NATURE OF OPERATIONS, BASIS OF PRESENTATION AND COMPANY CONDITIONS

Nature of Operations

CUI Global Inc. (CUI Global or "the Company") is a platform company composed of

two

segments, the Power and Electromechanical segment and the Energy segment, along with an "Other" category.

The Power and Electromechanical segment consists of the wholly owned subsidiaries: CUI, Inc. (CUI), based in Tualatin, Oregon; CUI Japan, based in Tokyo, Japan; CUI-Canada, based in Toronto, Canada; and the entity holding the corporate building, CUI Properties. All

three

operating subsidiaries are providers of power and electromechanical components for Original Equipment Manufacturers (OEMs).

The Power and Electromechanical segment aggregates its product offerings into

two

categories:

power solutions

- including external and embedded ac-dc power supplies, dc-dc converters and basic digital point of load modules, 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.

The Company’s Energy segment consists of the Orbital Gas Systems Ltd. subsidiary (Orbital-UK) based in Stone, Staffordshire in the United Kingdom and the Orbital Gas Systems, North America, Inc. subsidiary based in Houston, Texas, collectively referred to as "Orbital." Orbital has 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 the Company's 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.

The Other category represents the remaining activities that are

not

included as part of the other reportable segments and primarily represents corporate activity.

Basis of Presentation

The accompanying interim unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim financial information, which includes condensed consolidated financial statements. Accordingly, they do

not

include all the information and notes necessary for a comprehensive presentation of financial position and results of operations and should be read in conjunction with the Company's Annual Report on Form

-K for the year ended

December

31,

2018.

The condensed consolidated balance sheet as of

December 31, 2018

has been derived from the audited financial statements as of that date included in the Company's Annual Report on Form

-K for the year ended

December 31, 2018.

It is management's opinion that all material adjustments (consisting of normal recurring adjustments) have been made, which are necessary for a fair financial statement presentation. All intercompany accounts and transactions have been eliminated in consolidation. The results for the interim period are

not

necessarily indicative of the results to be expected for the remaining quarters or year ending

December

31,

2019.

Reconciliation of Cash, Cash Equivalents, and Restricted Cash on Condensed Consolidated Statements of Cash Flows

(in thousands)	For the Six Months Ended June 30,
	2019		2018
Cash and cash equivalents at beginning of period	$	3,979	$	12,646
Restricted cash at beginning of period		523		—
Cash, cash equivalents and restricted cash at beginning of period	$	4,502	$	12,646

Cash and cash equivalents at end of period	$	2,635	$	7,312
Restricted cash at end of period		523		523
Cash, cash equivalents and restricted cash at end of period	$	3,158	$	7,835

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-method type contracts, inventory valuation, trading securities, warranty reserves, refund liabilities/returns allowances, 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 Company had losses of

$5.3

million and cash used in operating activities of

$4.3

million during the

six

months ended

June 30, 2019.

As of

June 30, 2019,

the Company's accumulated deficit is

$126.4

million.

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 the Company's expected profitability.

Management believes the Company's present cash flows indicate there is substantial doubt as to the Company's ability to continue as a going concern as they 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. As part of this plan the Company obtained a new line of credit from Bank of America for a

$10.0

million credit facility, which closed on

April 18, 2019.

For more information on the Company's new line of credit, see Note

Working Capital Line of Credit. Including the Company's cash balance, the Company further has

$9.0

million of positive working capital primarily related to trade accounts receivable and the Company's inventory less current liabilities that the Company will manage in the next

twelve

months. In addition, the Company is taking actions to align its cost structure to its forecasted revenue. Considering the above factors, the new line of credit, and additional measures available to generate cash, management believes the Company will have sufficient cash flows to meet its obligations for the

twelve

-month period from the date the financial statements are available to be issued. However, our ability to meet our obligations is dependent on the Company's ability to execute on its plans, of which success cannot be assured. As such, substantial doubt has

not

been alleviated.