UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549





FORM
10-K





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


For
the Fiscal Year Ended December 31, 2008





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





Commission
file number: 000-52397





ENERGY
COMPOSITES CORPORATION


(Formerly
Las Palmas Mobile Estates)


(Exact
name of registrant as specified in its charter)





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





4400
      Commerce Drive, Wisconsin Rapids, Wisconsin
            54494(Address
      of principal executive offices)
            (Zip
      Code)





Registrant’s
telephone number, including area code:(715) 421-2060





Securities
registered pursuant to Section 12(b) of the Act:  None





Securities
registered pursuant to Section 12(g) of the Act:  Common Stock, $0.001 par
value





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes  ̈    No
þ





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  Yes  ̈    No
þ





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 þ    No
 ̈





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.   ̈





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  þ








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





State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter:  $990,000





Indicate
the number of shares outstanding of each of the registrant’s classes of common
stock, as of the latest practicable date:  42,028,901 shares as of March 20,
2009





PORTIONS
OF THE FOLLOWING DOCUMENTS ARE INCORPORATED HEREIN BY REFERENCE: Proxy Statement
for 2009 Annual Meeting of Stockholders (to be filed with the Commission under
Regulation 14A within 120 days after the end of the registrant’s fiscal year
and, upon such filing, to be incorporated by reference into Part III to the
extent indicated therein).








SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS





This
annual report includes “forward-looking statements”.  All statements
other than statements of historical facts included or incorporated by reference
in this report, including, without limitation, statements regarding our future
financial position, business strategy, budgets, projected costs and plans and
objectives of management for future operations, are forward-looking
statements.  In addition, forward-looking statements generally can be
identified by the use of forward-looking terminology such as “may,” “expect,”
“intend,” “project,” “estimate,” “anticipate,” “believe,” or “continue” or the
negative thereof or variations thereon or similar terminology. Although we
believe that the expectations reflected in such forward-looking statements are
reasonable, we cannot give any assurance that such expectations will prove to
have been correct.  Important factors that could cause actual results
to differ materially from our expectations (“Cautionary Statements”) include,
but are not limited to:





·
            the
      lack of liquidity of our common
stock;


·
            the
      availability of capital and sufficiency of our working
      capital;


·
            our
      ability to maintain or improve profit margins, including our ability to
      utilize our manufacturing facilities at levels sufficient to cover our
      fixed costs;


·
            our
      ability to develop, manufacture and market innovative products in a
      competitive industry;


·
            the
      availability and cost of raw
materials;


·
            our
      ability to recruit and retain skilled and qualified
    personnel;


·
            the
      strength and financial resources of our
  competitors;


·
            general
      economic conditions; and


·
            the
      securities or capital markets and other factors disclosed under
      “Management’s Discussion and Analysis of Financial Condition and Results
      of Operations,” “Business” and elsewhere in this
  report.





You
should consider these Cautionary Statements when you evaluate our
forward-looking statements.  All subsequent written and oral
forward-looking statements attributable to us, or persons acting on our behalf,
are expressly qualified in their entirety by the Cautionary
Statements.  We assume no duty to update or revise our forward-looking
statements based on changes in internal estimates or expectations or
otherwise.














ENERGY
COMPOSITES CORPORATION





ANNUAL
REPORT ON


FORM
10-K


FOR
THE YEAR ENDED


DECEMBER
31, 2008





INDEX








PagePART IItem
      1.
                    Business
                    2Item
      1A.
                    Risk
      Factors
                    8Item
      1B.
                    Unresolved
      Staff Comments
                    8Item
      2.
                    Properties
                    8Item
      3.
                    Legal
      Proceedings
                    9Item
      4.
                    Submission
      of Matters to a Vote of Security Holders
                    9PART IIItem
      5.
                    Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
                    9Item
      6.
                    Selected
      Financial Data
                    10Item
      7.
                    Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
                    10Item
      7A.
                    Quantitative
      and Qualitative Disclosure About Market Risk
                    18Item
      8.
                    Financial
      Statements and Supplementary Data
                    18Item
      9.
                    Changes
      In and Disagreements With Accountants on Accounting and Financial
      Disclosure
                    45Item
      9A.
                    Controls
      and Procedures
                    45Item
      9B.
                    Other
      Information
                    46PART IIIItem
      10.
                    Directors,
      Executive Officers and Corporate Governance
                    46Item
      11.
                    Executive
      Compensation
                    46Item
      12.
                    Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                    46Item
      13.
                    Certain
      Relationships and Related Transactions, and Director
      Independence
                    47Item
      14.
                    Principal
      Accountant Fees and Services
                    47PART IVItem
      15.
                    Exhibits,
      Financial Statement Schedules
                    47








1


PART
I





Item
1.            Business.





