893		—			4,893		4,893		—			4,893
Customer list - CUI Inc.					1,857		—			1,857		1,857		—			1,857
Patents pending - Technology					552		—			552		552		—			552
					7,302		—			7,302		7,302		—			7,302
Total Identifiable other intangible assets				$	27,051	$	(13,190	)	$	13,861	$	27,468	$	(11,900	)	$	15,568

Schedule of Finite-Lived Intangible Assets, Amortization Expense [Table Text Block]

	For the Years Ended December 31,
(In thousands)	2018		2017		2016
Trademarks and trade name		172		316		434
Customer lists/relationships		660		638		669
Technology rights		201		198		193
Technology-based assets		264		255		269
Computer software		191		83		76
Product certifications		413		343		260
Other intangibles		1		8		22
Total amortization	$	1,902	$	1,841	$	1,923

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

	For the Years Ending December 31,
(In thousands)	2019		2020		2021		2022		2023		2024 and thereafter		Totals
Trademarks and trade name	$	153	$	153	$	153	$	153	$	37	$	—	$	649
Customer lists/relationships		631		631		631		600		148		—		2,641
Technology rights		191		183		183		65		28		40		690
Technology-based assets		252		252		252		252		214		251		1,473
Computer software		222		197		110		77		20		—		626
Product certifications		287		154		39		—		—		—		480
Other intangibles		—		—		—		—		—		—		—
Total amortization	$	1,736	$	1,570	$	1,368	$	1,147	$	447	$	291	$	6,559

Schedule of Goodwill [Table Text Block]

(In thousands)	Power and Electro - mechanical			Energy			Other		Total
Balance, December 31, 2016	$	13,083		$	7,042		$	—	$	20,125
Currency translation adjustments		9			659			—		668
Goodwill impairment		—			(3,152	)		—		(3,152	)
Balance, December 31, 2017		13,092			4,549			—		17,641
Currency translation adjustments		(3	)		(202	)		—		(205	)
Goodwill impairment		—			(4,347	)		—	$	(4,347	)
Balance, December 31, 2018	$	13,089		$	—		$	—	$	13,089

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Note 6 - Instruments and Risk Management (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Derivative Instruments Included in Trading Activities [Table Text Block]

	Location of Gain
	Recognized in Income	For the Years Ended December 31,
(In thousands)		2018		2017		2016
Interest rate swap:	Other income (expense)	$	129	$	111	$	113

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Note 7 - Notes Payable (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Debt [Table Text Block]

	As of December 31,
(In thousands)	2018		2017
(a) Mortgage note payable	$	—	$	3,350
(b) Acquisition Note Payable - related party		5,304		5,304
Ending balance	$	5,304	$	8,654

Schedule of Maturities of Long-term Debt [Table Text Block]

(In thousands)
	As of December 31, 2018
2019	$	—
2020		5,304
2021		—
2022		—
2023		—
Thereafter		—
Total	$	5,304

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Note 8 - Working Capital Line of Credit and Overdraft Facility (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Line of Credit Facilities [Table Text Block]

(In thousands)
Credit Limit	December 31, 2018 Balance		Expiration Date	Interest rate
£1,500 pounds sterling ($1,910 at December 31, 2018)	$	1,344	October 5, 2021	Base rate plus a 2.25% margin (2.5% as of December 31, 2018).

(In thousands)
Credit Limit			December 31, 2018 balance			Expiration Date	Interest rate
$	5,000	(1)	$	979	(2)	June 1, 2019	Fixed rate at 2.25% above the LIBOR in effect on the first day of the applicable fixed-rate term, or variable rate at 2.25% above the daily one-month LIBOR rate.

(In thousands)
CUI Inc. and CUI-Canada General intangibles, net	$	8,546
CUI Inc. and CUI-Canada Accounts receivable, net		9,102
CUI Inc. and CUI-Canada Inventory, net		11,403
CUI Inc. and CUI-Canada Equipment, net		1,438

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Note 9 - Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Lessee, Operating Lease, Disclosure [Table Text Block]

(In thousands)	As of December 31, 2018
2019	$	1,482
2020		1,129
2021		1,031
2022		1,013
2023		605
Thereafter		3,307
Total	$	8,567

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Note 10 - Stockholders' Equity (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Disclosure of Share-based Compensation Arrangements by Share-based Payment Award [Table Text Block]

(Dollars in thousands)
Date of issuance	Type of issuance	Expense/ Prepaid/ Cash	Stock issuance recipient	Reason for issuance	Total no. of shares		Grant date fair value or net proceeds recorded at issuance
January, April, July and October 2018	Vested restricted common stock	Expense	Four board members	Director compensation		72,157	$	175
January and July 2018	Common stock	Expense	Three Employees	Approved bonuses		68,118		183	(1)
July and December 2018	Common stock	Expense	Related Party, James McKenzie	Pursuant to royalty agreement		5,755		14	(1)
Total 2018 issuances						146,030	$	372	(2) (3)
									(11)
January, April, August and October 2017	Vested restricted common stock	Expense	Four board members	Director compensation		49,980	$	200
January, February and June 2017	Common stock	Expense	Three Employees	Approved bonuses		28,634		182	(4)
January and December 2017	Common stock	Expense	Related party, James McKenzie	Pursuant to royalty agreement		3,293		16	(4)
January and February 2017	Common stock	Expense	Two Employees	Cashless stock option exercises		245		—	(5)
May 2017	Common stock	Prepaid expense/expense	Third-party consultant	Strategic investor marketing services		15,000		57	(6)
October 2017	Common stock	Cash	Various third-party shareholders	Equity raise		7,392,856		18,905
Total 2017 issuances						7,490,008	$	19,360	(7)
January, April, July and October 2016	Vested restricted common stock	Expense	Five board members	Director compensation		46,854	$	267	(8)
January and July 2016	Vested restricted common stock	Expense	Four Employees	Approved bonuses		56,782		381	(9)
January, March September and December 2016	Common stock	Expense	Related party, James McKenzie	Pursuant to royalty agreement		6,275		38
February and April 2016	Common stock	Expense	Three Employees	Cashless stock option exercise		718		—	(5)
Total 2016 issuances						110,629	$	686	(10)

Summary of Warrants and Options Issued [Table Text Block]

	For the Year Ended December 31, 2016
	Number of Options			Weighted Average Exercise Price ($)		Weighted Average Remaining Contract Life (years)	Aggregate Intrinsic Value ($ '000)
Balance at beginning of year		970,847		$	6.32	6.54	$	850
Exercised		(2,333	)		5.46			4
Expired		(1,833	)		5.40
Balance at end of year		966,681		$	6.32	5.55		751
Exercisable		966,681		$	6.32	5.55		751

	For the Year Ended December 31, 2017
	Number of Options			Weighted Average Exercise Price ($)		Weighted Average Remaining Contract Life (years)	Aggregate Intrinsic Value ($ '000)
Balance at beginning of year		966,681		$	6.32	5.55	$	751
Exercised		(2,001	)		5.70
Expired		(500	)		4.58
Balance at end of year		964,180		$	6.32	4.56		—
Exercisable		964,180		$	6.32	4.56		—

	For the Year Ended December 31, 2018
	Number of Options			Weighted Average Exercise Price ($)		Weighted Average Remaining Contract Life (years)	Aggregate Intrinsic Value ($ '000)
Balance at beginning of year		964,180		$	6.32	4.56	$	—
Expired		(40,282	)		6.47
Balance at end of year		923,898		$	6.32	3.64		—
Exercisable		923,898		$	6.32	3.64		—

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Note 12 - Accumulated Other Comprehensive Income (Loss) (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]

(In thousands)	As of December 31,
	2018			2017			2016
Foreign currency translation adjustment	$	(4,396	)	$	(3,510	)	$	(5,590	)
Accumulated other comprehensive loss	$	(4,396	)	$	(3,510	)	$	(5,590	)

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Note 13 - Capitalized Interest (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Interest Costs Capitalized [Table Text Block]

(In thousands)	For the Years Ended December 31,
	2018			2017			2016
Interest cost incurred	$	511		$	521		$	492
Interest cost capitalized - property and equipment		(9	)		(21	)		(25	)
Interest expense, net	$	502		$	500		$	467

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Note 14 - Income Taxes (Tables)

12 Months Ended

Dec. 31, 2018

Notes Tables

Schedule of Income before Income Tax, Domestic and Foreign [Table Text Block]

(In thousands)	For the Years Ended December 31,
	2018			2017			2016
U.S. operations	$	(5,187	)	$	(7,420	)	$	(8,442	)
Foreign operations		(12,344	)		(6,775	)		1,214
(Loss) before income taxes	$	(17,531	)	$	(14,195	)	$	(7,228	)

Schedule of Components of Income Tax Expense (Benefit) [Table Text Block]

(In thousands)	For the Years Ended December 31,
	2018			2017			2016
Current:
Federal	$	—		$	—		$	—
State and local		81			60			81
Foreign		65			101			64
Total current provision		146			161			145
Deferred:
Federal		—			(887	)		—
State and local		—			—			—
Foreign		(352	)		(880	)		(107	)
Total deferred (benefit)		(352	)		(1,767	)		(107	)
Total income tax (benefit) expense	$	(206	)	$	(1,606	)	$	38

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

(In thousands)	For the Years Ended December 31,
	2018			2017			2016
Computed federal income taxes at the statutory rate (benefit)	$	(3,681	)	$	(4,826	)	$	(2,457	)
State income taxes (net of federal benefit)		63			39			53
Permanent tax differences		(122	)		(262	)		(415	)
Foreign tax rates and tax credits differing from USA		763			887			4
Purchased goodwill impairment		828			1,072			—
Research and development credits		(202	)		—			—
Net operating loss and other adjustment		(717	)		(256	)		216
Change in enacted tax rates applied to foreign deferred taxes		242			122			(38	)
Change in valuation allowance		2,620			2,505			2,675
Change in enacted tax rates applied to USA deferred taxes		—			(887	)		—
Total income tax (benefit) provision	$	(206	)	$	(1,606	)	$	38

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

(In thousands)	As of December 31,
	2018			2017
Deferred tax assets:
Net operating loss carryforwards	$	19,754		$	16,905
Contribution and other carryforwards		197			218
Inventory and accounts receivable reserves		668			549
Other		578			676
Valuation allowance		(20,281	)		(17,662	)
Deferred tax assets after valuation allowance		916			686
Deferred tax liabilities
Intangible assets		(2,765	)		(2,914	)
Property, plant and equipment		(73	)		(186	)
Total deferred tax liabilities		(2,838	)		(3,100	)
Net deferred tax liabilities	$	(1,922	)	$	(2,414	)

