Note 3 - Investments and Fair Value Measurements

12 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Text Block]

INVESTMENTS AND FAIR VALUE MEASUREMENTS

The Company’s fair value hierarchy for its cash equivalents, marketable securities and derivative instruments as of

December

31,

2019

and

December

31,

2018,

respectively, was as follows:

(In thousands)
December 31, 2019	Level 1		Level 2		Level 3		Total
Money market securities	$	17	$	—	$	—	$	17
Total assets	$	17	$	—	$	—	$	17

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

(

) Investment is a

-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)	Convertible Note
	Receivable
Balance at December 31, 2018	$	655
Conversion to common stock of VPS		(655	)
Balance at December 31, 2019	$	—

There were

transfers between Level

and Level

2019

as determined at the end of the reporting period.

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

The fair value measurements and models were classified as non-recurring Level

measurements.

The convertible notes receivable balance was with Virtual Power Systems ("VPS") and 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 had neither increased significantly or decreased significantly.

Equity Method Investment in VPS

March 30, 2019,

the Company converted its

$0.7

million in notes receivable into preferred stock of VPS. In addition, the Company contributed

$0.3

million of cash and

$2.5

million of other assets, as well as

$1.8

million of future expenditures recorded as liabilities by the Company, of which

$1.7

million were paid in

2019.

In return, the Company acquired a

21.4%

ownership share of VPS. During the

three

months ended

June 30, 2019,

the Company recorded a

$0.6

million gain based on the fair value of the non-cash assets contributed as part of the investment in VPS, which is included in discontinued operations. As of

December 31, 2019,

the Company's ownership percentage has been reduced to

20.58%

following VPS's issuance of additional equity. Based on current accounting guidance, the Company will record its share of VPS's income or loss under the equity method of accounting. Under the equity method of accounting, results will

not

be consolidated, but the Company will record a proportionate percentage of the profit or loss of VPS as an addition to or a subtraction from the VPS investment asset. The VPS investment basis at

December 31, 2019

was

$4.9

million as reflected on the consolidated balance sheets. A summary of the unaudited financial statements of the affiliate as of

December 31, 2019

is as follows:

(In thousands)
Current assets	$	3,739
Non-current assets		4,306
Total Assets		8,045

Current liabilities	$	396
Non-current liabilities		2,725
Stockholders' equity		4,924
Total liabilities and stockholders' equity	$	8,045

Operating results since equity-method investment acquired.
Revenues	$	154
Operating loss		(5,151	)
Net loss	$	(5,151	)
Other comprehensive profit (loss):
Foreign currency translation adjustment		—
Comprehensive net loss		(5,151	)
Add back excluded acquisition intangible amortization, net		86
Adjusted comprehensive loss	$	(5,065	)
Company share of adjusted net loss at 20.58%	$	(1,043	)
Equity investment in affiliate	$	4,865

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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