16.

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 transition method of adoption. Under the transition 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 (after consideration of renewal options) from being recorded on the Company's consolidated balance sheet; the Company recognizes lease expense for these short-term leases on a straight-line basis over the lease term. At

December 31, 2019

the Company did

not

factor in any renewal options when calculating its consolidated right-of-use assets and lease obligations as the options were

not

considered reasonably certain to be exercised. As most of our leases do

not

provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. The Company reviewed outstanding service contracts to determine if any of the Company's service contracts contained an embedded lease. Determining whether a contract contains a lease requires judgement. 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 leaseback 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 2028.

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 accumulated deficit.

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

December 31, 2019,

the monthly combined rent on these leases was approximately

$35

thousand.

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

December 2022

and have

one

truck lease and a copier lease. During the year ended

December 31, 2019,

rent expense on these leases were a combined approximately

$33

thousand per month. The office and warehouse 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.

Consolidated rental expense was

$1.3

million for the year ended

December 31, 2019

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

Future minimum operating lease obligations for continuing operations at

December 31, 2019

are as follows for the years ended

December 31:

(In thousands)
2020	$	1,173
2021		1,074
2022		1,063
2023		609
2024		626
Thereafter		2,688

Interest portion		(1,560	)

Total operating lease obligations	$	5,673

Total lease cost and other lease information is as follows:

	For the Year Ended December 31, 2019
(In thousands)
Operating lease cost	$	1,016
Short-term lease cost		205
Variable lease cost		122
Sublease income		(55	)
Total lease cost	$	1,288

Other information
Cash paid for amounts included in the measurement of lease obligations:
Operating cash flows used in operating leases	$	(1,210	)
Right-of-use assets obtained in exchange for new operating lease obligations	$	6,473	*
Weighted-average remaining lease term - operating leases (in years)		7.4

Weighted-average discount rate - operating leases		6.4	%

* Includes

$7.7

million recorded at the date of implementation of ASC

842

January 1, 2019

less

$1.5

million later reclassified to assets held for sale at our discontinued operations.

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

for continuing operations were required under previous accounting guidance under ASC

840

and under the transition guidance of ASC

842:

CUI executed a sale-leaseback transaction of its Tualatin, Oregon headquarters facility in

December

2018.

There was

$16

thousand of rent expense associated with this lease in

2018.

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

December

31,

2018,

the monthly combined rent on these leases was approximately

$32

thousand.

January 2015,

the Company rented office and warehouse space in Houston, Texas 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, Texas. Rent expense on this lease is approximately

$30

thousand per month.

Rental expense from continuing operations was

$0.8

million in

2018

and is included in selling, general and administrative expense on the statement of operations for the year ended

December 31, 2018.

Future minimum operating lease obligations from continuing operations as of

December 31, 2018

were as follows:

(In thousands)
2019	$	1,138
2020		1,060
2021		1,024
2022		1,013
2023		605
Thereafter		3,307
Total	$	8,147