Summary of Deferred Tax Liability Table Text Block]

(In thousands)	As of December 31,
	2018			2017
Noncurrent deferred tax assets	$	—		$	—
Noncurrent deferred tax liability		(1,922	)		(2,414	)
Net deferred tax liability	$	(1,922	)	$	(2,414	)

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Note 1 - Nature of Operations, Basis of Presentation and Company Conditions (Details Textual)	12 Months Ended
	Dec. 31, 2018
Number of Reportable Segments	3
Number of Subsidiaries in Reportable Segments	3
Number of Categories in Product Offerings	2
Orbital Gas Systems Limited [Member]
Capital Stock Acquired, Percentage	100.00%
Power and Electromechanical and Energy Segments [Member]
Number of Reportable Segments	2
DigiKey Electronics in Power and Electro Mechanical Segment [Member]
Percentage of Total Revenue	79.00%
Energy Segment [Member]
Percentage of Total Revenue	21.00%

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Note 2 - Summary of Significant Accounting Policies (Details Textual) £ in Thousands				3 Months Ended					12 Months Ended
		Jan. 01, 2018 USD ($)	May 31, 2017 USD ($)	Dec. 31, 2018 USD ($)	Jun. 30, 2018 USD ($)	Dec. 31, 2017 USD ($) shares		Mar. 31, 2016 USD ($)	Dec. 31, 2018 USD ($) shares		Dec. 31, 2017 USD ($) shares		Dec. 31, 2016 USD ($) shares	Dec. 31, 2015 USD ($)	Mar. 13, 2019 USD ($)	Jan. 01, 2019 USD ($)	Dec. 31, 2018 GBP (£)	Sep. 30, 2015	Mar. 31, 2014
Net Income (Loss) Attributable to Parent, Total									$ (17,325,000)		$ (12,589,000)		$ (7,266,000)
Net Cash Provided by (Used in) Operating Activities, Total									(12,283,000)		(9,369,000)		(601,000)
Retained Earnings (Accumulated Deficit), Ending Balance		$ (106,668,000)		$ (123,993,000)		$ (108,559,000)			(123,993,000)		(108,559,000)
Working Capital				16,900,000					16,900,000
Cash, Uninsured Amount				300,000					300,000
Cash, FDIC Insured Amount						900,000					900,000
Cash and Cash Equivalents in Foreign Accounts				68,000		200,000			68,000		200,000
Restricted Cash, Noncurrent				523,000					523,000
Proceeds from Collection of Notes Receivable									19,000		39,000
Investment in Convertible Note Receivable, Noncurrent				655,000					655,000
Allowance for Doubtful Accounts Receivable, Current, Ending Balance				167,000		135,000			167,000		135,000
Inventory Valuation Reserves, Ending Balance				2,495,000		946,000			2,495,000		946,000
Asset Impairment Charges, Total									1,509,000
Reclassified Deposits and Other Assets to Prepaid Assets				100,000					100,000
Asset Impairment Charges, Other than Goodwill											0		0
Goodwill and Intangible Asset Impairment, Total			$ 0						4,347,000		3,155,000
Goodwill, Impairment Loss				3,100,000	$ 1,300,000	3,200,000			4,347,000		3,152,000		0	$ 0
Accrued Liabilities, Current, Total				4,851,000		4,186,000			4,851,000		4,186,000
Employee-related Liabilities, Current, Total				1,700,000		1,900,000			1,700,000		1,900,000
Accounts Payable, Trade, Current				1,700,000		1,300,000			1,700,000		1,300,000
Derivative, Gain on Derivative									129,000		111,000		113,000
Payments for Derivative Instrument, Financing Activities									$ 227,000
Number of Categories in Product Offerings									2
Concentration Risk, Percentage									100.00%		100.00%		100.00%
Revenue from Contract with Customer, Including Assessed Tax									$ 96,789,000		$ 83,275,000		$ 86,461,000
Standard and Extended Product Warranty Accrual, Ending Balance				37,000		40,000			37,000		40,000
Advertising Expense									2,000,000		1,800,000		1,700,000
Advertising Costs Offset Against Revenue									$ 600,000		$ 300,000		$ 300,000
Stock Issued During Period, Shares, Issued for Services | shares									1,844		63,602		25,811
Number of Operating Segments									6
Number of Reportable Segments									3
Operating Leases Future Minimum Payments Due, Present Value				7,800,000					$ 7,800,000
Shipping and Handling [Member]
Revenue from Contract with Customer, Including Assessed Tax									$ 27,000		$ 17,000		$ 23,000
Customer Concentration Risk [Member] | Sales Revenue, Net [Member] | Distributor One [Member]
Concentration Risk, Percentage											26.00%
Customer Concentration Risk [Member] | Sales Revenue, Net [Member] | Three Distributor Arrangements [Member]
Concentration Risk, Percentage											15.00%
Transferred at Point in Time [Member]
Percentage of Revenue From Goods and Services									84.00%
Revenue from Contract with Customer, Including Assessed Tax									$ 80,838,000
Accounting Standards Update 2014-09 [Member]
Retained Earnings (Accumulated Deficit), Ending Balance						1,891,000					$ 1,891,000
New Accounting Pronouncement or Change in Accounting Principle, Effect of Adoption, Quantification		1,900,000
Interest Rate Swap [Member]
Payments for Derivative Instrument, Financing Activities									$ 227,000
Developed Technology Rights [Member]
Finite-Lived Intangible Asset, Useful Life									20 years	[1]	20 years
Deposits and Other Assets [Member]
Asset Impairment Charges, Total				1,500,000
Leasehold Improvements [Member] | Maximum [Member]
Property, Plant and Equipment, Useful Life									10 years
SEC Schedule, 12-09, Reserve, Inventory [Member]
Inventory Valuation Reserves, Ending Balance				2,495,000		946,000			$ 2,495,000		$ 946,000		774,000	$ 483,000
Energy Segment [Member]
Goodwill and Intangible Asset Impairment, Total									4,347,000		3,152,000
Goodwill, Impairment Loss									4,347,000		3,152,000
Revenue from Contract with Customer, Including Assessed Tax									20,342,000
Energy Segment [Member] | Transferred at Point in Time [Member]
Revenue from Contract with Customer, Including Assessed Tax									$ 4,391,000
Energy Segment [Member] | Accounting Standards Update 2014-09 [Member]
New Accounting Pronouncement or Change in Accounting Principle, Effect of Adoption, Quantification		(0.90)
Energy Segment [Member] | Developed Technology Rights [Member]
Finite-Lived Intangible Asset, Useful Life	[2],[3]								20 years
Energy Segment [Member] | SEC Schedule, 12-09, Reserve, Inventory [Member]
Inventory Valuation Reserves, Ending Balance				1,400,000					$ 1,400,000
Power and Electromechanical Segment [Member]
Goodwill and Intangible Asset Impairment, Total											3,000
Goodwill, Impairment Loss
Revenue from Contract with Customer, Including Assessed Tax									76,447,000
Power and Electromechanical Segment [Member] | Transferred at Point in Time [Member]
Revenue from Contract with Customer, Including Assessed Tax									$ 76,447,000
Power and Electromechanical Segment [Member] | Accounting Standards Update 2014-09 [Member]
New Accounting Pronouncement or Change in Accounting Principle, Effect of Adoption, Quantification		$ 2,800,000
Power and Electromechanical Segment [Member] | Maximum [Member] | Developed Technology Rights [Member]
Finite-Lived Intangible Asset, Useful Life	[3]								20 years
Other Segments [Member]
Goodwill and Intangible Asset Impairment, Total
Goodwill, Impairment Loss
Revenue from Contract with Customer, Including Assessed Tax									725,000
Other Depreciation and Amortization									900,000		700,000		500,000
Test Products International Inc. [Member]
Note Receivable Interest Rate								5.00%
Investment Income, Interest									17,000		18,000		19,000
Royalty Expense									10,000		16,000		37,000
Proceeds from Collection of Notes Receivable									19,000		39,000
Financing Receivable, Net, Total				318,000		330,000			318,000		330,000
Financing Receivable, Allowance for Credit Losses, Ending Balance						$ 0					$ 0
VPS [Member]
Investment in Convertible Note Receivable, Noncurrent				655,000					655,000
Test Products International Inc. [Member]
Notes Receivable, Related Parties								$ 400,000
Test Products International Inc. [Member]
Business Acquisition Number of Shares Owned in Equity Method | shares						352,589					352,589
Equity Method Investment, Ownership Percentage																		8.50%	8.94%
JAPAN
Cash, Uninsured Amount				300,000		$ 100,000			300,000		$ 100,000
Europe [Member]
Cash, Uninsured Amount				1,000		100,000			1,000		100,000
Revenue from Contract with Customer, Including Assessed Tax									19,815,000
Europe [Member] | Energy Segment [Member]
Revenue from Contract with Customer, Including Assessed Tax									15,620,000
Europe [Member] | Power and Electromechanical Segment [Member]
Revenue from Contract with Customer, Including Assessed Tax									4,195,000
CANADA
Cash, Uninsured Amount				67,000		100,000			67,000		100,000
Mortgage Note Payable [Member]
Secured Debt, Total				0		$ 3,350,000	[4]		0		$ 3,350,000	[4]
Subsequent Event [Member] | Accounting Standards Update 2016-02 [Member]
Retained Earnings (Accumulated Deficit), Ending Balance																$ 2,900,000
Wells Fargo Bank N.A [Member] | Multi-currency Variable Rate Overdraft Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity				52,021,000					52,021,000								£ 1,344
CUI Inc And CUI Canada [Member] | Bank of America [Member] | Revolving Credit Facility [Member] | Subsequent Event [Member]
Line of Credit Facility, Maximum Borrowing Capacity															$ 10,000,000
CUI, Inc [Member]
Defined Contribution Plan, Employer Matching Contribution, Percent of Match											6.00%
Defined Benefit Plan, Plan Assets, Contributions by Employer									500,000		$ 400,000		400,000
CUI, Inc [Member] | Wells Fargo Bank N.A [Member] | Revolving Credit Facility [Member]
Line of Credit Facility, Remaining Borrowing Capacity				2,000,000					2,000,000
CUI, Inc [Member] | Wells Fargo Bank N.A [Member] | Multi-currency Variable Rate Overdraft Facility [Member]
Line of Credit Facility, Remaining Borrowing Capacity				$ 600,000					600,000
Orbital [Member]
Defined Contribution Plan, Employer Matching Contribution, Percent of Match											5.00%
Defined Benefit Plan, Plan Assets, Contributions by Employer									$ 300,000		$ 200,000		$ 300,000

[1] Technology rights are amortized over a 20-year life or the term of the rights agreement.

