UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





ý           QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





For
the quarterly period ended September 30, 2009





o           TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934





000-28867


(Commission
file number)











ENERGY
COMPOSITES CORPORATION


(Exact
name of registrant as specified in its charter)





Nevada
            88-0409170(State
      or other jurisdiction of incorporation or organization)
            (IRS
      Employer Identification No.)





4400
Commerce Drive, Wisconsin Rapids, WI  54494


(Address
of principal executive offices) (Zip Code)





(715)
421-2060


(Registrant’s
telephone number, including area code)





(Former
name, former address and former fiscal year, if changed since last
report)





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes ý   No
o





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).  Yes o   No
o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.





Large
      accelerated filer  o
            Accelerated
      filer  oNon-accelerated
      filer  o
            Smaller
      reporting company  ý





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes o   No
ý





Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date:  42,105,106 shares as of November 3,
2009





ENERGY
COMPOSITES CORPORATION





FORM
10-Q


FOR
THE QUARTER ENDED


SEPTEMBER
30, 2009





INDEX





PagePART
      I.  FINANCIAL INFORMATIONItem
      1.
            Financial
      Statements:Consolidated
      Balance Sheets
            2Consolidated
      Statements of Operations
            3Consolidated
      Statements of Cash Flows
            4Notes
      to Consolidated Financial Statements
            5Item
      2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            17Item
      3.
            Quantitative
      and Qualitative Disclosures about Market Risk
            24Item
      4.
            Controls
      and Procedures
            24PART
      II.  OTHER INFORMATIONItem
      1.
            Legal
      Proceedings
            25Item
      1A.
            Risk
      Factors
            25Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            25Item
      3.
            Defaults
      Upon Senior Securities
            25Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            25Item
      5.
            Other
      Information
            25Item
      6.
            Exhibits
            26SIGNATURES
            27





1


ENERGY
COMPOSITES CORPORATION





CONSOLIDATED
BALANCE SHEETS





(Unaudited)
            
            
            (Audited)September
      30,
            
            
            December
      31,2009
            
            
            2008ASSETSCurrent
      assets:Cash
            
            $
            1,392,875
            
            
            $
            2,985,289Accounts
      receivable, net of allowance for doubtfulaccounts
      of $181,000 in 2009 and $108,000 in 2008
            
            
            1,478,843
            
            
            
            2,556,945Accounts
      receivable - related party
            
            
            1,366
            
            
            
            -Inventories
            
            
            1,098,006
            
            
            
            1,353,915Deferred
      income taxes
            
            
            134,000
            
            
            
            68,000Other
      current assets
            
            
            126,669
            
            
            
            107,423Total
      current assets
            
            
            4,231,759
            
            
            
            7,071,572Property
      and equipment, net
            
            
            5,823,603
            
            
            
            5,682,457Other
      assets:Deferred
      income taxes
            
            
            3,055,000
            
            
            
            1,787,000Intangible
      assets, net
            
            
            60,802
            
            
            
            69,815Total
      other assets, net
            
            
            3,115,802
            
            
            
            1,856,815Total
      assets
            
            $
            13,171,164
            
            
            $
            14,610,844LIABILITIES AND STOCKHOLDERS’
      EQUITYCurrent
      liabilities:Current
      portion of long-term debt obligations
            
            $
            532,692
            
            
            $
            503,576Lines
      of credit - bank
            
            
            97,934
            
            
            
            -Short-term
      notes payable
            
            
            1,400,000
            
            
            
            1,000,000Accounts
      payable
            
            
            480,422
            
            
            
            1,421,423Accounts
      payable - related party
            
            
            275,363
            
            
            
            89,372Accrued
      expenses
            
            
            187,908
            
            
            
            162,136Accrued
      payroll and payroll taxes
            
            
            388,655
            
            
            
            324,339Customer
      deposits
            
            
            45,609
            
            
            
            431,775Total
      current liabilities
            
            
            3,408,583
            
            
            
            3,932,621Long-term
      debt obligations, net of current portion
            
            
            5,375,524
            
            
            
            5,487,293Stockholders’
      equity:Common
      stock - $.001 par value; 100,000,000 sharesauthorized,
      42,098,009 and 41,579,157 shares issuedand
      outstanding, respectively
            
            
            42,098
            
            
            
            41,579Additional
      paid-in capital
            
            
            10,312,993
            
            
            
            8,998,941Accumulated
      deficit
            
            
            (5,968,034
            )
            
            
            (3,849,590
            )Total
      stockholders’ equity
            
            
            4,387,057
            
            
            
            5,190,930Total
      liabilities and stockholders’ equity
            
            $
            13,171,164
            
            
            $
            14,610,844





The
accompanying notes are an integral part of these consolidated financial
statements.


2


ENERGY
COMPOSITES CORPORATION





CONSOLIDATED
STATEMENTS OF OPERATIONS





(Unaudited)
            
            
            (Unaudited)For
      the Three Months Ended September 30,
            
            
            For
      the Nine Months Ended September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Revenue
            
            $
            1,861,409
            
            
            $
            2,159,909
            
            
            $
            6,210,734
            
            
            $
            5,729,234Cost
      of goods sold
            
            
            1,502,393
            
            
            
            1,995,987
            
            
            
            5,235,857
            
            
            
            5,025,511Gross
      profit
            
            
            359,016
            
            
            
            163,922
            
            
            
            974,877
            
            
            
            703,723Selling,
      general and administrative expenses
            
            
            978,014
            
            
            
            563,840
            
            
            
            2,752,176
            
            
            
            1,588,806Loss
      from operations
            
            
            (618,998
            )
            
            
            (399,918
            )
            
            
            (1,777,299
            )
            
            
            (885,083
            )Other
      income (expense):Interest
      expense
            
            
            (237,709
            )
            
            
            (111,049
            )
            
            
            (1,689,625
            )
            
            
            (282,855
            )Interest
      income
            
            
            2,686
            
            
            
            -
            
            
            
            14,480
            
            
            
            -Total
      other income (expense)
            
            
            (235,023
            )
            
            
            (111,049
            )
            
            
            (1,675,145
            )
            
            
            (282,855
            )Loss
      before (benefit) for income taxes
            
            
            (854,021
            )
            
            
            (510,967
            )
            
            
            (3,452,444
            )
            
            
            (1,167,938
            )Income
      tax (benefit)
            
            
            (306,000
            )
            
            
            (228,000
            )
            
            
            (1,334,000
            )
            
            
            (413,000
            )Net
      loss
            
            
            (548,021
            )
            
            
            (282,967
            )
            
            
            (2,118,444
            )
            
            
            (754,938
            )Less:
      Net income attributable to non-controlling interest in variable interest
      entities
            
            
            -
            
            
            
            (43,838
            )
            
            
            -
            
            
            
            (138,144
            )Net
      loss attributable to Energy Composites Corporation
            
            $
            (548,021
            )
            
            $
            (326,805
            )
            
            $
            (2,118,444
            )
            
            $
            (893,082
            )Net
      loss per common share - basic and diluted
            
            $
            (0.01
            )
            
            $
            (0.01
            )
            
            $
            (0.05
            )
            
            $
            (0.04
            )Weighted
      average shares outstanding - basic and diluted
            
            
            42,097,929
            
            
            
            24,000,000
            
            
            
            42,030,708
            
            
            
            24,000,000





The
accompanying notes are an integral part of these consolidated financial
statements.





3


ENERGY
COMPOSITES CORPORATION





CONSOLIDATED
STATEMENTS OF CASH FLOWS





(Unaudited)For
      the Nine Months Ended September 30,2009
            
            
            2008Cash
      flows from operating activities:Net
      loss
            
            $
            (2,118,444
            )
            
            $
            (893,082
            )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Non-controlling
      interest in variable interest entities
            
            
            -
            
            
            
            138,144Depreciation
      and amortization
            
            
            325,549
            
            
            
            254,252(Gain)
      loss on sale of other assets
            
            
            (650
            )
            
            
            3,285Amortization
      of debt discount for imputed interest
            
            
            2,935
            
            
            
            2,745Amortization
      of discount for warrants and beneficialconversion
      feature on convertible debt
            
            
            1,327,291
            
            
            
            -Stock
      issued for interest payments
            
            
            73,948
            
            
            
            -Stock
      issued for compensation
            
            
            165,623
            
            
            
            -Deferred
      income taxes
            
            
            (1,334,000
            )
            
            
            (413,000
            )Changes
      in operating assets and liabilities:Accounts
      receivable, net
            
            
            1,078,102
            
            
            
            (532,388
            )Accounts
      receivable - related party
            
            
            (1,366
            )
            
            
            -Inventories
            
            
            255,909
            
            
            
            (492,896
            )Other
      current assets
            
            
            (19,246
            )
            
            
            (66,167
            )Accounts
      payable
            
            
            (941,001
            )
            
            
            295,806Accounts
      payable - related party
            
            
            185,991
            
            
            
            -Accrued
      expenses
            
            
            25,772
            
            
            
            113,425Accrued
      payroll and payroll taxes
            
            
            64,316
            
            
            
            239,234Customer
      deposits
            
            
            (386,166
            )
            
            
            113,316Net
      cash used in operating activities
            
            
            (1,295,437
            )
            
            
            (1,237,326
            )Cash
      flows from investing activities:Purchase
      of property and equipment
            
            
            (444,949
            )
            
            
            (740,148
            )Proceeds
      from sale of property and equipment
            
            
            650
            
            
            
            16,500Net
      cash used in investing activities
            
            
            (444,299
            )
            
            
            (723,648
            )Cash
      flows from financing activities:Increase
      (decrease) in bank overdraft payable
            
            
            -
            
            
            
            (168,087
            )Net
      borrowings from lines of credit - bank
            
            
            97,934
            
            
            
            205,622Financing
      costs for long-term debt
            
            
            (3,320
            )
            
            
            -Net
      borrowings from short-term notes payable
            
            
            400,000
            
            
            
            2,874,774Payments
      on long-term debt
            
            
            (347,292
            )
            
            
            (193,067
            )Capital
      distributions by variable interest entities
            
            
            -
            
            
            
            (52,250
            )Net
      cash provided by financing activities
            
            
            147,322
            
            
            
            2,666,992Net
      increase (decrease) in cash and cash equivalents
            
            
            (1,592,414
            )
            
            
            706,018Cash
      and cash equivalents:Beginning
      of period
            
            
            2,985,289
            
            
            
            30,739End
      of period
            
            $
            1,392,875
            
            
            $
            736,757





The
accompanying notes are an integral part of these consolidated financial
statements.


