##### 



Exhibit 10.49
 LOAN AGREEMENT
   ADVANCED ENVIRONMENTAL RECYCLING TECHNOLOGIES, INC.
 a Delaware corporation
  LIBERTY BANK OF ARKANSAS




---



##### 



Agreement Borrower Lender
    ARTICLE I
DEFINITIONS
 Definitions
      1




---



##### 



Weyerhaeuser
 Exhibit
A
        2




---



##### 



Exhibit
B
       3




---



##### 



4




---



##### 



5




---



##### 



6




---



##### 



7




---



##### 



8
                   9




---



##### 



10




---



##### 



Accounting Matters
 Other Definitional Provisions
 ARTICLE II
ADVANCES
 Revolving Credit Advances
 The Revolving Credit Note
 11




---



##### 



Repayment of Revolving Credit Advances
 Interest
 Borrowing Procedure
 General Provisions Regarding Interest; Etc
 12
         Unused Facility Fee
 Use of Proceeds
 ARTICLE III
PAYMENTS
 Method of Payment
 Prepayments
 Voluntary Prepayments
 Mandatory Prepayment
 Lockbox and Account Collections Lockbox Depository Account
  13




---



##### 



ARTICLE IV
SECURITY
 Collateral Collateral
 Setoff
 ARTICLE V
CONDITIONS PRECEDENT
 Initial Extension of Credit
 Resolutions
 14




---



##### 



Incumbency Certificate
 Constituent Documents
 Governmental Certificates
 Revolving Credit Note
 Security Documents
 Financing Statements
 Guaranty
 Landlord Waivers
 Insurance Matters
 UCC Search
 Opinion of Counsel
 Attorneys Fees and Expenses
 15




---



##### 



Additional Items
 All Extensions of Credit
 Request for Advance
 No Default, Etc
 Representations and Warranties
 Additional Documentation
 ARTICLE VI
REPRESENTATIONS AND WARRANTIES
  Corporate Existence
 Financial Statements; Etc
 16




---



##### 



Action; No Breach
 Operation of Business
 Litigation and Judgments
 Rights in Properties; Liens
 Enforceability
 Approvals
 17




---



##### 



Debt
 Taxes
 Use of Proceeds; Margin Securities
 ERISA
 Disclosure
 Subsidiaries, Ventures, Etc
 Agreements
 18




---



##### 



Compliance with Laws
 Inventory
 Investment Company Act
 Public Utility Holding Company Act
 Environmental Matters
     19




---



##### 



Intellectual Property Disclosure Schedule
 Depository Relationship
 ARTICLE VII
AFFIRMATIVE COVENANTS
  Reporting Requirements
 Annual Financial Statements 20
        Quarterly Financial Statements
 Other Filings with the Securities and Exchange Commission
 Monthly Financial Statements
 Borrowing Base Report Exhibit A
 21




---



##### 



Compliance Certificate Exhibit B
 Management Letters
 Notice of Litigation
 Notice of Default
 ERISA Reports
 Reports to Other Creditors
 Notice of Material Adverse Change
 Accounts Receivable and Accounts Payable Aging
 22




---



##### 



Inventory Report
 Contracts in Progress
 Guarantor Financial Statement
 Proxy Statements, Etc
 General Information
 Maintenance of Existence; Conduct of Business
 Maintenance of Properties
 Taxes and Claims
 23




---



##### 



Insurance
 Inspection Rights
 Keeping Books and Records
 Compliance with Laws
 Compliance with Agreements
 Further Assurances
 ERISA
 ARTICLE VIII
NEGATIVE COVENANTS
  Debt
 24




---



##### 



Limitation on Liens
         Mergers, Etc
 Restricted Payments
 25




---



##### 



Loans and Investments
    Limitation on Issuance of Equity
 Transactions With Affiliates
 Disposition of Assets
 Sale and Leaseback
 Prepayment of Debt
 Nature of Business
 Environmental Protection
 26




---



##### 



Accounting
 No Negative Pledge
 ARTICLE IX
FINANCIAL COVENANTS
     27




---



##### 



ARTICLE X
DEFAULT
 Events of Default Event of Default
 within ten (10) days of
      28




---



##### 



29




---



##### 



Remedies Upon Default
 Performance by the Lender
 30




---



##### 



ARTICLE XI
MISCELLANEOUS
 Expenses
 INDEMNIFICATION
 31




---



##### 



Limitation of Liability
 No Duty
 Lender Not Fiduciary
 Equitable Relief
 No Waiver; Cumulative Remedies
 32