[2] All intangibles are reviewed annually for impairment, or sooner if circumstances change.

[3] Technology rights include $1.0 million of capitalized costs that are related to our CUI-Canada acquisition in March 2015. The CUI-Canada technology rights are amortized over a 7-year life. The rest of the technology rights are amortized over a 20-year life.

[4] On October 1, 2013, the funding of the purchase of the Company's Tualatin, Oregon corporate offices from Barakel, LLC was completed. The purchase price for this asset was $5.1 million. The purchase was funded, in part, by a promissory note payable to Wells Fargo Bank in the amount of $3.7 million plus interest at the rate of 2% above LIBOR, payable over ten years with a balloon payment due at maturity. It was secured by a deed of trust on the purchased property, which was executed by CUI Properties, LLC and guaranteed by CUI Global, Inc. During 2018 and 2017, the Company made principal payments of approximately $3.4 million and $89 thousand, respectively, against the mortgage promissory note payable. In December 2018, this note was paid off as part of a sale-leaseback transaction. At December 31, 2017, the balance owed on the mortgage promissory note payable was $3.4 million of which $94 thousand and $3.3 million were in current and long-term liabilities, respectively.

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Note 2 - Summary of Significant Accounting Policies - Allowance for Doubtful Accounts (Details) - SEC Schedule, 12-09, Allowance, Credit Loss [Member] - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Allowance for doubtful accounts, beginning of year	$ 135	$ 151	$ 90
Charge (credit) to costs and expenses	33	(13)	93
Deductions	(1)	(3)	(32)
Allowance for doubtful accounts, end of year	$ 167	$ 135	$ 151

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Note 2 - Summary of Significant Accounting Policies - Inventory (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Jan. 01, 2018	Dec. 31, 2017
Finished goods	$ 10,143		$ 10,792
Raw materials	4,200		3,287
Work-in-process	1,194		759
Inventory reserves	(2,495)		(946)
Total inventories	$ 13,042	$ 12,828	$ 13,892

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Note 2 - Summary of Significant Accounting Policies - Inventory Reserves (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Inventory reserves	$ 946
Inventory reserves	2,495	$ 946
SEC Schedule, 12-09, Reserve, Inventory [Member]
Inventory reserves	946	774	$ 483
Charge to costs and expenses	1,592	138	312
Other (deductions) additions	(43)	34	(21)
Inventory reserves	$ 2,495	$ 946	$ 774

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Note 2 - Summary of Significant Accounting Policies - Estimated Useful Lives for Buildings, Improvements, Furniture, Vehicles, and Equipment (Details)	12 Months Ended
	Dec. 31, 2018
Building and Building Improvements [Member] | Minimum [Member]
Estimated useful life (Year)	5 years
Building and Building Improvements [Member] | Maximum [Member]
Estimated useful life (Year)	39 years
Furniture and Fixtures [Member] | Minimum [Member]
Estimated useful life (Year)	3 years
Furniture and Fixtures [Member] | Maximum [Member]
Estimated useful life (Year)	10 years
Vehicles [Member] | Minimum [Member]
Estimated useful life (Year)	3 years
Vehicles [Member] | Maximum [Member]
Estimated useful life (Year)	5 years

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Note 2 - Summary of Significant Accounting Policies - Estimated Useful Life for the Intangible Assets (Details)		12 Months Ended
		Dec. 31, 2018		Dec. 31, 2017
Tradename - CUI [Member]
Indefinite-lived intangible assets (Year)	[1]
Customer List - CUI [Member]
Indefinite-lived intangible assets (Year)	[1]
Patent Pending Technology [Member]
Indefinite-lived intangible assets (Year)	[1]
Order or Production Backlog [Member]
Finite-lived intangible assets (Year)		2 years
Trade name - Orbital [Member]
Finite-lived intangible assets (Year)		10 years
Trade name - V-Infinity [Member]
Finite-lived intangible assets (Year)		5 years
Tradename - CUI-Canada [Member]
Finite-lived intangible assets (Year)		3 years
Customer List - Orbital [Member]
Finite-lived intangible assets (Year)		10 years
Customer List - CUI Canada [Member]
Finite-lived intangible assets (Year)		7 years
Developed Technology Rights [Member]
Finite-lived intangible assets (Year)		20 years	[2]	20 years
Technology - Based Asset - Know How [Member]
Finite-lived intangible assets (Year)		12 years
Technology -Based Asset - Software [Member]
Finite-lived intangible assets (Year)		10 years
Technology - Based Asset - Power [Member]
Finite-lived intangible assets (Year)		7 years
Computer Software, Intangible Asset [Member] | Minimum [Member]
Finite-lived intangible assets (Year)		3 years
Computer Software, Intangible Asset [Member] | Maximum [Member]
Finite-lived intangible assets (Year)	[3]	5 years
Patents [Member]
Finite-lived intangible assets (Year)	[4]
Other Intangible Assets [Member]
Finite-lived intangible assets (Year)	[5]

[1] Indefinite-lived intangible assets are reviewed annually for impairment and when circumstances suggest.

[2] Technology rights are amortized over a 20-year life or the term of the rights agreement.

[3] Software assets are recorded at cost and include major expenditures, which increase productivity or substantially increase useful lives.

[4] Patents are amortized over the life of the patent. Any patents not approved will be expensed at that time.

[5] Other intangible assets are amortized over an appropriate useful life, as determined by management in relation to the other intangible asset characteristics.

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Note 2 - Summary of Significant Accounting Policies - Cumulative Effect of Adjustments for New Accounting Pronouncements on Consolidated Balance Sheet (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Jan. 01, 2018	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Assets:
Inventories	$ 13,042	$ 12,828	$ 13,892
Contract assets	1,744	1,783	2,299
Total current assets	35,481	39,696	41,276
Total assets	70,167	86,329	87,909	$ 79,843
us-gaap_LiabilitiesAbstract
Contract liabilities	2,226	4,661	8,829
Refund liabilities	2,417	1,565	695
Total current liabilities	18,586	15,616	18,914
Deferred tax liabilities	1,922	2,241	2,414
Total liabilities	28,629	26,952	30,423
Stockholders' Equity:
Retained Earnings (Accumulated Deficit), Ending Balance	(123,993)	(106,668)	(108,559)
Total stockholders' equity	41,538	59,377	59,377	$ 48,635	$ 59,516
Total liabilities and stockholders' equity	$ 70,167	$ 86,329	87,909
Accounting Standards Update 2014-09 [Member]
Assets:
Inventories			(1,064)
Contract assets			(516)
Total current assets			(1,580)
Total assets			(1,580)
us-gaap_LiabilitiesAbstract
Contract liabilities			(4,168)
Refund liabilities			870
Total current liabilities			(3,298)
Deferred tax liabilities			(173)
Total liabilities			(3,471)
Stockholders' Equity:
Retained Earnings (Accumulated Deficit), Ending Balance			1,891
Total stockholders' equity			1,891
Total liabilities and stockholders' equity			(1,580)
Accounting Standards Update 2014-09 [Member] | Previously Reported [Member]
Stockholders' Equity:
Total stockholders' equity			$ 57,486

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Note 2 - Summary of Significant Accounting Policies - Impact of New Standard on Condensed Consolidated Balance Sheet and Condensed Consolidated Statements of Operations (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016	Jan. 01, 2018	Dec. 31, 2015
Total revenues	$ 96,789	$ 83,275	$ 86,461
Cost of revenues	67,879	55,406	54,200
Gross profit	28,910	27,869	32,261
Income (loss) from operations	(16,778)	(13,929)	(6,510)
Loss before taxes	(17,531)	(14,195)	(7,228)
Income tax (benefit) expense	(206)	(1,606)	38
Net loss	$ (17,325)	$ (12,589)	$ (7,266)
Basic and diluted loss per common share (in dollars per share)	$ (0.61)	$ (0.56)	$ (0.35)
Assets:
Inventories	$ 13,042	$ 13,892		$ 12,828
Contract assets	1,744	2,299		1,783
Total current assets	35,481	41,276		39,696
Total assets	70,167	87,909	$ 79,843	86,329
us-gaap_LiabilitiesAbstract
Contract liabilities	2,226	8,829		4,661
Refund liabilities	2,417	695		1,565
Total current liabilities	18,586	18,914		15,616
Deferred tax liabilities	1,922	2,414		2,241
Total liabilities	28,629	30,423		26,952
Stockholders' Equity:
Accumulated deficit	(123,993)	(108,559)		(106,668)
Total stockholders' equity	41,538	59,377	$ 48,635	59,377	$ 59,516
Total liabilities and stockholders' equity	70,167	87,909		$ 86,329
Accounting Standards Update 2014-09 [Member]
Assets:
Inventories		(1,064)
Contract assets		(516)
Total current assets		(1,580)
Total assets		(1,580)
us-gaap_LiabilitiesAbstract
Contract liabilities		(4,168)
Refund liabilities		870
Total current liabilities		(3,298)
Deferred tax liabilities		(173)
Total liabilities		(3,471)
Stockholders' Equity:
Accumulated deficit		1,891
Total stockholders' equity		1,891
Total liabilities and stockholders' equity		$ (1,580)
Calculated under Revenue Guidance in Effect before Topic 606 [Member]
Total revenues	91,417
Cost of revenues	64,495
Gross profit	26,922
Income (loss) from operations	(18,766)
Loss before taxes	(19,519)
Income tax (benefit) expense	(462)
Net loss	$ (19,057)
Basic and diluted loss per common share (in dollars per share)	$ (0.67)
Difference between Revenue Guidance in Effect before and after Topic 606 [Member]
Assets:
Inventories	$ (4,536)
Contract assets	(365)
Total current assets	(4,901)
Total assets	(4,901)
us-gaap_LiabilitiesAbstract
Contract liabilities	(9,977)
Refund liabilities	1,354
Total current liabilities	(8,623)
Deferred tax liabilities	99
Total liabilities	(8,524)
Stockholders' Equity:
Accumulated deficit	3,623
Total stockholders' equity	3,623
Total liabilities and stockholders' equity	(4,901)
Difference between Revenue Guidance in Effect before and after Topic 606 [Member] | Accounting Standards Update 2014-09 [Member]
Total revenues	5,372
Cost of revenues	3,384
Gross profit	1,988
Income (loss) from operations	1,988
Loss before taxes	1,988
Income tax (benefit) expense	256
Net loss	$ 1,732
Basic and diluted loss per common share (in dollars per share)	$ 0.06
Assets:
Inventories	$ 17,578
Contract assets	2,109
Total current assets	40,382
Total assets	75,068
us-gaap_LiabilitiesAbstract
Contract liabilities	12,203
Refund liabilities	1,063
Total current liabilities	27,209
Deferred tax liabilities	1,823
Total liabilities	37,153
Stockholders' Equity:
Accumulated deficit	(127,616)
Total stockholders' equity	37,915
Total liabilities and stockholders' equity	$ 75,068

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Note 2 - Summary of Significant Accounting Policies - Contract Liabilities (Details) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2018	Jan. 01, 2018	Dec. 31, 2017
Current contract liabilities		$ 2,226	$ 4,661	$ 8,829
Long-term contract liabilities	[1]	129	$ 84
Contract liabilities, beginning balance		4,745
Contract additions, net		2,168
Revenue recognized		(4,356)
Translation		(202)
Contract liabilities		$ 2,355

[1] Long-term contract liabilities are included in Other long-term liabilities on the Consolidated Balance Sheets.