4


ENERGY
COMPOSITES CORPORATION





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Note
1.  Basis of Presentation





The
accompanying unaudited consolidated financial information has been prepared by
Energy Composites Corporation (formerly Las Palmas Mobile Estates) (“Company” or
“ECC”) in accordance with accounting principles generally accepted in the United
States of America for interim financial information and the instructions to Form
10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission
(“SEC”).  Accordingly, it does not include all the information and
notes required by accounting principles generally accepted in the United States
of America for complete financial statements.  In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair statement of this financial information have
been included.  Financial results for the interim periods presented
are not necessarily indicative of the results that may be expected for the
fiscal year as a whole or any other interim period.  This financial
information should be read in conjunction with the December 31, 2008 audited
consolidated financial statements and notes included in the Company’s Form 10-K
filed on March 31, 2009.





Note
2.  Nature of Business and Significant Accounting
Policies





Nature
of Business





The
Company is a manufacturer, installer and marketer of fiberglass products which
are sold throughout the United States, but primarily in the
Midwest.  The Company has a service division that provides
installation and repair of various piping projects.  The Company
serves the paper, petro-chemical, water, waste-water, bio-fuel and power
industries.





The
Company was organized October 29, 1992 under the laws of the State of
Nevada.  The Company had not started its planned principal operations
until October 14, 2008.  On June 27, 2008, Las Palmas Mobile Estates
entered into a Share Exchange Agreement whereby it agreed to issue 28,750,000
shares of its common stock to acquire all of the outstanding shares of Advanced
Fiberglass Technologies, Inc., a Wisconsin corporation (“AFT”).





As part
of the Share Exchange Agreement, prior to the closing of the transaction on
October 14, 2008, 4,750,000 restricted common shares were issued to a consultant
for services provided in connection with this transaction, which were valued at
$420,000.  These 4,750,000 shares were part of the 28,750,000 shares
described above.  Upon completion of the transaction on October 14,
2008, AFT became a wholly-owned subsidiary of the Company.  Since this
transaction resulted in the existing shareholders of AFT acquiring control of
Energy Composites Corporation, for financial reporting purposes, the business
combination has been accounted for as an additional capitalization of the
Company (a reverse acquisition with AFT as the accounting
acquirer).  Accordingly, AFT’s net assets are included in the
consolidated balance sheet at their historical value.  The operations
of AFT were the only continuing operations of the Company.





The
accompanying financial statements for the three and nine months ended September
30, 2008 present the historical financial information of AFT.  The
outstanding common shares of AFT at September 30, 2008 have been restated to
reflect the shares issued upon reorganization.





In June
2009, we created a wholly-owned subsidiary, Innovative Composite Solutions, LLC
(“ICS”) to serve as a distribution company for resins and composites
materials.





Principles
of Consolidation





The
accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries AFT and ICS, after elimination of all
intercompany accounts, transactions, and profits.





5


ENERGY
COMPOSITES CORPORATION





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





The
Company also consolidates its financial results with entities determined to be
variable interest entities (VIEs), for which the Company is deemed to be the
VIE’s primary beneficiary.  See the accounting policy on “Variable
Interest Entities” for further information.





Variable
Interest Entities





Until
December 31, 2008, the Company was considered the primary beneficiary of the
following entities:





M&W
Fiberglass, LLC (“M&W”) was a lessor of real estate to AFT and was wholly
owned by the initial stockholder of AFT, now the majority stockholder of the
Company.  As of August 2007, M&W began leasing a newly constructed
manufacturing and office facility (73,000 square feet) at Commerce Drive,
Wisconsin Rapids, Wisconsin to the Company at $30,000 per month from August 1,
2007 to December 31, 2007 and $35,000 per month starting January 1,
2008.  On December 31, 2008, the Company exercised an option to
purchase the manufacturing facility from M&W for $4,500,000 and assumed all
of M&W’s debt related to the property.  In addition, all
guarantees of M&W debt by the Company were released by the
lender.  As a result of these actions, the Company was no longer
considered the primary beneficiary of M&W after December 30,
2008.





Fiberglass
Piping & Fitting Company (“FPF”) is a wholesale distributor of fiberglass
piping and was wholly owned by the initial stockholder of AFT, now the majority
stockholder of the Company.  FPF started operations as a newly formed
S-corporation on September 16, 2006 and had limited operations during 2006 and
2007.  Prior to December 31, 2008, all FPF financing was secured by
the unlimited guarantee of the Company.  As of December 31, 2008, FPF
became financially independent of the Company by the sole FPF stockholder
contributing $200,000 of additional capital to FPF and FPF moving out of AFT’s
manufacturing facility to its own location.  In addition, all
guarantees of FPF debt by the Company were released by the lender.  As
a result of these actions, the Company was no longer considered the primary
beneficiary of FPF after December 30, 2008.





For the
three and nine months ended September 30, 2008, the statements of operations and
cash flows have been presented on a consolidated basis to include the variable
interests in M&W and FPF.  All significant intercompany accounts
and transactions have been eliminated in consolidation.





The
Company’s consolidated balance sheets at September 30, 2009 and December 31,
2008 and the statements of operations and cash flows for the three and nine
months ended September 30, 2009 do not include the activities of M&W and
FPF.





For the
three months ended September 30, 2008, the revenue of the VIEs represented
$147,547, or 6.8% of the consolidated revenue of the Company.  For the
nine months ended September 30, 2008, the revenue of the VIEs represented
$454,523, or 7.9% of the consolidated revenue of the Company.  The
Company recognized the net earnings of the VIEs only to the extent it recovered
losses previously recognized with respect to the VIEs.  Earnings of
the VIEs in excess of the Company’s previously recognized losses with respect to
that VIE were eliminated from the Company’s earnings and attributed to the
respective equity owner of the VIEs by recording such earnings as
non-controlling interest in variable interest entities on the Company’s
consolidated financial statements.  During the three and nine months
ended September 30, 2008, the VIEs experienced a combined net income of $43,838
and $138,144, respectively, which accordingly resulted in a non-controlling
charge on the Company’s statements of operations.





6


ENERGY
COMPOSITES CORPORATION





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Credit
Risk and Major Customers





Financial
instruments that may subject the Company to significant concentrations of credit
risk consist primarily of trade receivables.  The Company grants
credit to its customers throughout the United States in the normal course of
business.  Customer creditworthiness is routinely monitored and
collateral is not required.  The following is a schedule of
significant sales to customers for the nine months ended September 30, 2009 and
2008 and significant customer accounts receivable balances at September 30, 2009
and 2008:





Percentage
      ofPercentage
      of
            
            Trade
      AccountsTotal
      Sales
            
            ReceivableCustomer
            
            2009
            
            2008
            
            2009
            
            20081
            
            49.8%
            
            1.4%
            
            54.9%
            
            3.6%2
            
            9.0
            
            1.6
            
            6.4
            
            -3
            
            -
            
            27.2
            
            9.0
            
            7.24
            
            5.8
            
            8.6
            
            2.2
            
            15.264.6%
            
            38.8%
            
            72.5%
            
            26.0%





Segment
Reporting





Through
September 30, 2009, the Company provided products and services through one
reportable operating segment, Industrial Tank and Piping.





Recent
Accounting Pronouncements





In June
2009, the Financial Accounting Standards Board (“FASB”) issued authoritative
guidance codifying generally accepted accounting principles in the United States
(“GAAP”).  While the guidance was not intended to change GAAP, it did
change the way the Company references these accounting principles in the Notes
to the Consolidated Financial Statements.  This guidance was effective
for interim and annual reporting periods ending after September 15,
2009.  The Company’s adoption of this authoritative guidance as of
September 30, 2009 changed how it references GAAP in its
disclosures.





In June
2009, the FASB issued authoritative guidance that eliminates the quantitative
approach previously required for determining the primary beneficiary of a
variable interest entity and requires on-going qualitative reassessments of
whether an enterprise is the primary beneficiary of a variable interest
entity.  This guidance is effective for fiscal years beginning after
November 15, 2009.  The Company does not expect the adoption of this
authoritative guidance to have any current impact on the consolidated financial
statements.





