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o o o Ceres Environmental Services, Inc. NOTES TO FINANCIAL STATEMENTS 6. RETIREMENT PLAN The Company maintains a profit sharing plan~ including a 401(k) feature~ covering all full-time pemlanent employees; age 21 or older, with one year of service. The plan allows discretionary employer and employee contributions. No discretionary employer contributions were elected for the years ended December 31 ~ 2006 or 2005. 7. RELATED PARTY TRANSACTIONS AND COMMITMENTS Leases The Company leases office and yard facilities in Minnesota and Texas under a one year triple net lease dated January 1~ 2006 from a limited liability partnership owned 90 percent by the Company's stockholder and 10 percent by the Company. The Company accounts for this investment using the cost method Monthly rent is $8,000 for the Minnesota facility and $4~000 for the Texas facility. Total rent expense was $144,000 for each of the years ended December 31,2006 and 2005. Effective April 2005, the Company began leasing yard facilities in Florida under a manth-to-month lease from the Company's stockholder. Monthly rent is $2,000. Total rent expense was $24,000 and $18,000 for the years ended December 31, 2006 and 2005, respectively. The Company leases office space and equipment from unrelated parties on a month-te-month basis to satisfy short-term needs on specific construction projects. Total rent expense under these leases was $2,155,808 and $1,040,555 for the years ended December 31, 2006 and 2005, respectively. The Company leases land in California from unrelated parties on a month-to-month basis. Rent is $500 per month. Total rent expense was $6,000 for each of the years ended December 31,2906 and 2005. Contract Services, Administrative Services, and Rental Income The Company subcontracted services from a Puerto Rican company wholly owned by the stockholder. The Company incurred subcontract fees of approximately $171,315 and $616,000 for the years ended December 31, 2006 and 2005, respectively. The Company charged the related entity management fees totaling $2,643,345 and $1,511,114 far the years ended 2006 and 2005, respectively. These fees are reflected in the Company's contract revenue and direct costs. The Company charged the related entity administrative fees totaling $271,367 and $106,154 for the years ended 2006 and 2005, respectively. These fees are reflected in other income. The Company charged the related entity rent for equipment used on certain construction projects totaling $1,295,450 and $957,600 for the years ended 2006 and 2005, respectively. These fees are reflected in rental income. There are no long-term rental agreements in place at December 31, 2006 and 2005. Due from Puerto Rican Company Amounts were due from a Puerto Rican company wholly owned by the stockholder totaling $5,365,716 and $3,085,441 as of December 31, 2006 and 2005, respectively. (Continued) -8-