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Note 2 - Summary of Significant Accounting Policies - Revenues Disaggregated (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Revenues	$ 96,789	$ 83,275	$ 86,461
North America [Member]
Revenues	62,317
Europe [Member]
Revenues	19,815
Asia [Member]
Revenues	13,932
Transferred at Point in Time [Member]
Revenues	80,838
Transferred over Time [Member]
Revenues	15,951
Power and Electromechanic Segment [Member]
Revenues	76,447
Power and Electromechanical Segment [Member]
Revenues	76,447
Power and Electromechanical Segment [Member] | North America [Member]
Revenues	58,006
Power and Electromechanical Segment [Member] | Europe [Member]
Revenues	4,195
Power and Electromechanical Segment [Member] | Asia [Member]
Revenues	13,727
Power and Electromechanical Segment [Member] | Other Regions [Member]
Revenues	519
Power and Electromechanical Segment [Member] | Transferred at Point in Time [Member]
Revenues	76,447
Power and Electromechanical Segment [Member] | Transferred over Time [Member]
Revenues
Energy Segment [Member]
Revenues	20,342
Energy Segment [Member] | North America [Member]
Revenues	4,311
Energy Segment [Member] | Europe [Member]
Revenues	15,620
Energy Segment [Member] | Asia [Member]
Revenues	205
Energy Segment [Member] | Other Regions [Member]
Revenues	206
Energy Segment [Member] | Transferred at Point in Time [Member]
Revenues	4,391
Energy Segment [Member] | Transferred over Time [Member]
Revenues	15,951
Other Segments [Member]
Revenues	725
Distributor Sales [Member]
Revenues	43,795
Distributor Sales [Member] | Power and Electromechanic Segment [Member]
Revenues	43,795
Distributor Sales [Member] | Energy Segment [Member]
Revenues
Direct Sales [Member]
Revenues	52,994
Direct Sales [Member] | Power and Electromechanic Segment [Member]
Revenues	32,652
Direct Sales [Member] | Energy Segment [Member]
Revenues	$ 20,342

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Note 2 - Summary of Significant Accounting Policies - Summary of Potential Common Stock Shares (Details) - shares	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Options, outstanding (in shares)	923,898	964,180	966,681

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Note 2 - Summary of Significant Accounting Policies - Calculation of Basic and Diluted Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Net loss	$ (17,325)	$ (12,589)	$ (7,266)
Basic and diluted weighted average number of shares outstanding (in shares)	28,517,339	22,397,865	20,897,812
Basic loss per common share (in dollars per share)	$ (0.61)	$ (0.56)	$ (0.35)
Diluted loss per common share (in dollars per share)	$ (0.61)	$ (0.56)	$ (0.35)

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Note 2 - Summary of Significant Accounting Policies - Summary of Segment Activity (Details) - USD ($)			12 Months Ended
		May 31, 2017	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016	Jan. 01, 2018
Revenues from external customers			$ 96,789,000	$ 83,275,000	$ 86,461,000
Depreciation and amortization (1)	[1]		3,005,000	2,850,000	2,848,000
Interest expense			502,000	500,000	467,000
Impairment of goodwill and other intangible assets		$ 0	4,347,000	3,155,000
Income (loss) from operations			(16,778,000)	(13,929,000)	(6,510,000)
Segment assets			70,167,000	87,909,000	79,843,000	$ 86,329,000
Other intangibles assets, net			13,861,000	15,568,000	16,201,000
Goodwill			13,089,000	17,641,000	20,125,000
Expenditures for segment assets (2)	[2]		1,534,000	1,531,000	1,674,000
Power and Electromechanical Segment [Member]
Revenues from external customers			76,447,000	64,432,000	58,403,000
Depreciation and amortization (1)	[1]		1,480,000	1,505,000	1,445,000
Interest expense			221,000	249,000	221,000
Impairment of goodwill and other intangible assets				3,000
Income (loss) from operations			5,332,000	2,355,000	645,000
Segment assets			45,553,000	49,392,000	49,830,000
Other intangibles assets, net			8,547,000	8,899,000	9,262,000
Goodwill			13,089,000	13,092,000	13,083,000
Expenditures for segment assets (2)	[2]		1,299,000	955,000	1,032,000
Energy Segment [Member]
Revenues from external customers			20,342,000	18,843,000	28,058,000
Depreciation and amortization (1)	[1]		1,525,000	1,345,000	1,401,000
Interest expense			23,000	1,000	6,000
Impairment of goodwill and other intangible assets			4,347,000	3,152,000
Income (loss) from operations			(17,168,000)	(11,366,000)	(1,676,000)
Segment assets			19,034,000	26,512,000	29,632,000
Other intangibles assets, net			5,314,000	6,669,000	6,939,000
Goodwill				4,549,000	7,042,000
Expenditures for segment assets (2)	[2]		235,000	576,000	642,000
Other Segments [Member]
Revenues from external customers
Depreciation and amortization (1)	[1]				2,000
Interest expense			258,000	250,000	240,000
Impairment of goodwill and other intangible assets
Income (loss) from operations			(4,942,000)	(4,918,000)	(5,479,000)
Segment assets			5,580,000	12,005,000	381,000
Other intangibles assets, net
Goodwill
Expenditures for segment assets (2)	[2]

[1] For the years ended December 31, 2018, 2017 and 2016, depreciation and amortization totals included $0.7 million, $0.5 million and $0.3 million, respectively that were classified as cost of revenues in the Consolidated Statements of Operations.

[2] Includes purchases of property, plant and equipment and investment in other intangible assets.

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Note 2 - Summary of Significant Accounting Policies - Revenue By Country (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Revenue, amount	$ 96,789	$ 83,275	$ 86,461
Revenue, percent	100.00%	100.00%	100.00%
UNITED STATES
Revenue, amount	$ 59,319	$ 50,875	$ 46,514
Revenue, percent	61.00%	61.00%	54.00%
UNITED KINGDOM
Revenue, amount	$ 15,185	$ 14,522	$ 17,337
Revenue, percent	16.00%	17.00%	20.00%
CHINA
Revenue, amount	$ 5,463	$ 5,381	$ 5,930
Revenue, percent	6.00%	7.00%	7.00%
All Others [Member]
Revenue, amount	$ 16,822	$ 12,497	$ 16,680
Revenue, percent	17.00%	15.00%	19.00%

XML

Note 2 - Summary of Significant Accounting Policies - Long-lived Assets By Country (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Long-lived Assets	$ 34,686	$ 46,633
UNITED STATES
Long-lived Assets	23,544	27,662
UNITED KINGDOM
Long-lived Assets	9,647	17,739
All Others [Member]
Long-lived Assets	$ 1,495	$ 1,232

XML

Note 3 - Investments and Fair Value Measurements (Details Textual)	Dec. 31, 2018 USD ($)
Convertible Note Receivable One [Member]
Receivables, Fair Value Disclosure, Total	$ 500,000
Convertible Note Receivable Two [Member]
Receivables, Fair Value Disclosure, Total	$ 155,000

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Note 3 - Investments and Fair Value Measurements - Fair Value Hierarchy for Cash Equivalents and Marketable Securities (Details) - USD ($) $ in Thousands		Dec. 31, 2018	Dec. 31, 2017
Assets, fair value disclosure		$ 1,594	$ 16
Liabilities, fair value disclosure			401
Derivative Financial Instruments, Liabilities [Member]
Liabilities, fair value disclosure			356
Contingent Consideration [Member]
Liabilities, fair value disclosure			45
Fair Value, Inputs, Level 1 [Member]
Assets, fair value disclosure		939	16
Liabilities, fair value disclosure
Fair Value, Inputs, Level 1 [Member] | Derivative Financial Instruments, Liabilities [Member]
Liabilities, fair value disclosure
Fair Value, Inputs, Level 1 [Member] | Contingent Consideration [Member]
Liabilities, fair value disclosure
Fair Value, Inputs, Level 2 [Member]
Assets, fair value disclosure
Liabilities, fair value disclosure			356
Fair Value, Inputs, Level 2 [Member] | Derivative Financial Instruments, Liabilities [Member]
Liabilities, fair value disclosure			356
Fair Value, Inputs, Level 2 [Member] | Contingent Consideration [Member]
Liabilities, fair value disclosure
Fair Value, Inputs, Level 3 [Member]
Assets, fair value disclosure		655
Liabilities, fair value disclosure			45
Fair Value, Inputs, Level 3 [Member] | Derivative Financial Instruments, Liabilities [Member]
Liabilities, fair value disclosure
Fair Value, Inputs, Level 3 [Member] | Contingent Consideration [Member]
Liabilities, fair value disclosure			45
Money Market Funds [Member]
Assets, fair value disclosure		16	16
Money Market Funds [Member] | Fair Value, Inputs, Level 1 [Member]
Assets, fair value disclosure		16	16
Money Market Funds [Member] | Fair Value, Inputs, Level 2 [Member]
Assets, fair value disclosure
Money Market Funds [Member] | Fair Value, Inputs, Level 3 [Member]
Assets, fair value disclosure
Certificates of Deposit, Restricted Cash [Member]
Assets, fair value disclosure		523
Certificates of Deposit, Restricted Cash [Member] | Fair Value, Inputs, Level 1 [Member]
Assets, fair value disclosure		523
Certificates of Deposit, Restricted Cash [Member] | Fair Value, Inputs, Level 2 [Member]
Assets, fair value disclosure
Certificates of Deposit, Restricted Cash [Member] | Fair Value, Inputs, Level 3 [Member]
Assets, fair value disclosure
Certificates of Deposit, Restricted Investment [Member]
Assets, fair value disclosure	[1]	400
Certificates of Deposit, Restricted Investment [Member] | Fair Value, Inputs, Level 1 [Member]
Assets, fair value disclosure	[1]	400
Certificates of Deposit, Restricted Investment [Member] | Fair Value, Inputs, Level 2 [Member]
Assets, fair value disclosure	[1]
Certificates of Deposit, Restricted Investment [Member] | Fair Value, Inputs, Level 3 [Member]
Assets, fair value disclosure	[1]
Investment in Convertible Note Receivable [Member]
Assets, fair value disclosure		655
Investment in Convertible Note Receivable [Member] | Fair Value, Inputs, Level 1 [Member]
Assets, fair value disclosure
Investment in Convertible Note Receivable [Member] | Fair Value, Inputs, Level 2 [Member]
Assets, fair value disclosure
Investment in Convertible Note Receivable [Member] | Fair Value, Inputs, Level 3 [Member]
Assets, fair value disclosure		$ 655

[1] Investment is a 12-month certificate of deposit classified as available for sale and included in Deposits and other assets on the balance sheet.