Note
3.  Inventories





Inventories
consist of the following:


September
      30, 2009
            
            
            December
      31, 2008Raw
      materials
            
            $
            420,285
            
            
            $
            440,741Work
      in progress
            
            
            677,721
            
            
            
            913,174Finished
      goods
            
            
            -
            
            
            
            -Total
            
            $
            1,098,006
            
            
            $
            1,353,915





7


ENERGY
COMPOSITES CORPORATION





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Note
4.  Property and Equipment, Net





Property
and equipment are as follows:


September
      30, 2009
            
            
            December
      31, 2008Land
      and improvements
            
            $
            82,572
            
            
            $
            74,023Buildings
      and improvements
            
            
            3,610,997
            
            
            
            3,590,267Machinery
      and equipment
            
            
            2,511,398
            
            
            
            2,125,177Vehicles
      and trailers
            
            
            376,925
            
            
            
            381,212Computer
      equipment
            
            
            200,478
            
            
            
            173,926Furniture
      and office equipment
            
            
            107,072
            
            
            
            104,8136,889,442
            
            
            
            6,449,418Less
      accumulated depreciation
            
            
            (1,065,839
            )
            
            
            (766,961
            )Net
      property and equipment
            
            $
            5,823,603
            
            
            $
            5,682,457





Depreciation
expense was $117,838 and $83,616 for the three months ended September 30, 2009
and 2008, respectively.  Depreciation expense was $313,215 and
$245,273 for the nine months ended September 30, 2009 and 2008,
respectively.





The cost
of equipment under capital lease as of September 30, 2009 and December 31, 2008
was $21,075.  The accumulated amortization of equipment under capital
lease as of September 30, 2009 and December 31, 2008 was $4,039 and $2,459,
respectively.





Note
5.  Intangible Assets





Intangible
assets are as follows:


September
      30, 2009
            
            
            December
      31, 2008Non-compete
      agreement
            
            $
            5,000
            
            
            $
            5,000Customer
      list
            
            
            74,434
            
            
            
            74,434Deferred
      financing costs
            
            
            69,338
            
            
            
            66,017148,772
            
            
            
            145,451Less
      accumulated amortization
            
            
            (87,970
            )
            
            
            (75,636
            )Net
      intangible assets
            
            $
            60,802
            
            
            $
            69,815





Amortization
expense was $3,382 and $2,949 for the three months ended September 30, 2009 and
2008, respectively.  Amortization expense was $12,334 and $8,979 for
the nine months ended September 30, 2009 and 2008,
respectively.  Estimated amortization expense for the next five years
is as follows:





2009
      – remaining
            
            $
            2,5132010
            
            
            8,2932011
            
            
            7,1142012
            
            
            5,3962013
            
            
            4,872Thereafter
            
            
            32,614Total
            
            $
            60,802





8


ENERGY
COMPOSITES CORPORATION





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Note
6.  Financing Arrangements





Line
of Credit – Bank





The
Company utilizes a line of credit with Nekoosa Port Edwards State Bank (“NPESB”)
that provides for maximum borrowings of $250,000, bears interest at a fixed rate
of 6.75% at September 30, 2009 and matures in December 2009.  The line
is secured by all business assets of AFT, an assignment of life insurance on the
officer/stockholder, a junior mortgage on land and buildings, and an unlimited
guaranty by ECC.  The Company had a balance of $97,934 and $0 on the
line of credit at September 30, 2009 and December 31, 2008,
respectively.





Short-Term
Notes Payable





The
Company uses short-term notes from NPESB to fund bulk purchases of inventory and
large jobs in addition to utilizing its line of credit.  The
underlying inventory and customer purchase orders serve as specific collateral
for these notes.  In addition, the short-term notes are also typically
secured by all business assets of the Company.  The notes bear
interest at fixed rates.  The notes are typically twelve months or
less.  The Company had $1,400,000 and $1,000,000 of outstanding notes
payable with weighted average interest rates of 6.75% and 7.45% as of September
30, 2009 and December 31, 2008, respectively.





Long-Term
Debt Obligations





Long-term
debt obligations are as follows:


September
      30,
              2009
            
            
            December
      31,
              2008NPESB
      - a term loan secured by 15 ton deck crane, interest rate of 7.25%, due
      October 2010, monthly payments of $948
            
            $
            9,518
            
            
            $
            17,302NPESB
      – a term loan secured by all general business assets of AFT and unlimited
      continuing guarantee of ECC; interest rate of 6.75%, due on demand,
      monthly payments of $898
            
            
            46,220
            
            
            
            51,808NPESB
      - an industrial revenue bond term loan, secured by equipment and unlimited
      continuing guarantee of ECC; contains restrictive financial covenants,
      interest rate of 5.75%, due July 2014, monthly payment of
      $7,266
            
            
            364,110
            
            
            
            412,391NPESB
      - an industrial revenue bond term loan, secured by equipment and unlimited
      continuing guarantee of ECC; contains restrictive financial covenants,
      interest rate of 5.75%, due July 2014, monthly payment of
      $7,266
            
            
            358,230
            
            
            
            406,761City
      of Wisconsin Rapids, a term loan, secured by all assets and unlimited
      continuing guarantee of ECC; contains various operating covenants,
      interest rate 2%, due April 2012, monthly payment of
$4,499
            
            
            405,429
            
            
            
            439,545Yale
      Financial Services, a capital lease term loan, secured by two Yale
      forklifts, interest rate 7.7%, due October 2010, monthly payment of
      $657
            
            
            8,176
            
            
            
            13,451City
      of Wisconsin Rapids, a $75,000 term loan, secured by ECC and AFT
      guarantees; imputed interest at 8% resulting in an original issue discount
      with an unamortized balance of $24,305 at September 30, 2009, balloons in
      August 2014; debt was assumed by AFT from M&W as part of the land and
      building purchase on December 31, 2008
            
            
            50,695
            
            
            
            47,760


9


ENERGY
COMPOSITES CORPORATION





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





September
      30,
              2009
            
            
            December
      31,
              2008NPESB
      – an industrial revenue bond term loan, secured by real estate, ECC and
      AFT guarantees; contains restrictive financial covenants, interest rate of
      5.50%, due July 2027, monthly payment of $20,776; debt was assumed by AFT
      from M&W as part of the land and building purchase on December 31,
      2008
            
            
            2,811,970
            
            
            
            2,879,672M&W
      LLC (related party) – an unsecured term loan, interest rate of 4.775%, due
      December 2015, quarterly payment of $24,493 beginning March
      2009
            
            
            1,008,705
            
            
            
            1,045,328NPESB
      – a term loan secured by all general business assets of AFT and an
      unlimited continuing guarantee of ECC; due January 2012, interest rate of
      6.75%, monthly payments of $13,405 beginning February 2009
            
            
            346,021
            
            
            
            430,000Convertible
      notes payable ($1,420,000 face value) – see Note 7
            
            
            499,142
            
            
            
            246,8515,908,216
            
            
            
            5,990,869Less
      current portion of long-term obligations
            
            
            (532,692
            )
            
            
            (503,576
            )Total
      long-term debt obligations, net of current portion
            
            $
            5,375,524
            
            
            $
            5,487,293





Maturities
of long-term debt obligations are as follows:




2009
      – remaining
            
            $
            165,6962010
            
            
            489,1942011
            
            
            1,923,3802012
            
            
            631,5882013
            
            
            337,056Thereafter
            
            
            3,282,160Total
            
            $
            6,829,074





At
December 31, 2008, the Company was not in compliance with various restrictive
financial covenants contained in the industrial revenue bonds.  The
Company, prior to December 31, 2008, received a waiver letter on the covenant
defaults from the lenders.  These violated covenants were waived
through December 31, 2009.





On March
13, 2009, the Company executed an amendment to the credit agreement for the
three industrial revenue bonds held by NPESB.  The amendment to the
credit agreement includes the redefinition of the covenants attached to the
bonds.  Under the terms of the amended credit agreement, the covenants
apply to the Company and its subsidiaries on a consolidated
basis.  The covenants require the Company to maintain (a) a Debt
Service Coverage Ratio of not less than 1.25 to 1.0 and (b) a Total Indebtedness
to Equity Ratio of not more than 3.5 to 1.0.





Debt
Service Coverage Ratio is defined as the ratio of (i) EBITDA, a non-GAAP
measurement, for the 12-month period ending on the measurement date to (ii)
interest expenses plus principal payments coming due during the 12-month period
beginning on the day after measurement.  EBITDA is defined as net
income after taxes, plus interest expense which has been deducted in the
determination of net income, plus federal, state and local taxes which have been
deducted in the determination of net income, plus depreciation and amortization
expenses which have been deducted in the determination of net income, plus
extraordinary losses which have been deducted in the determination of net
income, minus extraordinary gains which have been included in the determination
of net income.  The Company did not calculate this ratio at September
30, 2009 because the Company had recorded negative EBITDA for the previous
12-month period.


10


ENERGY
COMPOSITES CORPORATION





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Total
Indebtedness to Equity Ratio is defined as the ratio of all liabilities or
obligations to Equity.  This ratio at September 30, 2009 has been
calculated by the Company as follows:





Total
      current liabilities
            
            $
            3,408,583Long-term
      debt obligations, net of current portion
            
            
            5,375,524Total
      indebtedness
            
            $
            8,784,107Total
      stockholders’ equity
            
            
            4,387,057Total
      indebtedness to equity
            
            
            2.0





The next
measurement date of these covenants will be December 31, 2009.




Note
7.  Convertible Notes Payable





In August
2008, the Company began a private placement offering of Units, each Unit
consisting of (i) a 3-year, 6% convertible debenture with a conversion price of
$2.50 (the “Conversion Price”) per share (subject to adjustment for stock splits
and stock dividends) (the “Debentures”), and (ii) a number of warrants equal to
the number of shares issuable upon conversion of the principal amount of the
Convertible Debenture (the “Warrants”).  This placement offering was
in anticipation of the AFT reverse acquisition taking place which became
effective on October 14, 2008.





Each
Warrant is immediately exercisable into shares of common stock for a term of 3
years at $5.00 per share.  The Warrants also provide anti-dilution
protection for the following events: reorganization, reclassification,
consolidation, merger or sale; subdivision, combination or other dividend of the
Company’s Common Stock.  No warrants were exercised nor expired during
2008 or 2009.