---



##### 



Successors and Assigns
 Survival
 ENTIRE AGREEMENT; AMENDMENT
 Notices
 Governing Law; Venue; Service of Process
 33




---



##### 



Counterparts
 Severability
 Headings
 Participations; Etc
 Construction
 Independence of Covenants
 WAIVER OF JURY TRIAL
 34




---



##### 



Arbitration
  AAA
   35




---



##### 



Additional Interest Provision
 36




---



##### 



[Remainder of page intentionally left blank; Signatures to follow.]
 37




---



##### 



BORROWER:Advanced Environmental Recycling Technologies, Inc.By:Stephen W. Brooks, Co-CEO and Member of Boardof Directors
 
 LENDER:Liberty Bank of ArkansasBy:P. Douglas Lynch, President




---



##### 



INDEX TO EXHIBITS
 Exhibit
    
    Description of Exhibit
    
    SectionA
    
    Borrowing Base Report
    
    
    1.1B
    
    Compliance Certificate
    
    
    1.1C
    
    Revolving Credit Note
    
    
    2.1
 INDEX TO SCHEDULES
 Description of Schedules
    
    Article/SectionConditions Precedent
    
    
    5.1
    (h)Debt
    
    
    6.9.1Disclosure Schedule
    
    VI




---



##### 



EXHIBIT A
 BORROWING BASE REPORT
 SUBJECT MONTH
 LENDER:
    
    Liberty Bank of ArkansasBORROWER:
    
    Advanced Environmental Recycling Technologies, Inc.
 Agreement
 1.
    
    
    
    ACCOUNTS RECEIVABLE (Less Discounts)a.
    
    Total Accounts Receivable (less discounts) of which
Weyerhaeuser is the account debtorb.
    
    Total Accounts Receivable (less discounts) of which
Therma-Tru is the account debtorc.
    
    Total Other Accounts Receivable (less discounts)d.
    
    TOTAL ACOUNTS RECEIVABLE2.
    
    
    
    Less Ineligible Accounts:a.
    
    Accounts that have been outstanding for more than
the lesser of (1) sixty (60) days past the original date of
invoice or the date the obligation was incurred and (2)
thirty (30) days past the first date the Account was dueb.
    
    Accounts not in compliance with applicable laws, rules, and
regulationsc.
    
    Accounts for consignments and non final salesd.
    
    Accounts evidenced by chattel paper or an instrumente.
    
    Foreign accountsf.
    
    Accounts due from the U.S. Government or




---



##### 



subdivision thereof
(with respect to which the Federal Assignment of Claims Act
of 1940 has not been complied with)g.
    
    Accounts subject to specific assignment restrictionsh.
    
    Accounts representing commissions or not created in the
ordinary course of business or not arising from an
enforceable contract, the performance of which has been
completed by the Borroweri.
    
    Accounts to which the Borrower does not have good and
indefeasible title or which are subject to any Lien except
Liens in favor of the Lenderj.
    
    Accounts subject to setoff, counterclaim, defense, dispute,
recoupment, or adjustment other than normal discounts for
prompt paymentk.
    
    Accounts with respect to which the account debtor is
insolvent or the subject of any bankruptcy or insolvency
proceeding or has made an assignment for the benefit of
creditors, suspended normal business operations, dissolved,
liquidated, terminated its existence, ceased to pay its debts
as they become due, or suffered a receiver or trustee to be
appointed for any of its assets or affairsl.
    
    Accounts with respect to which any default existsm.
    
    Accounts with respect to which the account debtor has
returned or refused to retain, or otherwise notified the
Borrower of any dispute concerning, or claimed nonconformity
of, any of the goods from the sale of which the account arosen.
    
    Accounts owed by an Affiliate, employee, officer,
director or shareholder of the Borrowero.
    
    Accounts not payable in Dollarsp.
    
    The amount of all contra accounts and other
obligations owed by the Borrower to account debtorsq.
    
    Other Ineligible Accounts disallowed by Lender in its sole discretion3.a.
    
    Net Total Ineligible Accounts of Which Weyherhauser is the Account Debtorb.
    
    Net Total Ineligible Accounts of Which Therma-Tru is the
Account Debtor




---



##### 



c.
    
    Net Total Other Ineligible Accountsd.
    
    NET TOTAL INELIGIBLE ACCOUNTS (Sum of Lines 3(a) through 3(c))4.a.
    
    Total Eligible Accounts of Which Weyherhauser is the Account
Debtor, multiplied by 85%b.
    