XML

Note 3 - Investments and Fair Value Measurements - Contingent Consideration (Details) - Fair Value, Inputs, Level 3 [Member] $ in Thousands	12 Months Ended
	Dec. 31, 2018 USD ($)
Investment in Convertible Note Receivable [Member]
Balance, assets
Payments, liabilities
Investments	655
Fair value adjustments, liabilities
Balance, assets	655
Contingent Consideration [Member]
Balance, liabilities	45
Payments, liabilities	(45)
Investments
Fair value adjustments, liabilities
Balance, liabilities

XML

Note 4 - Property and Equipment, Net (Details Textual) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Depreciation, Total	$ 1,103	$ 1,009	$ 925
Property, Plant and Equipment, Disposals	5,700	300
Accumulated Depreciation, Depletion and Amortization, Sale or Disposal of Property, Plant and Equipment	900	$ 300
Proceeds from Sale of Buildings	$ 8,100
Lessor, Operating Lease, Term of Contract	10 years
Deferred Gain on Sale of Building	$ 2,900
Sale of Building, Expenses	$ 400

XML

Note 4 - Property and Equipment, Net - Property and Equipment (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Property, and equipment	$ 10,207	$ 15,397
Less accumulated depreciation	(4,234)	(4,155)
Property and equipment, less accumulated depreciation of $4,234 and $4,155, respectively	5,973	11,242
Land [Member]
Property, and equipment	382	1,205
Building and Building Improvements [Member]
Property, and equipment	4,085	8,476
Equipment [Member]
Property, and equipment	$ 5,740	$ 5,716

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Note 5 - Goodwill and Other Intangible Assets (Details Textual) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018		Dec. 31, 2017
Impairment of Intangible Assets (Excluding Goodwill), Total	$ 0
CUI Canada Technology Rights [Member]
Finite-Lived Intangible Assets, Gross, Total	$ 1,000
Finite-Lived Intangible Asset, Useful Life	7 years
Developed Technology Rights [Member]
Finite-Lived Intangible Asset, Useful Life	20 years	[1]	20 years

[1] Technology rights are amortized over a 20-year life or the term of the rights agreement.

XML

Note 5 - Goodwill and Other Intangible Assets - Intangible Assets (Details) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2018		Dec. 31, 2017	Dec. 31, 2016
Finite-lived intangible asset, accumulated amortization		$ (13,190)		$ (11,900)
Totals		6,559
Total Identifiable other intangible assets, gross		27,051		27,468
Other intangibles assets, net		$ 13,861		$ 15,568	$ 16,201
Developed Technology Rights [Member]
Finite-lived intangible assets (Year)		20 years	[1]	20 years
Totals		$ 690
Computer Software, Intangible Asset [Member]
Totals		$ 626
Computer Software, Intangible Asset [Member] | Minimum [Member]
Finite-lived intangible assets (Year)		3 years
Computer Software, Intangible Asset [Member] | Maximum [Member]
Finite-lived intangible assets (Year)	[2]	5 years
Product Certification [Member]
Totals		$ 480
Other Intangible Assets [Member]
Finite-lived intangible assets (Year)	[3]
Totals
Power and Electromechanical Segment [Member]
Finite-lived intangible asset, gross		5,546		$ 5,305
Finite-lived intangible asset, accumulated amortization		(4,301)		(3,708)
Totals		$ 1,245		1,597
Order or Production Backlog [Member]
Finite-lived intangible assets (Year)		2 years
Trade name - Orbital [Member]
Finite-lived intangible assets (Year)		10 years
Customer List - Orbital [Member]
Finite-lived intangible assets (Year)		10 years
Technology - Based Asset - Know How [Member]
Finite-lived intangible assets (Year)		12 years
Technology -Based Asset - Software [Member]
Finite-lived intangible assets (Year)		10 years
Power and Electromechanical Segment [Member]
Indefinite-lived intangible assets		$ 7,302		7,302
Other intangibles assets, net		8,547		8,899	9,262
Power and Electromechanical Segment [Member] | Trademark and Tradename CUI [Member]
Indefinite-lived intangible assets		4,893		4,893
Power and Electromechanical Segment [Member] | Customer List - CUI [Member]
Indefinite-lived intangible assets		1,857		1,857
Power and Electromechanical Segment [Member] | Patent Pending Technology [Member]
Indefinite-lived intangible assets		$ 552		552
Power and Electromechanical Segment [Member] | Trademarks and Tradenames V Infinity [Member]
Finite-lived intangible assets (Year)		5 years
Finite-lived intangible asset, gross		$ 1,095		1,095
Finite-lived intangible asset, accumulated amortization		(1,095)		(1,095)
Totals
Power and Electromechanical Segment [Member] | Trademark And Tradename AMP Group [Member]
Finite-lived intangible assets (Year)	[4]	3 years
Finite-lived intangible asset, gross		$ 28		27
Finite-lived intangible asset, accumulated amortization		(28)		(23)
Totals				4
Power and Electromechanical Segment [Member] | Trademark And Tradename CUI Canada [Member]
Finite-lived intangible assets (Year)	[4]	3 years
Finite-lived intangible asset, gross		$ 128		128
Finite-lived intangible asset, accumulated amortization		(128)		(121)
Totals				7
Power and Electromechanical Segment [Member] | Developed Technology Rights [Member]
Finite-lived intangible asset, gross		1,291		1,291
Finite-lived intangible asset, accumulated amortization		(746)		(578)
Totals		$ 545		713
Power and Electromechanical Segment [Member] | Developed Technology Rights [Member] | Minimum [Member]
Finite-lived intangible assets (Year)	[5]	7 years
Power and Electromechanical Segment [Member] | Developed Technology Rights [Member] | Maximum [Member]
Finite-lived intangible assets (Year)	[5]	20 years
Power and Electromechanical Segment [Member] | Computer Software, Intangible Asset [Member]
Finite-lived intangible asset, gross		$ 956		971
Finite-lived intangible asset, accumulated amortization		(857)		(850)
Totals		$ 99		121
Power and Electromechanical Segment [Member] | Computer Software, Intangible Asset [Member] | Minimum [Member]
Finite-lived intangible assets (Year)	[4]	3 years
Power and Electromechanical Segment [Member] | Computer Software, Intangible Asset [Member] | Maximum [Member]
Finite-lived intangible assets (Year)	[4]	5 years
Power and Electromechanical Segment [Member] | Product Certification [Member]
Finite-lived intangible assets (Year)	[4]	3 years
Finite-lived intangible asset, gross		$ 1,667		1,412
Finite-lived intangible asset, accumulated amortization		(1,187)		(820)
Totals		$ 480		592
Power and Electromechanical Segment [Member] | Customer Relationships [Member]
Finite-lived intangible assets (Year)	[4]	7 years
Finite-lived intangible asset, gross		$ 267		267
Finite-lived intangible asset, accumulated amortization		(146)		(108)
Totals		$ 121		159
Power and Electromechanical Segment [Member] | Other Intangible Assets [Member]
Finite-lived intangible assets (Year)	[6]
Finite-lived intangible asset, gross		$ 114		114
Finite-lived intangible asset, accumulated amortization		(114)		(113)
Totals				1
Energy Segment [Member]
Finite-lived intangible asset, gross		14,203		14,861
Finite-lived intangible asset, accumulated amortization		(8,889)		(8,192)
Totals		5,314		6,669
Other intangibles assets, net		$ 5,314		6,669	$ 6,939
Energy Segment [Member] | Developed Technology Rights [Member]
Finite-lived intangible assets (Year)	[4],[5]	20 years
Finite-lived intangible asset, gross		$ 318		337
Finite-lived intangible asset, accumulated amortization		(173)		(150)
Totals		145		187
Energy Segment [Member] | Computer Software, Intangible Asset [Member]
Finite-lived intangible asset, gross		667		520
Finite-lived intangible asset, accumulated amortization		(140)		(13)
Totals		$ 527		507
Energy Segment [Member] | Computer Software, Intangible Asset [Member] | Minimum [Member]
Finite-lived intangible assets (Year)	[4]	3 years
Energy Segment [Member] | Computer Software, Intangible Asset [Member] | Maximum [Member]
Finite-lived intangible assets (Year)	[4]	5 years
Energy Segment [Member] | Other Intangible Assets [Member]
Finite-lived intangible assets (Year)	[6]
Finite-lived intangible asset, gross
Finite-lived intangible asset, accumulated amortization
Totals
Energy Segment [Member] | Order or Production Backlog [Member]
Finite-lived intangible assets (Year)	[4]	2 years
Finite-lived intangible asset, gross		$ 2,837		3,006
Finite-lived intangible asset, accumulated amortization		(2,837)		(3,006)
Totals
Energy Segment [Member] | Trade name - Orbital [Member]
Finite-lived intangible assets (Year)	[4]	10 years
Finite-lived intangible asset, gross		$ 1,526		1,616
Finite-lived intangible asset, accumulated amortization		(877)		(768)
Totals		$ 649		848
Energy Segment [Member] | Customer List - Orbital [Member]
Finite-lived intangible assets (Year)	[4]	10 years
Finite-lived intangible asset, gross		$ 5,931		6,284
Finite-lived intangible asset, accumulated amortization		(3,411)		(2,985)
Totals		$ 2,520		3,299
Energy Segment [Member] | Technology - Based Asset - Know How [Member]
Finite-lived intangible assets (Year)	[4]	12 years
Finite-lived intangible asset, gross		$ 2,403		2,546
Finite-lived intangible asset, accumulated amortization		(1,151)		(1,008)
Totals		$ 1,252		1,538
Energy Segment [Member] | Technology -Based Asset - Software [Member]
Finite-lived intangible assets (Year)	[4]	10 years
Finite-lived intangible asset, gross		$ 521		552
Finite-lived intangible asset, accumulated amortization		(300)		(262)
Totals		$ 221		$ 290

[1] Technology rights are amortized over a 20-year life or the term of the rights agreement.