The
private placement was closed on December 14, 2008.  Debentures in the
aggregate principal amount of $6,370,000 were sold which included the issuance
of 2,548,000 Warrants.  The Debentures are considered to be
conventional convertible debt.





The
issued Warrants were deemed to have a relative fair market value of $4,068,422
which was recorded as a discount to the face value of the Debentures and as a
credit to Additional Paid-In Capital and will be accreted to interest expense
over the 3-year term using the effective interest method.  The Company
used the Black-Scholes-Merton pricing model as a method for determining the
estimated fair value of the Warrants.





The
proceeds of the Debentures were allocated based on the relative fair value of
the Debentures and Warrants as of the commitment date.  The Company
then calculated the intrinsic value of the beneficial conversion feature
embedded in the Debentures and because the amount of the beneficial conversion
feature exceeded the fair value allocated to the Debentures, the amount of the
beneficial conversion feature to be recorded was limited to the proceeds
allocated to the Debentures.  Accordingly, the beneficial conversion
feature was calculated to be $2,301,578 and was recorded as an additional
discount on the Debentures and a credit to Additional Paid-In Capital of
$1,412,578 and a credit of $889,000 to deferred income tax
liability.  The Company is accreting the beneficial conversion feature
to interest expense over the 3-year term of the debt using the effective
interest method.


11


ENERGY
COMPOSITES CORPORATION





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS








The
following table summarizes the convertible note balance as of September 30,
2009:





Balance
      at January 1, 2008
            
            $
            -Plus:
      gross proceeds received in 2008
            
            
            6,370,000Less:
      value assigned to:Warrants
            
            
            (4,068,422
            )Beneficial
      conversion feature allotted to:Additional
      paid-in capital
            
            
            (1,412,578
            )Deferred
      income tax liability
            
            
            (889,000
            )Sub-total
      of assigned values
            
            
            (6,370,000
            )Plus:
      accretion of original issue discount from warrants and beneficial
      conversion feature
            
            
            4,121,851Less:
      conversion of debt to common stock
            
            
            (3,875,000
            )Balance
      at December 31, 2008
            
            
            246,851Plus:
      accretion of original issue discount from warrants and beneficial
      conversion feature
            
            
            1,327,291Less:
      conversion of debt to common stock
            
            
            (1,075,000
            )Balance
      at September 30, 2009
            
            $
            499,142





All
outstanding convertible debentures at September 30, 2009 mature at various dates
in 2011.  The $1,420,000 of maturities related to these debentures are
included in the long-term debt maturities table found in Note 6.





The
effective annual interest rate for the nine months ended September 30, 2009 was
95%.  The rate is considerably higher than the stated rate of 6% due
to the amortization of the discount recorded against the debt for the detachable
warrants and beneficial conversion feature.





Note
8.  Stockholders’ Equity





In
conjunction with the private placement of convertible debt in 2008, $1,075,000
of the debt was converted to common shares of the Company during the nine months
ended September 30, 2009 at $2.50 per share.  459,605 common shares
were issued for the debt and related interest on the debt.





During
the nine months ended September 30, 2009, the Company issued 49,272 restricted
common shares to officers valued at $150,000 for services rendered and to be
rendered in the future.  Of these shares, 12,136 shares (valued at
$37,500) remain unvested until April 28, 2010 and were recorded as deferred
compensation.  Through September 30, 2009 amortization of the deferred
compensation has totaled $15,625.  Also, the Company established a
compensation plan, payable in arrears, for its board of
directors.  Pursuant to the plan each director will receive $30,000 in
restricted stock grants per year of service.  At September 30, 2009,
shares issued to Directors as compensation for services totaled 9,975 and were
valued at $37,500 for the service period January 2009 through May
2009.  An accrual for $35,000 for director compensation for June 2009
through September 2009 has been recorded to accrued expenses.


12


ENERGY
COMPOSITES CORPORATION





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Note
9.  Income Taxes





The
Company accounts for income taxes based upon an asset and liability approach.
Deferred tax assets and liabilities represent the future tax consequences of the
differences between the financial statement carrying amounts of assets and
liabilities versus the tax basis of assets and liabilities. Under this method,
deferred tax assets are recognized for deductible temporary differences, and
operating loss and tax credit carry-forwards. Deferred tax liabilities are
recognized for taxable temporary differences. Deferred tax assets are reduced by
a valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be
realized.





The
income tax provision consisted of the following for the three months ended
September 30, 2009 and 2008:


September
      30, 2009
            
            
            September
      30, 2008Currently
      payable (refundable)
            
            $
            -
            
            
            $
            -Deferred
      tax (benefit)
            
            
            (306,000
            )
            
            
            (228,000
            )Total
      income tax (benefit)
            
            $
            (306,000
            )
            
            $
            (228,000
            )





The
income tax provision consisted of the following for the nine months ended
September 30, 2009 and 2008:


September
      30, 2009
            
            
            September
      30, 2008Currently
      payable (refundable)
            
            $
            -
            
            
            $
            -Deferred
      tax (benefit)
            
            
            (1,334,000
            )
            
            
            (523,000
            )(1,334,000
            )
            
            
            (523,000
            )Establishment
      of the net deferred tax liabilities as of January 1, 2008 due to change in
      tax status
            
            
            -
            
            
            
            110,000Total
      income tax (benefit)
            
            $
            (1,334,000
            )
            
            $
            (413,000
            )





At
September 30, 2009, the Company reviewed all available evidence pertaining to
the realization of recorded deferred tax assets.  Positive evidence
available to the Company at September 30, 2009 supporting the realization of the
recorded deferred tax assets included the historical operating profits of AFT,
continued growth in product and service delivery for AFT, progress in new
product development for AFT, an operating plan indicating a near-term return to
operating profits supported by the 2007/2008/2009 production capacity additions,
and certain near-term strategic efforts.  Negative evidence available
to the Company at September 30, 2009 included the operating losses recorded
prior to September 30, 2009.  Based on this, the Company concluded
that the evidence available at September 30, 2009 did not indicate that it was
more likely than not that the deferred tax assets would not be
realized.  Therefore, a valuation allowance was not recorded as of
September 30, 2009.  The Company will re-assess the valuation
allowance at December 31, 2009.





Note
10.  Employee Benefit Plans





In
January 2009, the Company began sponsoring a defined contribution savings plan
that allows substantially all employees not covered by separate collective
bargaining agreements to contribute a portion of their pre-tax and/or after-tax
income up to statutory limits.  The plan requires the Company to match
50% of the participant’s contributions up to 6% of the participants’
compensation.  The Company’s expense was $16,833 and $47,397 for the
three and nine months ended September 30, 2009, respectively.





Prior to
2009, the Company sponsored a Simple IRA plan which required the Company to
match 100% of the eligible participant’s contributions up to 3% of the
participant’s earned income.  The Company’s expense was $9,217 and
$31,018 for the three and nine months ended September 30, 2008,
respectively.





In
addition to the plans described, the Company participates in certain customary
employee benefit plans, including those which provide health insurance benefits
to employees.


13


ENERGY
COMPOSITES CORPORATION





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Note
11.  Related Party Transactions





Manufacturing
and Office Facility Lease and Purchase





The
Company leased its manufacturing facility at Commerce Drive, Wisconsin Rapids,
Wisconsin with M&W which was considered a variable interest entity of the
Company until December 30, 2008.  On December 31, 2008, the Company
purchased the facility from M&W and had no lease payments for
2009.  Total lease payments to M&W were $35,000 per month in
2008.  For the three and nine months ended September 30, 2009, the
Company paid interest expense to M&W on the building term loan of $12,275
and $36,856, respectively.




Other
Related Party Transactions





AFT
purchased fiberglass pipe fittings from FPF totaling $63,925 and $34,499 for the
three months ended September 30, 2009 and 2008, respectively.  AFT
purchased fiberglass pipe fittings from FPF totaling $355,032 and $95,731 for
the nine months ended September 30, 2009 and 2008, respectively.





Note
12.  Commitments and Contingencies





Legal
Proceedings





The
Company is subject to legal proceedings and claims arising in the ordinary
course of business.  As of the date hereof, in the opinion of
management, the resolution of such matters will not have a material effect on
the Company’s financial position, results of operations, or cash
flow.





Note
13.  Sales and Cost of Sales





The
following information summarizes the net sales and related cost of
sales/services for the Company’s product and service offerings.  The
Company does not consider the product sales and service components of their
business to be reportable operating segments because the financial results of
each component is not separately evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.