    Total Eligible Accounts of Which Therma-Tru is the Account
Debtor, multiplied by 85%c.
    
    Total Other Eligible Accounts, multiplied by 75%d.
    
    TOTAL ACCOUNTS COMPONENT OF BORROWING BASE (Sum of Lines 4(a)
through 4(c)INVENTORY5.
    
    
    
    Total Finished Goods Inventory, Including Finished Goods Inventory Held at Therma-Tru FacilityLess the following:a.
    
    Finished Goods Inventory not in the possession or under the
control of the Borrowerb.
    
    Finished Goods Inventory not subject to a perfected, first
priority security interest in favor of the Lenderc.
    
    Finished Goods Inventory that has been shipped or delivered
to a customer on consignment, a sale-or-return basis, or on
the basis of any similar understandingd.
    
    Finished Goods Inventory with respect to which a claim exists
disputing the Borrowers title to or right to possession of
such inventorye.
    
    Finished Goods Inventory that is not in good condition or
does not comply with any applicable law, rule, or regulation
or any standard imposed by any Governmental Authority with
respect to its manufacture, use, or salef.
    
    Other Finished Goods Inventory disallowed by Lender in its sole discretiong.
    
    TOTAL NET ELIGIBLE FINISHED GOODS INVENTORY (Sum of Lines
5(a) through 5(f)), multiplied by 75%6.
    
    
    
    Total Other InventoryLess the following:a.
    
    Inventory not in the possession or under the control of the
Borrowerb.
    
    Inventory not subject to a perfected, first priority security
interest in favor of the Lenderc.
    
    Inventory that has been shipped or delivered to a




---



##### 



customer on consignment, a sale-or-return basis, or on the basis of any
similar understandingd.
    
    Inventory with respect to which a claim exists disputing the
Borrowers title to or right to possession of such inventorye.
    
    Inventory that is not in good condition or does not comply
with any applicable law, rule, or regulation or any standard
imposed by any Governmental Authority with respect to its
manufacture, use, or salef.
    
    Other Inventory disallowed by Lender in its sole discretiong.
    
    TOTAL NET OTHER ELIGIBLE INVENTORY (Sum of Lines 6(a) through
6(f)), multiplied by 50%7.
    
    
    
    BORROWING BASE (Sum of Lines 4(d), 5(g), and 6(g))8.
    
    
    
    AMOUNT OF COMMITMENT9.
    
    
    
    PRINCIPAL BALANCE OF OUTSTANDING REVOLVING CREDIT ADVANCES10.
    
    
    
    LESSOR OF LINE 7 OR 811.
    
    
    
    AMOUNT AVAILABLE FOR REVOLVING CREDIT ADVANCES IF POSITIVE, OR AMOUNT TO BE REPAID, IF NEGATIVE (Line 10 minus Line 9)
 BORROWER:Advanced Environmental Recycling Technologies, IncBy:Print Name:Title: Chief Financial Officer




---



##### 



EXHIBIT B
 COMPLIANCE CERTIFICATE
 SUBJECT PERIOD
   Agreement
 In Compliance as ofEnd of Subject Period(Please Indicate)1.
    
    Financial Statements and Reports(a) Provide annual audited FYE financial statements
within 90 days after the last day of each year, or when otherwise due.
    
    Yes
    
    No(b) Provide quarterly financial statements within 45 days
after the last day of each quarter.
    
    Yes
    
    No(c) Provide monthly statement of income within 30 days
after the last day of each month.
    
    Yes
    
    No(d) Provide a monthly Compliance Certificate, Borrowing
Base Report, and summary accounts receivable aging, within 45 days
after the last day of each quarter.
    
    Yes
    
    No(e) Provide other required reporting timely.
    
    Yes
    
    No2.
    
    SubsidiariesNone except as listed on Disclosure Schedule
    
    Yes
    
    No




---



##### 



In Compliance as ofEnd of Subject Period(Please Indicate)3.
    
    Additional IndebtednessNone, except Indebtedness permitted by Section 8.1 of the Agreement.
    
    Yes
    
    No4.
    
    Liens and Encumbrances; Negative Pledge AgreementsNone at any time, except Liens permitted by Section 8.2 of the Agreement.
    
    Yes
    
    No5.
    
    Limitation of Acquisitions and MergersNone except those permitted by Section 8.3 of the Agreement.
    
    Yes
    
    No6.
    
    Dividends and Stock RepurchaseNone, except as permitted by Section 8.4 of the Agreement.
        
