NOTE 6 – RELATED PARTY TRANSACTIONS

During the periods ended June 30, 2019 and 2018, the Company was involved in various transactions with related parties. A summary of transactions and related balances are as follows. The table at the end of this note should be used in referencing all below paragraphs.

K&R, LLC ("K&R") and 7100 Grade Lane, LLC ("7100 LLC"):

The Company is involved in various transactions with K&R and 7100 LLC, which are wholly-owned by Kletter Holdings LLC, the sole member of which was Harry Kletter, the Company's founder and former Chief Executive Officer. After Mr. Kletter's passing in January 2014, Orson Oliver assumed the roles of executor of Mr. Kletter’s estate and President of Kletter Holdings LLC. Mr. Oliver was the Company's Chairman of the Board and interim Chief Executive Officer from 2014 until his resignation on March 26, 2018. Mr. Oliver continues to be a member of the Company's Board of Directors. As of June 30, 2019, Mr. Kletter’s estate, K&R and the Harry Kletter Family Limited Partnership, collectively, beneficially own in excess of 20% of the Company's issued and outstanding shares.

The Company leased a portion of the Louisville, Kentucky facility from 7100 LLC (previously from K&R) under an operating lease, the "7100 Prior Lease," expiring December 2017. Effective October 1, 2017, the Company entered into a new lease agreement with 7100 LLC for the same property (the "7100 Lease") that terminates and replaces the 7100 Prior Lease. See Note 4 – Lease Commitments for additional information relating to the rent and lease agreements with K&R.

Between 2013 and 2017, the Company borrowed, net of repayments, an amount totaling $1.5 million from K&R and 7100 LLC.

As of June 30, 2019 and 2018, the Company had balances related to K&R and 7100 LLC pertaining to refundable lease and property deposits due to and from the Company, rents payable from the Company, notes payable due from the Company, accrued interest due from the Company, interest expense, and rent expense.

On February 29, 2016, K&R assigned its interest in the 7100 Lease to another entity, 7100 LLC, also controlled by Mr. Kletter’s estate. At that time, the total amount due to the estate’s various entities, which amounted to approximately $1.5 million, became a subordinated, unsecured debt (the "Kletter Notes") owed by the Company. A portion of the amount, approximately $620.3 thousand, was owed to K&R, with the remaining amount, approximating $883.8 thousand, owed to 7100 LLC. This amount of $1.5 million represents all net amounts due to Kletter estate entities as of February 29, 2016 with the exception of a $32.0 thousand deposit owed by K&R to the Company. If the Company sells property it owns at 7110 Grade Lane in Louisville, Kentucky, the Company shall make a principal payment to K&R of $500.0 thousand. Otherwise, all remaining principal is due at maturity. The interest rate on the Kletter Notes was 5.0%. The maturity date was December 31, 2020. The Kletter Notes were subject to intercreditor agreements between the respective Note holder and MidCap until November 2018 when the MidCap loans were paid off.

On March 1, 2019, the Company entered into first amendments to the Kletter Notes. The Company made a prepayment in the amount of $500.0 thousand, increased the interest rate of the Kletter Notes from 5.0% to 7.0% and extended the maturity date of the Kletter Notes from December 31, 2020 to December 31, 2022, among other things. Until maturity on December 31, 2022, the Kletter Notes are subject to intercreditor agreements between the respective Note holder and BofA.

On June 23, 2017, the Company entered into two agreements (referred to as the “Handler Agreement” and the “Crane Agreement”) with K&R, each for the purchase of equipment to be used in the operation of the Company’s business.

Under the Handler Agreement, the Company purchased a hydraulic scrap handler from K&R for a purchase price of $90.0 thousand, with a $9.0 thousand down payment and a 24-month promissory note ("Handler Note") in the face principal amount of the remaining $81.0 thousand. The Handler Note was interest free and provided for payments in equal monthly installments of $3.4 thousand. Under the Handler Note, payments commenced on July 1, 2017. Upon a default, the Handler Note will bear interest at 1% per annum.