Three
      Months Ended September 30, 2009Products
      &
            
            
            Service
      &Components
            
            
            Installation
            
            
            TotalNet
      sales
            
            $
            827,428
            
            
            $
            1,033,981
            
            
            $
            1,861,409Cost
      of sales
            
            
            711,803
            
            
            
            790,590
            
            
            
            1,502,393Gross
      Profit
            
            $
            115,625
            
            
            $
            243,391
            
            
            $
            359,016Three
      Months Ended September 30, 2008Products
      &
            
            
            Service
      &Components
            
            
            Installation
            
            
            TotalNet
      sales
            
            $
            779,356
            
            
            $
            1,380,553
            
            
            $
            2,159,909Cost
      of sales
            
            
            939,007
            
            
            
            1,056,980
            
            
            
            1,995,987Gross
      Profit (Loss)
            
            $
            (159,651
            )
            
            $
            323,573
            
            
            $
            163,922





14


ENERGY
COMPOSITES CORPORATION





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Nine
      Months Ended September 30, 2009Products
      &
            
            
            Service
      &Components
            
            
            Installation
            
            
            TotalNet
      sales
            
            $
            4,450,443
            
            
            $
            1,760,291
            
            
            $
            6,210,734Cost
      of sales
            
            
            4,029,904
            
            
            
            1,205,953
            
            
            
            5,235,857Gross
      Profit
            
            $
            420,539
            
            
            $
            554,338
            
            
            $
            974,877Nine
      Months Ended September 30, 2008Products
      &
            
            
            Service
      &Components
            
            
            Installation
            
            
            TotalNet
      sales
            
            $
            3,482,546
            
            
            $
            2,246,688
            
            
            $
            5,729,234Cost
      of sales
            
            
            3,219,540
            
            
            
            1,805,971
            
            
            
            5,025,511Gross
      Profit
            
            $
            263,006
            
            
            $
            440,717
            
            
            $
            703,723





Note
14.  Earnings (Loss) Per Share





The
Company computes earnings per using two different methods, basic and diluted,
and present per share data for all periods in which statements of operations are
presented. Basic earnings per share are computed by dividing net income (loss)
by the weighted average number of shares of common stock outstanding. Diluted
earnings per share are computed by dividing net income (loss) by the weighted
average number of common stock and common stock equivalents
outstanding.





The
following tables provide a reconciliation of the numerators and denominators
used in calculating basic and diluted earnings (loss) per share for the three
and nine month periods ended September 30, 2009 and 2008:





Three
      months ended September 30,2009
            
            
            2008Basic
      earnings (loss) per share calculation:Net
      income (loss) to common shareholders
            
            $
            (548,021
            )
            
            $
            (326,805
            )Weighted
      average of common shares outstanding
            
            
            42,097,929
            
            
            
            24,000,000Basic
      net earnings (loss) per share
            
            $
            (0.01
            )
            
            $
            (0.01
            )Diluted
      earnings (loss) per share calculation:Net
      income (loss) to common shareholders
            
            $
            (548,021
            )
            
            $
            (326,805
            )Weighted
      average of common shares outstanding
            
            
            42,097,929
            
            
            
            24,000,000Convertible
      debentures (1)
            
            
            -
            
            
            
            -Warrants
      (2)
            
            
            -
            
            
            
            -Diluted
      weighted average common shares outstanding
            
            
            42,097,929
            
            
            
            24,000,000Diluted
      net income (loss) per share
            
            $
            (0.01
            )
            
            $
            (0.01
            )





15


ENERGY
COMPOSITES CORPORATION





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





Nine
      months ended September 30,2009
            
            
            2008Basic
      earnings (loss) per share calculation:Net
      income (loss) to common shareholders
            
            $
            (2,118,444
            )
            
            $
            (893,082
            )Weighted
      average of common shares outstanding
            
            
            42,030,708
            
            
            
            24,000,000Basic
      net earnings (loss) per share
            
            $
            (0.05
            )
            
            $
            (0.04
            )Diluted
      earnings (loss) per share calculation:Net
      income (loss) to common shareholders
            
            $
            (2,118,444
            )
            
            $
            (893,082
            )Weighted
      average of common shares outstanding
            
            
            42,030,708
            
            
            
            24,000,000Convertible
      debentures (1)
            
            
            -
            
            
            
            -Warrants
      (2)
            
            
            -
            
            
            
            -Diluted
      weighted average common shares outstanding
            
            
            42,030,708
            
            
            
            24,000,000Diluted
      net income (loss) per share
            
            $
            (0.05
            )
            
            $
            (0.04
            )





(1)
            At
      September 30, 2009 and 2008, there were outstanding convertible debentures
      equivalent to 568,000 and 0 common shares, respectively.  The
      convertible debentures are anti-dilutive at September 30, 2009 and
      therefore have been excluded from diluted earnings per
    share.


(2)
            At
      September 30, 2009 and 2008, there were outstanding warrants equivalent to
      2,548,000 and 0 common shares, respectively.  The warrants
      expire 3 years from their 2008 date of issuance and have an exercise price
      of $5.00 per share. The warrants are anti-dilutive at September 30, 2009
      and therefore have been excluded from diluted earnings per
      share.





Note
15.  Supplemental Disclosure of Cash Flow Information





September
      30,2009
            
            
            2008Supplemental
      disclosure of cash flow information:Cash
      paid for interest
            
            $
            295,104
            
            
            $
            257,346Non-cash
      investing and financing activities:Purchase
      of property and equipment with long-term debt
            
            $
            9,412
            
            
            $
            67,673Debt
      converted to common stock
            
            $
            1,075,000
            
            
            $
            -





Note
16.  Subsequent Events





The
Company has evaluated all subsequent events through November 12, 2009, the date
the financial statements were available to be issued.


16


Item
2.    Management’s Discussion and Analysis of Financial
Condition and Results of Operations





The
discussion contained herein contains “forward-looking statements” that involve
risk and uncertainties.  These statements may be identified by the use
of terminology such as “believes,” “expects,”  “may,” “should” or
“anticipates” or expressing this terminology negatively or similar expressions
or by discussions of strategy.  The cautionary statements made in our
Annual Report on Form 10-K, filed March 31, 2009, should be read as being
applicable to all related forward-looking statements wherever they appear in
this Form 10-Q.  Our actual results could differ materially from those
discussed in this report.  The following discussion should be read in
conjunction with the financial statements and the related notes included herein
as Item 1.





Accounting
Policies and Estimates





The
methods, estimates and judgments that we use in applying our critical accounting
policies have a significant impact on the results that we report in our
financial statements.  Some of our accounting policies require us to
make difficult and subjective judgments, often as a result of the need to make
estimates regarding matters that are inherently uncertain.  We also
have other policies that we consider key accounting policies, such as those for
revenue recognition; however, these policies typically do not require us to make
estimates or judgments that are difficult or subjective.





We have
identified accounting policies that we consider critical in Note 2 “Nature of
Business and Significant Accounting Policies” of the notes to our financial
statements included in this report.  The accounting policies and
estimates described in this report should be read in conjunction with Note 1,
“Nature of Business and Significant Accounting Policies,” of the notes to our
consolidated financial statements in our Annual Report on Form 10-K for the year
ended December 31, 2008, which includes a discussion of the policies identified
in this report and other significant accounting policies.





Overview





Energy
Composites Corporation (formerly Las Palmas Mobile Estates) (“we,” “us,” “our,”
or the “Company”) is a manufacturer of composite structures and vessels for a
range of clean technology industries.  Based on our research of
companies in this sector, we believe we have the Midwest’s largest and most
automated manufacturing capabilities with our world-class, automated 73,000
square foot climate-controlled manufacturing facility in Wisconsin Rapids,
Wisconsin.





Our
Company was incorporated on October 29, 1992 under the laws of the State of
Nevada.  At first, we were defined as a “shell” company whose sole
purpose was to locate and consummate a merger or acquisition with a private
entity.  As of October 14, 2008, we completed a reverse acquisition of
Advanced Fiberglass Technologies, Inc., a Wisconsin corporation
(“AFT”).  Pursuant to the reverse acquisition, we issued 28,750,000
shares of our common stock to AFT’s shareholders (approximately 72% of the then
issued and outstanding common stock) and AFT’s shareholders gained voting
control of our Company.  As a result of the reverse acquisition, we
are no longer considered a “shell” company.  AFT is now our
wholly-owned subsidiary.





Advanced
Fiberglass Technologies.  AFT was incorporated in the state of
Wisconsin on January 1, 2005, following nearly ten years operating as M&W
Fiberglass, LLC (“M&W”).  Founded in 1995 by Jamie Lee Mancl,
M&W was the operating entity that developed and operated AFT’s
business.  In January 2005, M&W transferred all operating assets
and liabilities into a newly formed S-Corporation: AFT.  M&W,
solely owned by Jamie Lee Mancl, retained ownership of AFT’s former
manufacturing facility.  In February 2007, M&W sold AFT’s former
manufacturing facility to the city of Wisconsin Rapids.  M&W and
AFT then purchased and developed our current manufacturing facility by obtaining
$4,000,000 of financing in the form of industrial revenue bonds.  On
December 31, 2008, we purchased the manufacturing facility from M&W by
assuming the industrial revenue bonds, paying M&W $500,000 in cash and
delivering a promissory note to M&W for $1,045,328.





Fiberglass Piping
& Fitting Company.  In September 2006, our largest
shareholder, Jamie Lee Mancl, formed Fiberglass Piping & Fitting Company
(“FPF”).  FPF is a wholesale distributor of imported fiberglass piping
and fitting products.  We purchase products from FPF from time to time
for use in the manufacture of our products pursuant to a long-term supply
agreement at a price equal to FPF’s net direct costs for such
products.


17


Both
M&W and FPF were considered variable interest entities (“VIEs”) until
December 31, 2008.  In general, a VIE is a corporation, partnership,
limited liability company, trust, or any other legal structure used to conduct
activities or hold assets that either (i) has an insufficient amount of equity
to carry out its principal activities without additional subordinated financial
support, (ii) has a group of equity owners that are unable to make significant
decisions about its activities, or (iii) has a group of equity owners that do
not have the obligation to absorb losses or the right to receive returns
generated by its operations.  On December 30, 2008, we terminated the
beneficiary relationship with these VIE entities by: (A) purchasing the
manufacturing facility from M&W on December 31, 2008; (B) the sole
stockholder of FPF contributing an additional $200,000 of capital to FPF so that
FPF would be sufficient on its own; and (C) all prior guarantees of M&W and
FPF debt by AFT having been released by the lender.  We consolidated
M&W and FPF’s operations with AFT’s operations for financial accounting and
reporting purposes up to December 30, 2008, the date the VIE relationship
ended.