[2] Software assets are recorded at cost and include major expenditures, which increase productivity or substantially increase useful lives.

[3] Other intangible assets are amortized over an appropriate useful life, as determined by management in relation to the other intangible asset characteristics.

[4] All intangibles are reviewed annually for impairment, or sooner if circumstances change.

[5] Technology rights include $1.0 million of capitalized costs that are related to our CUI-Canada acquisition in March 2015. The CUI-Canada technology rights are amortized over a 7-year life. The rest of the technology rights are amortized over a 20-year life.

[6] Other intangible assets are amortized over an appropriate useful life, as determined by management in relation to the other intangible asset characteristics.

XML

Note 5 - Goodwill and Other Intangible Assets - Amortization (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Intangible asset amortization	$ 1,902	$ 1,841	$ 1,923
Trademarks and Trade Names [Member]
Intangible asset amortization	172	316	434
Customer-Related Intangible Assets [Member]
Intangible asset amortization	660	638	669
Developed Technology Rights [Member]
Intangible asset amortization	201	198	193
Technology-Based Intangible Assets [Member]
Intangible asset amortization	264	255	269
Computer Software, Intangible Asset [Member]
Intangible asset amortization	191	83	76
Certification Marks [Member]
Intangible asset amortization	413	343	260
Other Intangible Assets [Member]
Intangible asset amortization	$ 1	$ 8	$ 22

XML

Note 5 - Goodwill and Other Intangible Assets - Estimated Future Amortization (Details) $ in Thousands	Dec. 31, 2018 USD ($)
2019	$ 1,736
2020	1,570
2021	1,368
2022	1,147
2023	447
2024 and thereafter	291
Totals	6,559
Trademarks and Trade Names [Member]
2019	153
2020	153
2021	153
2022	153
2023	37
2024 and thereafter
Totals	649
Customer-Related Intangible Assets [Member]
2019	631
2020	631
2021	631
2022	600
2023	148
2024 and thereafter
Totals	2,641
Developed Technology Rights [Member]
2019	191
2020	183
2021	183
2022	65
2023	28
2024 and thereafter	40
Totals	690
Technology-Based Intangible Assets [Member]
2019	252
2020	252
2021	252
2022	252
2023	214
2024 and thereafter	251
Totals	1,473
Computer Software, Intangible Asset [Member]
2019	222
2020	197
2021	110
2022	77
2023	20
2024 and thereafter
Totals	626
Product Certification [Member]
2019	287
2020	154
2021	39
2022
2023
2024 and thereafter
Totals	480
Other Intangible Assets [Member]
2019
2020
2021
2022
2023
2024 and thereafter
Totals

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Note 5 - Goodwill and Indefinite-lived Intangibles - Goodwill (Details) - USD ($)	3 Months Ended			12 Months Ended
	Dec. 31, 2018	Jun. 30, 2018	Dec. 31, 2017	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Balance				$ 17,641,000	$ 20,125,000
Currency translation adjustments				(205,000)	668,000
Goodwill impairment	$ (3,100,000)	$ (1,300,000)	$ (3,200,000)	(4,347,000)	(3,152,000)	$ 0	$ 0
Balance	13,089,000		17,641,000	13,089,000	17,641,000	20,125,000
Power and Electromechanical Segment [Member]
Balance				13,092,000	13,083,000
Currency translation adjustments				(3,000)	9,000
Goodwill impairment
Balance	13,089,000		13,092,000	13,089,000	13,092,000	13,083,000
Energy Segment [Member]
Balance				4,549,000	7,042,000
Currency translation adjustments				(202,000)	659,000
Goodwill impairment				(4,347,000)	(3,152,000)
Balance			4,549,000		4,549,000	7,042,000
Other Segments [Member]
Balance
Currency translation adjustments
Goodwill impairment
Balance

XML

Note 6 - Instruments and Risk Management (Details Textual)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Oct. 01, 2013
Derivative, Swaption Interest Rate			6.27%
Foreign Exchange Forward [Member]
Derivative, Number of Instruments Held, Total	0	0
Foreign Exchange Forward [Member] | Maximum [Member]
Derivative, Term of Contract	1 year
Interest Rate Swap [Member]
Derivative, Term of Contract	10 years
Designated as Hedging Instrument [Member]
Derivative, Number of Instruments Held, Total	0	0

XML

Note 6 - Instruments and Risk Management - Foreign Exchange Contracts Statement of Financial Position (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Interest Rate Swap [Member]
Interest rate swap:	$ 129	$ 111	$ 113

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Note 7 - Notes Payable (Details Textual) - USD ($) $ / shares in Units, $ in Thousands		12 Months Ended
	Oct. 01, 2013	Dec. 31, 2018	Dec. 31, 2017
Long-term Debt, Total		$ 5,304
Mortgage Note Payable [Member]
Other Notes Payable, Total	$ 3,700
Debt Instrument, Term	10 years
Repayments of Long-term Debt, Total		$ 3,400	$ 89
Long-term Debt, Total			3,400
Long-term Debt, Current Maturities, Total			94
Long-term Debt, Excluding Current Maturities, Total			$ 3,300
Mortgage Note Payable [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate	2.00%
Convertible Debt [Member] | International Electronic Devices, Inc. [Member]
Debt Instrument, Interest Rate, Stated Percentage		5.00%
Debt Instrument, Convertible, Conversion Price		$ 0.001
Barakel, LLC [Member]
Payments to Acquire Real Estate, Total	$ 5,100

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Note 7 - Notes Payable - Summary of Notes Payable (Details) - USD ($)		Dec. 31, 2018	Dec. 31, 2017
Acquisition Note Payable - related party		$ 5,304,000	$ 5,304,000
Ending balance		5,304,000	8,654,000
Mortgage Note Payable [Member]
Mortgage note payable		0	3,350,000	[1]
Convertible Debt [Member]
Acquisition Note Payable - related party	[2]	$ 5,304,000	$ 5,304,000

[1] On October 1, 2013, the funding of the purchase of the Company's Tualatin, Oregon corporate offices from Barakel, LLC was completed. The purchase price for this asset was $5.1 million. The purchase was funded, in part, by a promissory note payable to Wells Fargo Bank in the amount of $3.7 million plus interest at the rate of 2% above LIBOR, payable over ten years with a balloon payment due at maturity. It was secured by a deed of trust on the purchased property, which was executed by CUI Properties, LLC and guaranteed by CUI Global, Inc. During 2018 and 2017, the Company made principal payments of approximately $3.4 million and $89 thousand, respectively, against the mortgage promissory note payable. In December 2018, this note was paid off as part of a sale-leaseback transaction. At December 31, 2017, the balance owed on the mortgage promissory note payable was $3.4 million of which $94 thousand and $3.3 million were in current and long-term liabilities, respectively.

[2] The note payable to International Electronic Devices, Inc. (IED) (formerly CUI Inc.) is associated with the acquisition of CUI Inc. The promissory note is due May 15, 2020 and includes a 5% interest rate per annum, with interest payable monthly and the principal due as a balloon payment at maturity. The note contains a contingent conversion feature, such that in the event of default on the note the holder of the note can, at the holder's option, convert the note principal into common stock at $0.001 per share. As of December 31, 2018, the Company is in compliance with all terms of this promissory note and the conversion feature is not effective.

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Note 7 - Notes Payable - Maturity of Notes Payable (Details) $ in Thousands	Dec. 31, 2018 USD ($)
2019
2020	5,304
2021
2022
2023
Thereafter
Total	$ 5,304

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Note 8 - Working Capital Line of Credit and Overdraft Facility (Details Textual) £ in Thousands				12 Months Ended
		Mar. 13, 2019 USD ($)	Oct. 05, 2016	Dec. 31, 2018 USD ($)	Dec. 31, 2018 GBP (£)
Multi-currency Variable Rate Overdraft Facility [Member] | Wells Fargo Bank N.A [Member]
Line of Credit Facility, Expiration Period			5 years
Line of Credit Facility, Maximum Borrowing Capacity				$ 52,021,000	£ 1,344
Multi-currency Variable Rate Overdraft Facility [Member] | Wells Fargo Bank [Member]
Guarantor Obligations, Current Carrying Value				2,000,000
Increase (Decrease) in Outstanding Checks, Financing Activities				27,000
Line of Credit Facility, Maximum Borrowing Capacity	[1]			$ 5,000,000
Debt Instrument, Basis Spread on Variable Rate				2.25%
Revolving Credit Facility [Member] | Wells Fargo Bank N.A [Member] | CUI, Inc [Member]
Capital Expenditures Exceed Limit				$ 1,750,000
Revolving Credit Facility [Member] | Bank of America [Member] | CUI Inc And CUI Canada [Member] | Subsequent Event [Member]
Line of Credit Facility, Sub Limit Borrowing Capacity		$ 3,000,000
Line of Credit Facility, Maximum Borrowing Capacity		$ 10,000,000
Revolving Credit Facility [Member] | Bank of America [Member] | CUI Inc And CUI Canada [Member] | Subsequent Event [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate		2.00%

[1] $2 million of the line of credit is reserved to guarantee the obligation of Orbital Gas Systems, Ltd. under its Overdraft Facility.

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Note 8 - Overdraft Facility and Working Capital Line of Credit - Revolving Line of Credit (Details) £ in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2018 USD ($)		Dec. 31, 2018 GBP (£)
General Intangibles [Member] | CUI, Inc [Member]
CUI Inc. and CUI-Canada General intangibles, net	$ 8,546
Accounts Receivable [Member] | CUI, Inc [Member]
CUI Inc. and CUI-Canada General intangibles, net	9,102
Inventory [Member] | CUI, Inc [Member]
CUI Inc. and CUI-Canada General intangibles, net	11,403
Equipment [Member] | CUI, Inc [Member]
CUI Inc. and CUI-Canada General intangibles, net	1,438
Multi-currency Variable Rate Overdraft Facility [Member] | Wells Fargo Bank N.A [Member]
Line of credit facility, maximum borrowing capacity	52,021		£ 1,344
Multi-currency Variable Rate Overdraft Facility [Member] | Wells Fargo Bank [Member]
Line of credit facility, maximum borrowing capacity	5,000	[1]
Line of credit facility	$ 979	[2]
Line of credit facility, expiration date	Jun. 01, 2019
Line of credit facility, Fixed interest rate	2.25%		2.25%
Line of credit facility, variable interest rate	2.25%

[1] $2 million of the line of credit is reserved to guarantee the obligation of Orbital Gas Systems, Ltd. under its Overdraft Facility.

