LEASES

Effective

January 1, 2019,

the Company implemented the new accounting guidance on leases found in ASC

842,

Leases. As part of its transition, the Company elected to utilize the effective date method of implementation. Under the effective date method, the Company includes the new required disclosures for the current period and provides the disclosures required by the previous guidance found in ASC

840

for the prior year comparative periods. In addition, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classifications and allowed the Company to exclude leases with an initial term of

months or less from being recorded on the Company's condensed consolidated balance sheet; the Company recognizes lease expense for these short-term leases on a straight-line basis over the lease term. The Company also reviewed outstanding service contracts to determine if any of the Company's service contracts contained an embedded lease. The Company did

not

identify any new leases through this process. The new lease accounting guidance also changes the name of leases formerly referred to as Capital leases under ASC

840

to Financing leases under ASC

842.

December 2018,

the Company entered into a sale-lease back transaction to sell and lease back the CUI, Inc. Tualatin facility. The Company sold the Tualatin headquarters and warehouse for

$8.1

million at a deferred gain of

$2.9

million and has leased back the facility for approximately

$53

thousand per month until

December 2022.

The lease includes

two

options to renew the term for periods of

five

years each at the then prevailing market rate per rentable square foot for the premises. As a result of the implementation and transition to the accounting guidance in ASC

842,

the deferred gain was recognized on

January 1, 2019

as a credit to retained earnings.

Orbital-UK has a number of operating leases on vehicles, equipment, and accommodations for visiting personnel. During the

three

months ended

March 31, 2019,

the total monthly rent on these leases was approximately

$31

thousand.

The Company rents office and warehouse space in Houston, Texas through

December 2022.

During the

three

months ended

March 31, 2019,

rent expense on this lease was approximately

$30

thousand per month. The lease includes

two

options to renew the term for periods of

five

years each at the then prevailing market rate per rentable square foot for the premises.

March 2015,

as part of the Tectrol acquisition, the Company leased the Toronto facility though

March 2020.

During the

three

months ended

March 31, 2019,

the monthly rent of this facility was approximately

$33

thousand per month. CUIC has the option to extend the term of the lease for a further period of

five

years (renewal term is

March 2020

February 2025).

The Company has already taken the position that the renewal is probable to be exercised so the renewal period is already included in the lease liability balance using the current monthly payment (since the new amount remains unknown).

Additionally, CUI Japan leases office space. During the

three

months ended

March 31, 2019,

the monthly base rent for this facility was approximately

thousand. There is

not

a specific renewal option in the lease. Renewal will be negotiated at market rates at the end of the term.

Consolidated rental expense was

$0.4

million for the

three

months ended

March 31, 2019

and is included in selling, general and administrative on the condensed consolidated statement of operations.

The following is an analysis of the right-of-use assets under operating and financing leases:

(In thousands)	Balance Sheet Classification	March 31, 2019

Operating lease assets	Right of use assets - operating leases	$	7,422
Finance lease assets	Property and equipment, net of accumulated depreciation		7

Total right of use assets		$	7,429

The following summarizes the current and long-term portion of operating lease obligations:

(In thousands)	March 31, 2019

Operating lease obligations - current portion	$	975
Operating lease obligations - less current portion		6,589

Total operating lease obligations	$	7,564

Future minimum operating lease obligations at

March 31, 2019

are as follows:

(In thousands)
2019	$	1,107
2020		1,375
2021		1,325
2022		1,315
2023		901
Thereafter		3,652

Interest portion		(2,111	)

Total operating lease obligations	$	7,564

Financing leases of

thousand of lease obligations and

thousand of right of use assets were deemed immaterial for further detail disclosures.

Total lease cost and other lease information is as follows:

	Three Months Ended March 31, 2019
(in thousands)
Operating lease cost	$	360
Short-term lease cost		38
Variable lease cost		58
Sublease income		(8	)
Total lease cost	$	448

Other information
Cash paid for amounts included in the measurement of lease obligations:
Operating cash flows from operating leases	$	(429	)
Right-of-use assets obtained in exchange for new operating lease obligations	$	7,703
Weighted-average remaining lease term - operating leases (in years)		7.6
Weighted-average discount rate - operating leases		6.0	%

Variable lease costs primarily include common area maintenance costs, real estate taxes and insurance costs passed through to the Company from lessors. The following lease disclosures as of

December 31, 2018

were required under previous accounting guidance under ASC

840

and under the transition guidance of ASC

842:

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.

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.

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

thousand.

Rental expense was

$1.2

million in

2018

and is included in selling, general and administrative on the statement of operations.

Future minimum operating lease obligations as of

December 31, 2018

are as follows:

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