Innovative
Composite Solutions, LLC. In June 2009, further executing our growth
strategy, we established Innovative Composite Solutions, LLC (“ICS”) as a
wholly-owned subsidiary of Energy Composites Corporation.  ICS will
serve as our distribution arm for resins and composite
materials.  Through September 30, 2009, ICS has established and
stocked three regional warehouses in the United States with resin inventory, has
completed the hiring of its sales personnel in each of those regions, and has
begun generating revenue in each of these regions.  As of September
30, 2009 the operating results of ICS are immaterial to the Company and are
included in the Industrial Tank and Piping reporting segment under the Products
category.





Results
of Operations





The
tables below separate our results from the 2008 revenues and expenses
attributable to M&W and FPF so that appropriate comparisons can be
made.  Unless otherwise noted, the discussion refers only to our
results on a non-consolidated basis in 2008.





Revenue
            
            Three
      months ended September 30,
            
            
            Nine
      months ended September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008ECC/AFT/ICS
            
            $
            1,861,409
            
            
            $
            2,012,362
            
            
            $
            6,210,734
            
            
            $
            5,274,711M&W/FPF,
      net of eliminations
            
            
            -
            
            
            
            147,547
            
            
            
            -
            
            
            
            454,523Total
      consolidated revenue
            
            $
            1,861,409
            
            
            $
            2,159,909
            
            
            $
            6,210,734
            
            
            $
            5,729,234ECC/AFT/ICS
      increase/(decrease) from 2008
            
            $
            (150,953
            )
            
            
            
            
            
            $
            936,023ECC/AFT/ICS
      % increase/(decrease) from 2008
            
            
            (7.5%
            )
            
            
            
            
            
            
            17.7%





During
the third quarter of 2009, we recorded $195,619 of increased revenue from
product sales, while field services revenues decreased $346,572.  For
the nine-month period ended September 30, 2009, revenue from product sales
increased $1,422,420 primarily as a result of several tank and pipe contracts
with a major chlor-alkali producer.  Field service revenue revenues
decreased $486,397 during the nine months ended September 30,
2009.  The decrease in field service revenues during both periods has
primarily been timing driven with the rescheduling and postponement of
outage-related work and the timing of contract completion.





Cost
      of goods sold
            
            Three
      months ended September 30,
            
            
            Nine
      months ended September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008ECC/AFT/ICS
            
            $
            1,502,393
            
            
            $
            1,874,152
            
            
            $
            5,235,857
            
            
            $
            4,638,790M&W/FPF,
      net of eliminations
            
            
            -
            
            
            
            121,835
            
            
            
            -
            
            
            
            386,721Total
      cost of goods sold
            
            $
            1,502,393
            
            
            $
            1,995,987
            
            
            $
            5,235,857
            
            
            $
            5,025,511ECC/AFT/ICS
      increase/(decrease) from 2008
            
            $
            (371,759
            )
            
            
            
            
            
            $
            597,067ECC/AFT/ICS
      % increase/(decrease) from 2008
            
            
            (19.8%
            )
            
            
            
            
            
            
            12.9%





18


The
primary components of cost of goods sold are raw materials used in
manufacturing, manufacturing labor, and manufacturing overhead.  The
primary raw materials used in our manufacturing processes are isophathalic,
polyester, and vinyl-ester resins and fiberglass.  Manufacturing labor
includes wages, employment taxes, employee benefits, and union
expenses.  The major components of manufacturing overhead are
utilities and depreciation associated with our manufacturing facility and
equipment, travel and lodging expense associated with field service activities
and manufacturing supplies.





For the
three months ended September 30, 2009, our cost of materials decreased to 20% of
revenue from 26% of revenue for the three months ended September 30,
2008.  The decrease in materials as a percent of revenue was primarily
driven by a greater mix of sales coming from small diameter pipe in both the
product and service categories during the quarter.  The field service
related activities during the three months ended September 30, 2008 included a
higher percentage of tank relining work in the field as well as a higher
percentage of large diameter tank sales in the product category.  For
the nine months ended September 30, 2009, material costs were 26% of revenue
compared to 27% for the nine months ended September 30, 2008.  This
decrease in cost as a percent of revenue is also a result of the sales mix shift
during the nine months ended September 30, 2009.





Our cost
of labor decreased to 42% of revenue for the three months ended September 30,
2009 compared to 43% of revenue for the comparable period in
2008.  For the nine-month period ended September 30, 2009, our cost of
labor remained at 39% of revenue, the same level recorded for the comparable
period in 2008.  Decreases in labor cost as a percent of sales for the
third quarter 2009 are primarily attributable to pipe and tank contracts
completed during the quarter that required a lower mix of union
pipefitters.





Manufacturing
overhead decreased from 24% of revenue during the third quarter of 2008 to 19%
in the third quarter 2009.  Lower travel and lodging expenses related
to field service work, and lower freight expense on tank shipments contributed
to the decrease as a percent of revenue.  During the nine-month period
ended September 30, 2009, manufacturing overhead decreased to 19% of revenue
compared to 22% for the same period in 2008.  We have incurred
increased depreciation expense and utility cost from added equipment; however,
our increased year-to-date revenue has allowed for better absorption of these
cost increases, thus lowering manufacturing overhead cost as a percent of
revenue.





Gross
      profit
            
            Three
      months ended September 30,
            
            
            Nine
      months ended September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008ECC/AFT/ICS
            
            $
            359,016
            
            
            $
            138,210
            
            
            $
            974,877
            
            
            $
            635,921M&W/FPF,
      net of eliminations
            
            
            -
            
            
            
            25,712
            
            
            
            -
            
            
            
            67,802Total
      gross profit
            
            $
            359,016
            
            
            $
            163,922
            
            
            $
            974,877
            
            
            $
            703,723ECC/AFT/ICS
      % of revenue
            
            
            19.3%
            
            
            
            6.9%
            
            
            
            15.7%
            
            
            
            12.1%





Selling,
      general & administrative expenses
            
            Three
      months ended September 30,
            
            
            Nine
      months ended September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008ECC/AFT/ICS
            
            $
            978,014
            
            
            $
            635,997
            
            
            $
            2,752,176
            
            
            $
            1,817,903M&W/FPF,
      net of eliminations
            
            
            -
            
            
            
            (72,157
            )
            
            
            -
            
            
            
            (229,097
            )Total
      SG&A expenses
            
            $
            978,014
            
            
            $
            563,840
            
            
            $
            2,752,176
            
            
            $
            1,588,806ECC/AFT/ICS
      % of revenue
            
            
            52.5%
            
            
            
            31.6%
            
            
            
            44.3%
            
            
            
            34.5%





The
increase in our selling, general and administrative expenses is driven by our
continued investment in our growth strategy, notably our investment in expanded
in-house capabilities, increased sales and sales support staff, and the creation
of ICS as our resin and composites materials distribution arm in June
2009.  Taken together, these additional expenses represent a platform
for managing and driving our growth.  We have also continued our
investment into the development of our WindFiberTM strategy, including planning
the construction of a significant wind blade production plant in Wisconsin
Rapids within the next 12 months.


19





(Loss)
      from operations
            
            Three
      months ended September 30,
            
            
            Nine
      months ended September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008ECC/AFT/ICS
            
            $
            (618,998
            )
            
            $
            (497,787
            )
            
            $
            (1,777,299
            )
            
            $
            (1,181,982
            )M&W/FPF,
      net of eliminations
            
            
            -
            
            
            
            97,869
            
            
            
            -
            
            
            
            296,899Total
      (loss) from operations
            
            $
            (618,998
            )
            
            $
            (399,918
            )
            
            $
            (1,777,299
            )
            
            $
            (885,083
            )ECC/AFT/ICS
      % of revenue
            
            
            (33.3%
            )
            
            
            (24.7%
            )
            
            
            (28.6%
            )
            
            
            (22.4%
            )





The
$121,211 and $595,317 increases in our operating loss for the three and nine
months ended September 30, 2009, respectively, are primarily due to industry
postponement of anticipated projects leading to insufficient sales to cover our
planned increase in overhead, increased cost of goods sold, and the increase in
selling, general and administrative expenses observed in 2009, as described
above.





Other
      (expense)
            
            Three
      months ended September 30,
            
            
            Nine
      months ended September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008ECC/AFT/ICS
            
            $
            (235,023
            )
            
            $
            (57,018
            )
            
            $
            (1,675,145
            )
            
            $
            (124,100
            )M&W/FPF
            
            
            -
            
            
            
            (54,031
            )
            
            
            -
            
            
            
            (158,755
            )Total
      other (expense)
            
            $
            (235,023
            )
            
            $
            (111,049
            )
            
            $
            (1,675,145
            )
            
            $
            (282,855
            )ECC/AFT/ICS
      % of revenue
            
            
            (12.6%
            )
            
            
            (2.8%
            )
            
            
            (27.0%
            )
            
            
            (2.4%
            )





Other
income and expense consists of interest expense, interest income, non-cash
amortization of deferred financing costs, and non-cash amortization of
beneficial conversion features and warrant discounts associated with convertible
debt.  Non-cash amortization of debt discounts for warrants and
beneficial conversion feature related to the convertible debt was $118,333 and
$1,327,291 for the three and nine months ended September 30, 2009,
respectively.  The remaining increase in expenses in 2009 compared to
2008 is due to additional interest expense from increased short and long-term
debt borrowings in 2009 relating to the manufacturing facility acquired at the
end of 2008 and equipment and working capital notes to fund our growing
operations.  For the three and nine months ended September 30, 2009,
interest expense was partially offset by bank interest income of $2,686 and
$14,480, respectively.