[2] As a result of the Company's cash management system, checks issued but not presented to the bank for payment may create negative book cash balances. When those checks are presented for payment if there isn't sufficient cash in the bank account, the checks would be honored by the bank with a corresponding increase to CUI Inc's draw on its line of credit. The balance shown above includes the effect of a $27 thousand negative book cash balance at CUI Inc. as of December 31, 2018.

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Note 9 - Commitments and Contingencies (Details Textual) - USD ($) $ in Thousands	1 Months Ended	12 Months Ended
	Nov. 30, 2017	Dec. 01, 2020	Dec. 31, 2019	Dec. 01, 2019	Dec. 31, 2018	Dec. 01, 2018	Dec. 31, 2017	Dec. 31, 2016
Accrued Royalty and License Fees, Current					$ 17		$ 36
Accrued Liabilities, Current, Total					4,851		4,186
Sale Leaseback Transaction, Monthly Rental Payments					16
Operating Leases, Rent Expense, Total	$ 30				32
Selling, General and Administrative Expenses [Member]
Operating Leases, Rent Expense, Total							900	$ 800
CUI Japan [Member]
Operating Leases, Rent Expense, Total					3
Office and Warehouse Space in Houston [Member]
Operating Leases, Rent Expense, Total							10
Toronto Facility [Member]
Operating Leases, Rent Expense, Total					34
Scenario, Forecast [Member]
Sale Leaseback Transaction, Monthly Rental Payments			$ 51
External Sales Representatives [Member]
Accrued Liabilities, Current, Total					300		300
Chief Executive Officer [Member]
Salary and Wage, Officer, Excluding Cost of Good and Service Sold					$ 560
Deferred Compensation Arrangement with Individual, Cash Awards Granted, Percentage					125.00%
Employment Agreements, Severance Package, Term					2 years
Employment Agreements, Cost of Living Adjustments, Percentage					4.00%
Employment Agreements, Maximum Discretionary Bonus, Percentage					25.00%
Employment Agreements, Accrued Employee Compensation					$ 30		33	29
Chief Financial Officer [Member]
Salary and Wage, Officer, Excluding Cost of Good and Service Sold					$ 350
Deferred Compensation Arrangement with Individual, Cash Awards Granted, Percentage					125.00%
Employment Agreements, Severance Package, Term					1 year 180 days
Employment Agreements, Cost of Living Adjustments, Percentage					4.00%
Employment Agreements, Maximum Discretionary Bonus, Percentage					25.00%
Employment Agreements, Accrued Employee Compensation					$ 21		22	19
Chief Operating Officer [Member]
Salary and Wage, Officer, Excluding Cost of Good and Service Sold					$ 320
Deferred Compensation Arrangement with Individual, Cash Awards Granted, Percentage					125.00%
Employment Agreements, Severance Package, Term					1 year 180 days
Employment Agreements, Cost of Living Adjustments, Percentage					4.00%
Employment Agreements, Maximum Discretionary Bonus, Percentage					25.00%
Deferred Compensation Arrangement with Individual, Recorded Liability					$ 18		12	$ 5
President [Member] | Orbital Gas Systems Limited [Member]
Salary and Wage, Officer, Excluding Cost of Good and Service Sold						$ 225
Employment Agreements, Maximum Discretionary Bonus, Percentage					25.00%
Employment Agreements, Accrued Employee Compensation					$ 155		$ 40
Employment Agreements, Term					3 years
Employment Agreements, Signing Bonus					$ 30
President [Member] | Orbital Gas Systems Limited [Member] | Scenario, Forecast [Member]
Salary and Wage, Officer, Excluding Cost of Good and Service Sold		$ 275		$ 250

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Note 9 - Commitments and Contingencies - Operating Leases (Details) $ in Thousands	Dec. 31, 2018 USD ($)
2019	$ 1,482
2020	1,129
2021	1,031
2022	1,013
2023	605
Thereafter	3,307
Total	$ 8,567

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Note 10 - Stockholders' Equity (Details Textual) - USD ($)					3 Months Ended	12 Months Ended
	Oct. 23, 2017	Oct. 11, 2010	Jan. 05, 2009	May 16, 2008	Dec. 31, 2015	Dec. 31, 2018		Dec. 31, 2017		Dec. 31, 2016		Sep. 21, 2012	Sep. 29, 2009	Sep. 28, 2009	Jan. 08, 2009
Stock Compensation Expense Related to Royalties and Stock Bonuses Accrued But Not Issued						$ 3,000
Stock Issued During Period, Value, Share-based Compensation, Gross						372,000	[1],[2],[3]	$ 19,360,000	[4]	$ 686,000	[5]
Stock Issued During Period, Shares, New Issues	7,392,856
Shares Issued, Price Per Share	$ 2.80
Proceeds from Issuance or Sale of Equity, Total	$ 18,900,000							$ 18,905,000
Common Stock, Par or Stated Value Per Share						$ 0.001		$ 0.001
Stock or Unit Option Plan Expense						$ 0		$ 0		$ 200,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross						0		0		0
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant						0
2008 Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized				1,500,000									3,000,000	1,500,000
2008 Equity Incentive Plan [Member] | Incentive Stock Options [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Purchase Price of Common Stock, Percent				110.00%
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period				10 years
2009 Equity Incentive Plan (Executive) [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized		3,060,382
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized												330,000			4,200,000
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period			10 years
Common Stock, Par or Stated Value Per Share															$ 0.001
Over-Allotment Option [Member]
Stock Issued During Period, Shares, New Issues	964,285
Consultant For Strategic Investor Marketing Services [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Additional Shares Authorized						150,000
Director [Member]
Share-based Compensation, Total					$ 38,000
Cash Less Warrant [Member]
Proceeds from Issuance of Common Stock						$ 0
Prepaid Expenses [Member]
Stock Issued During Period, Value, Share-based Compensation, Gross						$ 24,000		$ 24,000
Accounts Payable and Accrued Liabilities [Member]
Share-based Compensation, Total								170,000		$ 176,000
Other Expense [Member]
Bonus and Royalty Accrued and Expensed								$ 170
Share-based Compensation, Total					$ 366,000					$ 176,000

[1] Excludes $24 thousand of stock compensation for stock issued in 2017 that was amortized from prepaid expense in 2018.

[2] The second phase of a 2014 consulting agreement could result in up to an additional 150,000 shares of common stock being granted subject to sales related performance criteria being achieved. At December 31, 2018, those criteria have not been achieved and no shares have been granted for the second phase of the agreement.

[3] Total excludes $3 thousand of stock compensation related to royalties that were recorded as expense but not issued and outstanding as of December 31, 2018.

[4] Does not include stock expense of $170 thousand included in accrued liabilities at December 31, 2017 for unissued stock.

[5] Does not include stock expense of $176 thousand included in accrued liabilities at December 31, 2016.

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Note 10 - Stockholders' Equity - Common Stock Issuances (Details) - USD ($) $ in Thousands		12 Months Ended
		Dec. 31, 2018		Dec. 31, 2017		Dec. 31, 2016
Total no. of shares (in shares)		146,030		7,490,008		110,629
Grant date fair value recorded at issuance		$ 372	[1],[2],[3]	$ 19,360	[4]	$ 686	[5]
Four Board Members [Member] | January, April, July and October 2018 [Member]
Total no. of shares (in shares)		72,157
Grant date fair value recorded at issuance		$ 175
Four Board Members [Member] | January and July 2018 [Member]
Grant date fair value recorded at issuance	[6]	$ 183
Three Employees [Member] | January and July 2018 [Member]
Total no. of shares (in shares)		68,118
James McKenzie, Related Party [Member] | July and December, 2018 [Member]
Total no. of shares (in shares)		5,755
Grant date fair value recorded at issuance	[1]	$ 14
James McKenzie, Related Party [Member] | January, April, August and October 2017 [Member]
Total no. of shares (in shares)				49,980
Grant date fair value recorded at issuance	[7]			$ 200
James McKenzie, Related Party [Member] | January and July 2016 [Member]
Total no. of shares (in shares)						56,782
Grant date fair value recorded at issuance						$ 381
James McKenzie, Related Party [Member] | January, March, September, and December 2016 [Member]
Total no. of shares (in shares)						6,275
Grant date fair value recorded at issuance						$ 38
Three Employee [Member] | January, February and June 2017 [Member]
Total no. of shares (in shares)				28,634
Grant date fair value recorded at issuance	[7]			$ 182
Three Employee [Member] | February and April 2016 [Member]
Total no. of shares (in shares)						718
Grant date fair value recorded at issuance	[8]
Consultants [Member] | January and December 2017 [Member]
Total no. of shares (in shares)				3,293
Grant date fair value recorded at issuance	[9]			$ 16
Two Employees [Member] | January and February 2017 [Member]
Total no. of shares (in shares)				245
Grant date fair value recorded at issuance	[8]
Various Third-party Shareholders [Member] | May 2017 [Member]
Total no. of shares (in shares)				15,000
Grant date fair value recorded at issuance				$ 57
Five Board [Member] | October 2017 [Member]
Total no. of shares (in shares)						7,392,856
Grant date fair value recorded at issuance	[10]					$ 18,905
Four Employee [Member] | January, April, July, and October 2016 [Member]
Total no. of shares (in shares)						46,854
Grant date fair value recorded at issuance	[11]					$ 267

[1] Excludes $24 thousand of stock compensation for stock issued in 2017 that was amortized from prepaid expense in 2018.

[2] The second phase of a 2014 consulting agreement could result in up to an additional 150,000 shares of common stock being granted subject to sales related performance criteria being achieved. At December 31, 2018, those criteria have not been achieved and no shares have been granted for the second phase of the agreement.

[3] Total excludes $3 thousand of stock compensation related to royalties that were recorded as expense but not issued and outstanding as of December 31, 2018.

[4] Does not include stock expense of $170 thousand included in accrued liabilities at December 31, 2017 for unissued stock.

[5] Does not include stock expense of $176 thousand included in accrued liabilities at December 31, 2016.

[6] Includes bonus and royalty of $170 thousand that was accrued and expensed in 2017.