Overview
and History





Energy
Composites Corporation (“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.





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”) and began operating FPF out of the same manufacturing facility used by
AFT.  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.





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 were 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.





Recent Financing
Activity.  On December 15, 2008, we closed our private offering
of units consisting of (i) a 3-year, 6% convertible debenture (the "Debentures")
with a conversion price of $2.50 per share, and (ii) a number of warrants (the
“Warrants”) exercisable into shares of the Company’s common stock equal to the
number of shares issuable upon conversion of the principal amount of the
Debentures.  Each Warrant is exercisable into shares of common stock
for a term of 3 years at $5.00 per share.  We issued Debentures with a
face amount of $6,370,000 and Warrants exercisable into 2,548,000 shares of
common stock.  As of December 31, 2008, Debentures totaling $3,875,000
have been converted into common stock of the Company.  The number of
shares of common stock issued as principal and interest for these conversions
totaled 1,579,157 shares.


2


Our
Business





We
design, manufacture, install and service complex composite structures to the
alternative energy, flue gas desulfurization (“FGD”), mining, pulp and paper,
water and waste water treatment, environmental compliance, petrochemical and
power generation industries.





We use
advanced composite materials to engineer and manufacture complex composite
structures, vessels and processing systems including holding tanks, ancillary
equipment manufactured from composite material, and composite ductwork and
piping.  We also provide maintenance, repair and overhaul (“MRO”)
services to the alternative energy industry, industrial retrofit services using
composites, and maintain full-time, 24/7 field service crews with full mobile
capability to provide plant shutdown and maintenance, refurbishing, tanks and
vat relining, tank field-erection, tank and equipment inspection and repair
services, as well as installation of pipelines, crossovers, hoods, scrubbers,
absorption towers, stacks and stack liners.  Our vinylester and
polyester resin, thermoplastic/fiberglass composite laminate, and carbon fiber
composite fabrication systems and processes meet or exceed the requirements set
by the Society of Plastic Industries, American Society of Testing Materials,
Reinforced Thermoset Plastics Corrosion Resistant Equipment Accreditation
Program established by the American Society of Mechanical Engineers (“RTP-1”),
and OSHA.  We are underway with the RTP-1 Certification process, and
upon completion, we will be one of only nine certified RTP-1 companies in the
world.  We believe this certification will provide a competitive edge
in the FGD marketplace as well as in other market sectors we serve.





We have
not made any material expenditure on research and development in the past two
fiscal years, although we have developed a solid portfolio of innovations in
material use, design and manufacturing process.  We developed these
innovations during production of goods for and delivery of services to our
clients.





The
following list identifies the various markets in which we currently
compete:





·
            Alternative
      Energy:  We manufacture bio-fuel storage tanks and piping
      systems as well as bio-fuel-related waste water treatment tank systems for
      ICM Bio Phoenix and US BioEnergy/Fagen Engineering (both headquartered in
      Kansas).  We are also designing new generation blade and other
      wind-energy structures using advancements in materials, manufacturing
      processes and structural design.





·
            Flue
      Gas Desulfurization:  We manufacture and install
      equipment for FGD systems for Hitachi (Japan), WE Energies (Milwaukee),
      Plasticon Europe (Netherlands) and Sargent & Lundy (Chicago), with a
      significant portion of our FGD manufacturing and installation performed on
      the client site.





·
            Mining:  We
      manufacture and install piping, ductwork, tanks and other structures for
      the mining industry, including the White Pine Copper
      Refinery.  We also fabricate composite tanks, piping and
      relining services for the chlor-alkali manufacturer, ERCO Worldwide
      (Canada).





·
            Environmental
      Compliance:  We engineer, manufacture and service
      composite-based odor control systems for Tyson Foods (Arkansas), Tonka
      (Minnesota) and SCP Controls
(Minnesota).





·
            Pulp
      and Paper:  We provide composite storage and piping
      solutions and inspection and repair services to pulp and paper
      manufacturers New Page (Ohio), International Paper (Memphis),
      Smurfit-Stone (Chicago), Glatfelter (Pennsylvania), Boise Cascade (Idaho),
      Domtar (Canada), Georgia Pacific (Atlanta), Verso Papers (Memphis) and
      Weyerhaeuser (Washington).