Net
      loss
            
            Three
      months ended September 30,
            
            
            Nine
      months ended September 30,2009
            
            
            2008
            
            
            2009
            
            
            2008Loss
      before provision for income taxes
            
            $
            (854,021
            )
            
            $
            (510,967
            )
            
            $
            (3,452,444
            )
            
            $
            (1,167,938
            )Income
      tax benefit
            
            
            306,000
            
            
            
            228,000
            
            
            
            1,334,000
            
            
            
            413,000Net
      loss for ECC
            
            $
            (548,021
            )
            
            $
            (282,967
            )
            
            $
            (2,118,444
            )
            
            $
            (754,938
            )Less:
      Net income attributable to M&W/FPF
            
            
            -
            
            
            
            (43,838
            )
            
            
            -
            
            
            
            (138,144
            )Net
      loss
            
            $
            (548,021
            )
            
            $
            (326,805
            )
            
            $
            (2,118,444
            )
            
            $
            (893,082
            )%
      of ECC/AFT/ICS revenue
            
            
            (29.4%
            )
            
            
            (16.2%
            )
            
            
            (34.1%
            )
            
            
            (16.9%
            )ECC/AFT/ICS
      increase/(decrease) from 2008
            
            $
            (265,054
            )
            
            
            
            
            
            $
            (1,363,506
            )ECC/AFT/ICS
      % increase/(decrease) from 2008
            
            
            (93.7%
            )
            
            
            
            
            
            
            (180.6%
            )





The net
income tax benefit recorded during the three and nine months ended September 30,
2009 was the result of deferred tax assets recorded relative to net operating
losses being generated and timing differences between financial and income tax
reporting.  We believe it is more likely than not that we will realize
the full benefit of the deferred tax assets and have not recorded a valuation
allowance as of September 30, 2009 due to our previous history of operating
profits prior to 2008 and other factors.  We will reassess this
position at the end of 2009.  Effective January 1, 2008, we terminated
our S-Corporation election and began operating as a C-Corporation.  As
a result of the change in tax status, an initial $110,000 of net deferred tax
liability was recorded as income tax expense which was offset by a net income
tax benefit of $523,000 associated with net operating losses and temporary book








20
 
  and tax
timing differences for the nine months ended September 30,
2008.  Significant components of the income tax benefit include the
net operating loss for the year, fair value of warrants and temporary timing
differences of fixed assets, accruals, and reserves.





The
increase in our 2009 net loss stems from our investment in our growth strategy
and recessionary economic pressures.  In our bid to grow, we have
invested in our infrastructure and overhead, adding selling, general and
administrative costs and increasing our borrowings and interest
expense.  We continue to face a difficult economic period in the
United States and the world.  While we continue to record increases in
our product sales, the growth is slower than what we would expect in a robust
economy and we anticipated faster growth in this category due to our expansion
efforts.  Additionally, we have experienced a shift in timing of our
outage-related service sales volume as our customers have postponed planned
repairs due to poor economic conditions.   The economic downturn
has also placed pressure on our pricing strategy as our customers become more
sensitive to price.  The pressure on our prices has limited our
ability to pass along our expenses to our customers in the form of incremental
price increases.  Although we have recorded improvement in margins,
the improvement in margins is also slower than what we would expect in a robust
economy.  We anticipate that the launch of several material
innovations, including the use of our new abrasion-resistant tank liner, will
allow us to increase our margins in our legacy business.  We continue
to pursue our four-part strategy to expand and diversify our
business.  We believe that our increasing involvement in the wind
energy industry and other market segments will also position our Company to
profit when and as the economy recovers and expands.





Liquidity
and Capital Resources





Our
liquidity and capital resources continue to be driven by our growth
strategy.  Beginning in 2007 and continuing into 2009, we have
significantly expanded our operations and our manufacturing
capabilities.  We have invested in our plant and equipment to become a
large manufacturing concern with a diverse manufacturing capability, both
in-house and on-client-site.  As a result of our expansion efforts, we
believe we are well positioned to take advantage of market opportunities and to
introduce our products and services into emerging markets like wind
energy.





To
capitalize on our expanding manufacturing capabilities, we have made significant
investments in our sales personnel, marketing program, our new WindFiberTM
strategy, and our new raw materials distribution arm, ICS.  With these
expenditures, we have increased our visibility in our existing markets and have
captured early attention from major targeted customers within the wind energy
market and in our core markets.  Furthermore, we anticipate field
service revenues will begin to increase consistent with historical seasonal
trends as major manufacturers complete planned and re-scheduled maintenance,
repair and overhaul activities.





Our
primary sources of liquidity to fund our growth strategy are cash generated from
operations and short and long-term term financing arrangements.  As of
September 30, 2009, cash and cash equivalents totaled $1,392,875.  Our
working capital was $823,176 at September 30, 2009.  We believe we
have sufficient resources available to meet our liquidity requirements,
including debt service, for the remainder of 2009.  We will require
additional financing to pursue our WindFiberTM strategy over the next 12 months,
including the construction of a new wind blade production plant.





Operating
Cash Flows





Operating
activities used $1,295,437 and $1,237,326 of cash for the nine months ended
September 30, 2009 and 2008, respectively.  The increase in cash used
by operating activities for 2009 was due primarily to the significant decreases
in accounts payable and customer deposits associated with the large tank
contract we completed and the increase in the overall net loss for the nine
months ended September 30, 2009.  The increase in cash used in
operations was partially offset by decreases in accounts receivable and
inventories primarily associated with the same contract.





21


Investing
Cash Flows





Investing
activities used $444,299 and $723,648 of cash for the nine months ended
September 30, 2009 and 2008, respectively.  The primary use of cash in
investing activities for both periods was the purchase of additional
manufacturing equipment supporting plant and field service activities, as well
as the purchase of office equipment for added office staff
positions.





Financing
Cash Flows





Financing
activities provided $147,322 and $2,666,992 for the nine months ended September
30, 2009 and 2008, respectively.  Proceeds from financing activities
for the nine months ended September 30, 2009 were $497,934 raised from
additional short-term notes and our line of credit which was partially offset by
financing costs and payments on long-term debt of $347,292.  For the
nine months ended September 30, 2008, proceeds from financing activities
included proceeds from short-term notes and our line of credit of
$3,080,396.  Cash used in financing activities for the nine months
ended September 30, 2008 included a reduction in bank overdrafts of $168,087,
payments on long-term debt of $193,067, and distributions to a stockholder of
$52,250 primarily for income taxes due by the shareholders relating to the pass
through income from M&W and FPF.





Debenture
Financing





In August
to December 2008, we raised $6,370,000 by selling units, each unit consisting of
(i) a 3-year, 6% convertible debenture (the “Debentures”) with a conversion
price of $2.50 per share (subject to adjustment for stock splits and stock
dividends), and (ii) a number of warrants equal to the number of shares issuable
upon conversion of the principal amount of the Debenture (the
“Warrants”).  The Debentures sold included the issuance of 2,548,000
Warrants.  Each Warrant is exercisable into shares of common stock for
a term of 3 years at $5.00 per share.  The Warrant also provides
anti-dilution protection for the following events: reorganization,
reclassification, consolidation, merger or sale; subdivision, combination or
dividend of our common stock.





At
September 30, 2009, Debentures totaling $1,420,000 remain outstanding and will
become due during the last part of 2011.  $4,950,000 of Debentures has
been converted to common stock as of September 30, 2009.  Many
Debenture holders have elected to receive interest in the form of stock,
lowering our cash outlays for debt service on the Debentures.  We
believe that the growth of our business and revenue will improve the value of
our stock and motivate the remaining Debenture holders to convert their debt
into stock which will further reduce our cash requirements to settle the debt in
2011.  We also anticipate that the Debenture holders will exercise
their Warrants when and if the value of our stock increases above $5.00 per
share.  The money we raise from the exercise of Warrants, if any, will
be used to continue our growth strategy.





As we
roll out the sequential elements of our WindFiberTM strategy, it may be
appropriate to pursue an additional tranche of equity financing to support the
construction of a new manufacturing plant and logistics center, the equipping of
the production lines, training of employee-associates, the development of a
research and development center, and WindFiberTM -related working
capital.  While we anticipate a substantial portion of our WindFiberTM
financing requirements will be met with subsidized or otherwise advantaged debt
financing, it may be prudent to support such financing with a tranche of
supplemental equity.





Purchase
of Manufacturing Plant and Related Debts





On
December 31, 2008, we exercised our option to purchase the manufacturing
facility we were leasing from M&W for a purchase price of
$4,500,000.  We elected to exercise this option in order to lower the
monthly cash requirement associated with our manufacturing facility and to
remove conflicting interests between our business and Jamie and Jennifer Mancls’
other business interest: M&W.  The favorable interest rate we
negotiated with the Mancls (described below) will improve our cash flows by
approximately $72,000 annually because the associated annual debt service is
less than the annual lease payments we were paying.  We believe
removing the Mancls’ control over our business (as exercised through the
facility lease) will, in the long run, improve our balance sheet and our ability
to borrow money from large institutional investors.





22


The
purchase price for the facility was paid in the form of: (i) an assumption of
the industrial revenue bonds and note related to the building and land; (ii)
cash at closing in the amount of $500,000; and (iii) the balance ($1,045,328) in
the form of an unsecured promissory note bearing interest at an annual fixed
rate of 4.775% which was determined using the twelve-month LIBOR as of December
31, 2008 (2.025%) plus 2.75%, payable in quarterly installments of principal and
interest amortized over not more than 15 years with the unpaid principal balance
due not later than December 15, 2015.  The assumed debt consisted of
all obligations of M&W under the bond agreement and all obligations of
M&W under that certain promissory note dated February 28, 2007 in the
principal amount of $75,000 issued to the City of Wisconsin
Rapids.  As of December 31, 2008, the amount of the assumed debt of
the industrial revenue bonds was $2,879,672.