Under the Crane Agreement, the Company purchased a 2011 Komatsu crane from K&R for a purchase price of $60.0 thousand, with a $12.0 thousand down payment and a 24-month promissory note ("Crane Note") in the face principal amount of the remaining $48.0 thousand. The Crane Note was interest free and provided for payments in equal monthly installments of $2.0 thousand. Under the Crane Note, payments commenced on July 1, 2017. Upon a default, the Crane Note will bear interest at 1% per annum.

The Crane Note and the Handler Note were each secured by a security interest in the subject equipment and any sale proceeds the Company derives from the equipment. As of June 30, 2019, all amounts related to the Crane Note and the Handler Note were paid.

The Company entered into an agreement and promissory note (the "Back Rent Agreement"), effective October 1, 2017, to pay 7100 LLC $345.8 thousand for back rent past due and owed under the 7100 Prior Lease with an initial payment of $100.0 thousand paid at the signing of the Back Rent Agreement with six consecutive monthly payments of $41.0 thousand each, beginning November 1, 2017.

LK Property Investments LLC ("LK Property"):

LK Property is an entity principally owned by Daniel M. Rifkin, CEO of MetalX LLC ("MetalX"), a scrap metal recycling company headquartered in Waterloo, Indiana, and the principal owner of Recycling Capital Partners, LLC ("RCP"). On April 30, 2015, the Company entered into a lease agreement with LK Property, for a portion of the 4.4 acre parcel of real estate located at 6709 Grade Lane, Louisville, Kentucky in the amount of $3.0 thousand per month. The Company was required to reimburse the lessor for 40% of the property taxes on the parcel during the term. The lease terminated on April 14, 2019. The Company entered into a four month extension that terminates August 15, 2019. The monthly payment during the extension is $7.5 thousand per month. The Company paid $30.0 thousand at the time of extension for the aggregate rental due for the entire term of the extension. The Company is required to reimburse the lessor for 40% of the property taxes on the parcel during the term.

MetalX:

During 2019, the Company received revenue from MetalX related to scrap sales. For additional information regarding MetalX, see Note 9 – Financing and Related Matters.

Related party balances, as of the date set forth in the footnotes, are as follows, in thousands:

		2019		2018
K&R and 7100 LLC:
Deposit amounts owed to the Company by related parties	(1)	$	42	$	42
Prepaid expenses to related parties	(1)		38		43
Operating lease right-of-use asset	(4)		4,881		—
Notes payable to related parties	(3)		1,004		1,536
Operating lease liability	(5)		4,881		—
Facility rent expense to related parties	(6)		225		225
Interest expense to related parties	(6)		36		38

LK Property:
Lease deposit to LK Property	(1)	$	3	$	3
Prepaid expenses to related parties	(1)		11		3
Accounts payable to LK Property	(2)		2		2
Rent expense to LK Property*	(6)		22		18

MetalX:
Revenue from product sales to MetalX	(6)		49		—

*Excludes amounts reimbursed to LK Property for utilities and property tax.

(1) Included in receivable and other assets from related parties on the Condensed Consolidated Balance Sheets; balances are as of June 30, 2019 and December 31, 2018.

(2) Included in payable and accrued expenses to related parties on the Condensed Consolidated Balance Sheets; balances are as of June 30, 2019 and December 31, 2018.

(3) Included in current maturities of long-term debt, related parties and long-term debt, related parties on the Condensed Consolidated Balance Sheets; balance is as of June 30, 2019 and December 31, 2018.

(4) Included in operating lease right-of-use assets, related parties on the Condensed Consolidated Balance Sheets; balances are as of June 30, 2019 and December 31, 2018.

(5) Included in current maturities of operating lease liabilities and operating lease liabilities, related parties on the Condensed Consolidated Balance Sheets; balances are as of June 30, 2019 and December 31, 2018.

(6) Included in the Condensed Consolidated Statements of Operations; amounts are for the six months ended June 30, 2019 and June 30, 2018.