    Yes
    
    No7.
    
    Loans and InvestmentsNone, except those permitted by Section 8.5 of the Agreement.
    
    Yes
    
    No8.
    
    Issuance of EquityNone, except issuances permitted by Section 8.6 of the Agreement.
    
    Yes
    
    No9.
    
    Affiliate TransactionsNone, except issuances permitted by Section 8.7 of the Agreement.
    
    Yes
    
    No10.
    
    Disposal of Assets other than in the Ordinary Course of Business(Section 8.8 of the Agreement). None at any time without priorwritten consent of Lender.
    
    Yes
    
    No11.
    
    Sale and Leaseback Transactions (Section 8.9 of the Agreement).None at any time without prior written consent of Lender.
    
    Yes
    
    No12.
    
    Prepayment of Debt (Section 8.10 of the Agreement).None at any time without prior written consent of Lender.
    
    Yes
    
    No13.
    
    Changes in Nature of Business (Section 8.11 of the Agreement).None at any time without prior written consent of Lender.
    
    Yes
    
    No14.
    
    Environmental Laws (Section 8.12 of the Agreement).No activity likely to cause violations.
    
    Yes
    
    No15.
    
    Changes in Fiscal Year; Accounting Practices(Section 8.13 of the Agreement).None at any time without prior written consent of Lender.
    
    Yes
    
    No16.
    
    No Negative Pledge (Section 8.14 of the Agreement).None.
    
    Yes
    
    No




---



##### 



In Compliance as ofEnd of Subject Period(Please Indicate)18.
    
    Compliance with all Financial Covenants (Article IX):
    
    Yes
    
    No(if No, explain)
 BORROWER:Advanced Environmental Recycling Technologies, IncBy:Print Name:Title: Chief Financial Officer




---



##### 



SCHEDULE 6.9.1  SECURED INDEBTEDNESS SCHEDULE (PREPARED BY BORROWER)




---



##### 



DISCLOSURE SCHEDULE TO LOAN AGREEMENT
 I.
    
    Subsidiaries  AERT has no subsidiaries.II.
    
    Intellectual property  All AERT patents are listed below:
 Patent No.
    
    Title6,526,712
    
    Extruded composite interlocking corner assembly6,149,012
    
    System and method for cleaning and recovering plastic from coated fiber
polywaste5,540,244
    
    Method and apparatus for cleaning and recycling post-consumer plastic films5,351,895
    
    Separating device for cellulosic and thin plastic materials5,285,973
    
    Close tolerance shredder5,277,758
    
    Method for recycling plastic coated paper product waste and polymeric film5,268,074
    
    Method for recycling polymeric film5,213,021
    
    Reciprocating cutter assembly5,100,545
    
    Separation tank5,096,406
    
    Extruder assembly for composite materials5,096,046
    
    System and process for making synthetic wood products from recycled materials5,088,910
    
    System for making synthetic wood products from recycled materials5,084,135
    
    Recycling plastic coated paper product waste5,082,605
    
    Method for making composite material
 III.
    
    Existing debt
 Note AmountNote Holder
    
    Availability
    
    Maturity Date
    
    CollateralBrooks Investment Company
    
    $
    1,146,775
    
    
    Due on demand
    
    UnsecuredJRF
    
    
    53,071
    
    
    August 5, 2006
    
    Insurance policiesJRF
    
    
    146,757
    
    
    February 5, 2006
    
    Insurance policiesLiberty Bank
    
    
    1,932,000
    
    
    September 28, 2009
    
    Real estate and equipmentRegions Bank
    
    
    2,000,000
    
    
    March 1, 2006
    
    EquipmentFord Motor Credit
    
    
    66,777
    
    
    Various
    
    VehiclesAllstate  Note
    
    
    2,600,000
    
    
    October 1, 2017
    
    Subordinated interest in the collateral securing the bonds payableRegions/Allstate  Bonds
    
    
    12,900,000
    
    
    October 1, 2017
    
    All real estate and
improvements, fixed
assets and inventory not
pledged under a separate
loan, patents and
trademarks, pledged
revenues, personal
guarantee of Marjorie
Brooks




---



##### 



IV.
    
    Depository Banks
 First Security Bank
    
    PO Box 1009, 314 North Spring, Searcy, AR 72143First State Bank
    
    2002 Main, PO Box 105, Junction, TX 76849Regions Bank
    
    400 West Capitol, 7th Floor, Little Rock, AR 72201Liberty Bank of Arkansas
    
    PO Box 7514, Jonesboro, AR 72403