The
assumed building-related industrial revenue bonds mature in 2027 with an annual
interest rate of 5.5%.  Monthly principal and interest payments on the
assumed bonds are $20,776.  Our manufacturing equipment was financed
with two $500,000 industrial revenue bonds expiring July 2014 with interest at
5.75% and a $500,000 note from the City of Wisconsin Rapids expiring April 2012
with interest at 2%.  Monthly principal and interest payments for each
of these bonds and the Wisconsin Rapids note are $7,266 and
$4,499.  The long maturities and low interest rates associated with
the building and equipment loans allow us enough time to successfully execute
our growth strategy at a low cost of capital.  As we begin to generate
positive cash from operations, we anticipate that we will be able to service
these building- and equipment-related debts without the need of raising
additional capital.





The
4.775% interest rate on the $1,045,328 note held by M&W is also low relative
to historical market rates.  Going forward, we believe that we will be
able to service the M&W note with cash from operations.  We may
settle the M&W note prior to its 2015 due date with the proceeds of a future
debt or equity financing.





On March
13, 2009, we executed an amendment to the credit agreement for the three
building- and equipment-related industrial revenue bonds.  The amended
financial covenants require us to maintain (a) a Debt Service Coverage Ratio of
not less than 1.25 to 1.0 and (b) a Debt to Equity Ratio of not more than 3.5 to
1.0.  The next measurement date of these covenants will be December
31, 2009.





Other
Debt Activity





On
November 3, 2009, we settled a $300,000 short-term note and borrowed $300,000
under a new short-term note which carries a three-month term, 6.75% interest per
annum, and is secured by our business assets and receivables and certain
customer purchase orders.





Leases





We have
entered into various operating leases to support operations.  We lease
several vehicles supporting our Field Services Division, forklifts for the
plant, office equipment, and lodging space in Biron, Wisconsin.  Total
monthly lease payments for this equipment and lodging space are
$3,657.  The lease we previously held for the office space in
Hastings, Michigan expired March 1, 2009 and was not renewed.  The
monthly payment for the Hastings office was $925 per month.





Going
Forward





We have
developed a four-part strategy to expand our business and profitability, defined
in our 2008 Annual Report on Form 10-K.  While we have sufficient
capital to complete the first step of our four-part growth strategy in 2009, we
need additional capital to grow our business, especially our WindFiberTM
strategy.  If our cash flow from operations is insufficient to fund
debt service and other obligations, we may be required to increase our
borrowings, reduce or delay capital expenditures, and seek additional capital or
refinance our indebtedness.  There can be no assurance, however, that
we will continue to generate cash flows at or above current levels or that we
will be able to maintain our ability to borrow under revolving credit
facilities.





Off-Balance
Sheet Arrangements





As of
September 30, 2009, we did not have any off-balance sheet
arrangements.





23


Item
3.     Quantitative and Qualitative Disclosures about
Market Risk





Not
applicable to smaller reporting companies.





Item
4.     Controls and Procedures





Under the
supervision and with the participation of our principal executive officer and
principal financial officer, we conducted an evaluation of the effectiveness of
our disclosure controls and procedures as defined in Rule 13a-15(e) promulgated
under the Securities Exchange Act of 1934 (the “Exchange Act”) as of the end of
the period covered by this report.  Based on this evaluation, the
officers concluded that our disclosure controls and procedures are effective to
ensure that information required to be disclosed by us in reports that we file
or submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SEC’s rules and forms, and is
accumulated and communicated to our management including our principal executive
officer and principal financial officer, to allow timely decisions regarding
required disclosure.





There
were no changes in our internal control over financial reporting during the
period covered by this report that have materially affected, or are reasonably
likely to materially affect our internal control over financial
reporting.





On
October 14, 2008, we acquired AFT, which has increased the controls and
procedures that we employ to process, record and report our financial
results.  We will continue to evaluate and strengthen our controls and
procedures to improve the accuracy and timeliness of our financial
disclosure.





24


PART
II.  OTHER INFORMATION





Item
1.     Legal Proceedings





From time
to time we are involved in litigation and other proceedings arising in the
ordinary course of our business, including actions with respect to contract
claims, labor and employment claims and other matters.  Although
litigation and other proceedings are inherently uncertain and their results
cannot be predicted with certainty, we believe that the resolution of our
current pending matters will not have a material adverse effect on our business,
financial conditions or results of operations.  Regardless of the
outcome, litigation can have an adverse impact on us because of defense costs,
diversion of management resources and other factors.  In addition, it
is possible that an unfavorable resolution in litigation or other proceedings
could in the future materially and adversely affect our financial position or
results of operations in a particular period.





Item 1A.  Risk
Factors





Not
applicable to smaller reporting companies.





Item
2.     Unregistered Sales of Equity Securities and Use
of Proceeds





During
the third quarter of 2009, we issued the unregistered securities set forth in
the table below.





Date
            Persons
      or Class of Persons
            Securities
            ConsiderationJuly 1, 2009
            30
      accredited investors
            7,377
      shares of common stock
            $18,406
      of accrued interest paid to debenture
holders





No
underwriters were used in the above stock transactions.  We relied
upon the exemption from registration contained in Section 4(2) and/or Rule 506
as to all of the transactions as the investors were deemed to be sophisticated
with respect to the investment in the securities due to their financial
condition and involvement in our business or were accredited
investors.  Restrictive legends were placed on the certificates
evidencing the securities issued in all of the above transactions.





Item
3.     Defaults Upon Senior Securities





None.





Item
4.     Submission of Matters to a Vote of Security
Holders





None.





Item
5.     Other Information





None.





25


Item
6.                      Exhibits





Regulation
              S-K
      Number
            Document3.1
            Articles
      of Merger effective October 14, 2008 (1)3.2
            Amended
      and Restated Articles of Incorporation effective October 14, 2008
      (1)3.3
            Amended
      and Restated Bylaws adopted October 14, 2008 (1)4.1
            Form
      of Debenture (2)4.2
            Form
      of Warrant (2)10.1
            Share
      Exchange Agreement dated June 26, 2008 (3)10.2
            First
      Amendment to Share Exchange Agreement dated August 8, 2008
    (4)10.3
            2008
      Stock Incentive Plan (1)10.4
            Industrial
      Development Revenue Bonds, Bond Agreement dated February 28, 2007
      (1)10.5
            Industrial
      Development Revenue Bonds, Promissory Note 2007A dated February 28, 2007
      (1)10.6
            Industrial
      Development Revenue Bonds, Promissory Note 2007B dated February 28, 2007
      (1)10.7
            Industrial
      Development Revenue Bonds, Promissory Note 2007C dated February 28, 2007
      (1)10.8
            Industrial
      Development Revenue Bonds, Credit Agreement dated February 28, 2007
      (1)10.9
            Industrial
      Development Revenue Bonds, Construction Mortgage, Assignment Of Leases And
      Rents and Fixture Filing dated February 28, 2007 (1)10.10
            Industrial
      Development Revenue Bonds, Security Agreement dated February 28, 2007
      (1)10.11
            Option
      Agreement dated June 18, 2008 (1)10.12
            Purchase
      and Supply Agreement dated October 13, 2008 (1)10.13
            Unsecured
      Promissory Note dated December 31, 2008 (5)10.14
            Assignment
      and Assumption Agreement dated December 31, 2008 (6)10.15
            Amendment
      to the Credit Agreement dated March 13, 2009 (7)10.16
            Employee
      Stock Purchase Plan (8)31.1
            Rule
      13a-14(a) Certification of Samuel W. Fairchild31.2
            Rule
      13a-14(a) Certification of Jeffrey S. Keuntjes32.1
            Certification
      of Samuel W. Fairchild Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  200232.2
            Certification
      of Jeffrey S. Keuntjes Pursuant to 18 U.S.C. Section 1350, as Adopted
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
  2002




(1)
            Filed
      as an exhibit to the Current Report on Form 8-K dated October 14, 2008,
      filed October 17, 2008.


(2)
            Filed
      as an exhibit to the Current Report on Form 8-K dated December 15, 2008,
      filed December 19, 2008.


(3)
            Filed
      as an exhibit to the Current Report on Form 8-K dated June 26, 2008, filed
      June 27, 2008.


(4)
            Filed
      as an exhibit to the Definitive Information Statement on Schedule 14C,
      filed September 24, 2008.


(5)
            Filed
      as an exhibit to the Current Report on Form 8-K/A dated December 31, 2008,
      filed January 26, 2009.


(6)
            Filed
      as an exhibit to the Current Report on Form 8-K dated December 31, 2008,
      filed January 6, 2009.


(7)
            Filed
      as an exhibit to the Annual Report for the year ended December 31, 2008 on
      Form 10-K filed March 31, 2009.


(8)
            Filed
      as an exhibit to the Current Report on Form 8-K dated June 2, 2009, filed
      June 5, 2009.





26


SIGNATURES





Pursuant
to with the requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.





ENERGY
      COMPOSITES CORPORATIONDated:  November
      12, 2009
            By:
            /s/
      Samuel W. FairchildSamuel
      W. Fairchild, Chief Executive OfficerDated:  November
      12, 2009
            By:
            /s/
      Jeffrey S. KeuntjesJeffrey
      S. Keuntjes, Vice President –
Finance