[7] Includes bonuses and royalty of $176 thousand that were accrued and expensed in 2016.

[8] The Company received $0 for the issuance in the cashless option exercises.

[9] Amount includes $24 thousand that was included in prepaid expense at December 31, 2017.

[10] Includes $38 thousand of stock-based expense related to 2015 director fees accrued and expensed in the fourth quarter of 2015.

[11] Bonuses of $366 thousand were accrued and expensed in the fourth quarter of 2015.

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Note 10 - Stockholders' Equity - Summary of Warrants and Options Issued to Employees and Directors (Details) - Employee Stock Options And Warrants [Member] - USD ($) $ / shares in Units, $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Balance (in shares)	964,180	966,681	970,847
Balance, weighted average exercise price (in dollars per share)	$ 6.32	$ 6.32	$ 6.32
Balance, weighted average remaining contract life (Year)	3 years 233 days	4 years 204 days	5 years 200 days	6 years 197 days
Balance, aggregate intrinsic value			$ 751	$ 850
Exercised (in shares)		(2,001)	(2,333)
Exercised, weighted average exercise price (in dollars per share)		$ 5.70	$ 5.46
Exercised, aggregate intrinsic value			$ 4
Expired (in shares)	(40,282)	(500)	(1,833)
Expired, weighted average exercise price (in dollars per share)	$ 6.47	$ 4.58	$ 5.40
Balance (in shares)	923,898	964,180	966,681	970,847
Balance, weighted average exercise price (in dollars per share)	$ 6.32	$ 6.32	$ 6.32	$ 6.32
Exercisable (in shares)	923,898	964,180	966,681
Exercisable, weighted average exercise price (in dollars per share)	$ 6.32	$ 6.32	$ 6.32
Exercisable, weighted average remaining contract life (Year)	3 years 233 days	4 years 204 days	5 years 200 days
Exercisable, aggregate intrinsic value			$ 751

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Note 11 - Related Party Transactions (Details Textual) - USD ($)	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Chief Executive Officer [Member]
Salary and Wage, Excluding Cost of Good and Service Sold, Total	$ 213,000	$ 200,000	$ 188,000
Cash Bonus	150,000	150,000	113,000
Allocated Share-based Compensation Expense, Total			50,000
Other Labor-related Expenses	49,000	41,000	30,000
Employee-related Liabilities, Total	13,000	13,000
Change in Excess of Bonus or Salary	50,000
Test Products International Inc. [Member]
Notes Receivable, Related Parties, Current	300,000
IED, Inc [Member] | Convertible Debt [Member]
Debt Instrument, Periodic Payment, Total	$ 300,000	$ 300,000	$ 300,000

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Note 12 - Accumulated Other Comprehensive Income (Loss) - Components of Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Foreign currency translation adjustment	$ (4,396)	$ (3,510)	$ (5,590)
Accumulated other comprehensive loss	$ (4,396)	$ (3,510)	$ (5,590)

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Note 13 - Capitalized Interest - Components of Interest Expense and Capitalized Interest (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Interest cost incurred	$ 511	$ 521	$ 492
Interest cost capitalized - property and equipment	(9)	(21)	(25)
Interest expense, net	$ 502	$ 500	$ 467

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Note 14 - Income Taxes (Details Textual) - USD ($) $ in Thousands		12 Months Ended
	Dec. 22, 2017	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Deferred Tax Liabilities, Indefinite-lived Intangible Assets		$ 1,900
Deferred Tax Liabilities, Finite-lived Intangible Assets		800
Deferred Tax Assets, Valuation Allowance, Total		20,281	$ 17,662
Valuation Allowance, Deferred Tax Asset, Increase (Decrease), Amount		2,600	(5,800)	$ 2,700
Operating Loss Carryforwards, Total		$ 67,800	62,800	$ 2,200
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent		21.00%
Effective Income Tax Rate Reconciliation, Percent, Total	26.00%
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability	$ (887)
Deferred Tax Liabilities, Gross, Total		$ 2,838	3,100
Foreign Tax Authority [Member]
Deferred Tax Liabilities, Gross, Total			$ 0

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Note 14 - Income Taxes - Consolidated Income From Continuing Operations Before Income Taxes (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
U.S. operations	$ (5,187)	$ (7,420)	$ (8,442)
Foreign operations	(12,344)	(6,775)	1,214
Loss before taxes	$ (17,531)	$ (14,195)	$ (7,228)

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Note 14 - Income Taxes - Income Tax Provision (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Current:
Federal
State and local	81	60	81
Foreign	65	101	64
Total current provision	146	161	145
Deferred:
Federal		(887)
State and local
Foreign	(352)	(880)	(107)
Total deferred (benefit)	(352)	(1,767)	(107)
Total income tax (benefit) expense	$ (206)	$ (1,606)	$ 38

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Note 14 - Income Taxes - Reconciliation of the Federal Statutory Tax Rate to the Recorded Tax Provision (benefit) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Computed federal income taxes at the statutory rate (benefit)	$ (3,681)	$ (4,826)	$ (2,457)
State income taxes (net of federal benefit)	63	39	53
Permanent tax differences	(122)	(262)	(415)
Foreign tax rates and tax credits differing from USA	763	887	4
Purchased goodwill impairment	828	1,072
Research and development credits	(202)
Net operating loss and other adjustment	(717)	(256)	216
Change in enacted tax rates applied to foreign deferred taxes	242	122	(38)
Change in valuation allowance	2,620	2,505	2,675
Change in enacted tax rates applied to USA deferred taxes		(887)
Total income tax (benefit) expense	$ (206)	$ (1,606)	$ 38

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Note 14 - Income Taxes - Significant Portions of Deferred Tax Assets and Liabilities (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Dec. 31, 2017
Deferred tax assets:
Net operating loss carryforwards	$ 19,754	$ 16,905
Contribution and other carryforwards	197	218
Inventory and accounts receivable reserves	668	549
Other	578	676
Valuation allowance	(20,281)	(17,662)
Deferred tax assets after valuation allowance	916	686
Deferred tax liabilities
Intangible assets	(2,765)	(2,914)
Property, plant and equipment	(73)	(186)
Total deferred tax liabilities	(2,838)	(3,100)
Net deferred tax liabilities	$ (1,922)	$ (2,414)

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Note 14 - Income Taxes - Net Deferred Tax Liability (Details) - USD ($) $ in Thousands	Dec. 31, 2018	Jan. 01, 2018	Dec. 31, 2017
Noncurrent deferred tax assets
Noncurrent deferred tax liability	(1,922)	$ (2,241)	(2,414)
Net deferred tax liabilities	$ (1,922)		$ (2,414)

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Note 15 - Concentrations (Details Textual) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Concentration Risk, Percentage	100.00%	100.00%	100.00%
Accounts Receivable, Gross	$ 14.6	$ 11.0
UNITED KINGDOM
Concentration Risk, Percentage	16.00%	17.00%	20.00%
CHINA
Concentration Risk, Percentage	6.00%	7.00%	7.00%
Sales Revenue, Net [Member] | Customer Concentration Risk [Member] | Two Customers [Member]
Concentration Risk, Percentage	36.00%	36.00%
Sales Revenue, Net [Member] | Customer Concentration Risk [Member] | Digi Key Electronics [Member]
Concentration Risk, Percentage	24.00%	26.00%	19.00%
Sales Revenue, Net [Member] | Customer Concentration Risk [Member] | Future Electronics [Member]
Concentration Risk, Percentage	12.00%	10.00%
Sales Revenue, Net [Member] | Geographic Concentration Risk [Member] | UNITED KINGDOM
Concentration Risk, Percentage	16.00%	17.00%	20.00%
Accounts Receivable [Member] | Customer Concentration Risk [Member] | GL Industrial Services UK Ltd. [Member]
Concentration Risk, Percentage		11.00%
Accounts Receivable [Member] | Customer Concentration Risk [Member] | DigiKey Electronics in Power and Electro Mechanical Segment [Member]
Concentration Risk, Percentage		10.00%
Accounts Receivable [Member] | Customer Concentration Risk [Member] | Two Customers [Member]
Concentration Risk, Percentage		21.00%
Accounts Receivable [Member] | Geographic Concentration Risk [Member] | UNITED KINGDOM
Concentration Risk, Percentage	29.00%	28.00%	27.00%
Accounts Receivable [Member] | Geographic Concentration Risk [Member] | CANADA
Concentration Risk, Percentage		11.00%
Accounts Receivable [Member] | Geographic Concentration Risk [Member] | CHINA
Concentration Risk, Percentage			11.00%
Accounts Receivable [Member] | Geographic Concentration Risk [Member] | ITALY
Concentration Risk, Percentage			10.00%
Cost of Goods, Total [Member] | Supplier Concentration Risk [Member]
Concentration Risk, Percentage	0.00%		0.00%
Cost of Goods, Total [Member] | Supplier Concentration Risk [Member] | One Supplier [Member]
Concentration Risk, Percentage		12.00%
Workforce Subject to Collective Bargaining Arrangements [Member] | Labor Force Concentration Risk [Member]
Concentration Risk, Percentage	20.00%
Workforce Subject to Collective Bargaining Arrangements [Member] | Labor Force Concentration Risk [Member] | CANADA
Concentration Risk, Percentage	55.00%

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Note 16 - Subsequent Events (Details Textual) - USD ($)			1 Months Ended	12 Months Ended
	Mar. 13, 2019	Jan. 14, 2019	Mar. 17, 2019	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Stock Issued During Period, Shares, Issued for Services				1,844	63,602	25,811
Stock Issued During Period, Value, Issued for Services					$ 455,000	$ 308,000
Subsequent Event [Member]
Conversion of Notes Receivable, Equity Issued			$ 655,000
Subsequent Event [Member] | VPS [Member]
Equity Method Investment, Ownership Percentage			20.00%
Payments to Acquire Equity Method Investments			$ 345,000
Subsequent Event [Member] | CUI Inc And CUI Canada [Member] | Bank of America [Member] | Revolving Credit Facility [Member]
Debt Instrument, Term	2 years
Line of Credit Facility, Sub Limit Borrowing Capacity	$ 3,000,000
Line of Credit Facility, Maximum Borrowing Capacity	$ 10,000,000
Subsequent Event [Member] | CUI Inc And CUI Canada [Member] | Bank of America [Member] | Revolving Credit Facility [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate	2.00%
Subsequent Event [Member] | Three Independent Board Members [Member]
Stock Issued During Period, Shares, Issued for Services		29,067
Stock Issued During Period, Value, Issued for Services		$ 38,000