We
believe market opportunities exist in the growing composites manufacturing and
supply industry, and we plan to capture as much market share as we can during
this growth phase in the industry.  In addition to the markets
identified above, we plan to diversify and compete in new
markets.  Since 2007, we have aggressively expanded our operations and
our manufacturing capabilities in an effort to become a major player in the
composites manufacturing industry.  In 2009, we have started to
distribute composite-related raw materials to the composites industry in North
America.  We have outlined a four-part growth strategy in more detail
under the heading “Plan of Operation and Development.”


3


Manufacturing
Facilities and Processes





We own a
73,000 square-foot composites manufacturing plant in Wisconsin Rapids,
Wisconsin.  We have the ability to expand our facilities as we grow
and compete in new markets.  We have the option to purchase an
additional five acres of land adjacent to our existing facility which would
allow for expansion of our plant by an additional 316,650 square
feet.  We are also in negotiations to acquire additional land from the
local municipality that would allow for a further 350,000 square-foot expansion
of our manufacturing facilities for the purposes of building wind turbine blades
and other wind-energy related composite structures.  Our existing
plant has advanced climate control capabilities, critical in manufacturing
processes using industrial carbon fibers, as well as bulk materials storage
facilities that incorporate what we believe to be the latest and most advanced
designs.  Our bulk material storage facilities exceed all current and
envisioned environmental and workplace safety standards.  The plant
and material storage facilities have direct rail and highway
access.  Both of our planned expansions will share the same health and
safety, environmental and logistical capabilities.





Our plant
currently features four automated filament winders: (i) a computer-controlled,
dual-mandrel filament winder, the Ultra Helical model manufactured by Magnum
Venus, capable of producing, simultaneously, two 16-foot diameter, 43-foot long
products; (ii) an automated single-mandrel filament winder, Model 20C
manufactured by Dura-Winder, capable of producing a product up to 24 feet in
diameter and 20 feet long; and (iii) two automated, single-mandrel filament
winders, Model 10C manufactured by Dura-Winder, each capable of producing a
product up to 7 feet in diameter and 20 feet long.  We have also
designed and developed a custom-build vertical winder capable of manufacturing
structures up to 40 feet in diameter, and have successfully deployed it in late
2008.  We were able to save nearly 80% of the cost of the winder by
building it ourselves.





Based on
a standard product output, we have a fixed plant production capacity of 10
million pounds of finished standard product annually.  Full build-out
of the current plant would triple that capacity to 30 million pounds, and
development of the adjacent land would add another 40 million pounds in
capacity, for a total Wisconsin Rapids production capability of 70 million
pounds of finished product.  Today, we operate at a production rate
equivalent of 4.5 million pounds of finished standard product, so our
development plans will meet anticipated production demand for the foreseeable
future.





Mobile
Production Capability





We use
our mobile fabrication capability to service the FGD and other
markets.  We have a portable vertical winder capable of producing
product up to 30 feet in diameter.  We have recently ordered and are
awaiting delivery on a computerized, Magnum Venus portable winder capable of
producing products up to 40 feet in diameter and 43 feet in length for use in
multiple sectors, including our FGD markets.  We expect this winder to
be available for service beginning in April, 2009.  We are able to
produce more than 70% of our FGD component content directly on the client’s
site, which we believe will allow us to expand FGD revenues substantially
without significant investment in new manufacturing facilities.  We
are completing RTP-1 accreditation in order to become one of only nine
organizations meeting the standard globally.  We believe that our
mobile FGD capability already exceeds the RTP-1 standards.  We regard
expansion of our FGD capability as a priority because of the regulatory
requirements from recent amendments to the Clear Air Act that mandate that the
power generation industry install advanced FGD systems by 2015.  We
believe that our ability to operate as required under the RTP-1 standards and
our anticipated RTP-1 accreditation will allow us to enjoy a substantial
advantage over the competition.





Major
Customers





We have
three customers that accounted for approximately 39% of our total consolidated
revenues in 2008. The same three customers accounted for approximately 35% of
our outstanding accounts receivable at the end of 2008.  Sales to two
of these customers, Martin Manufacturing and ERCO Worldwide, represents an
amount greater than 10% of our Company’s consolidated revenues and the loss of
either customer could have a material adverse effect on the
Company.  Given the current and planned projects, we anticipate that
Martin Manufacturing and ERCO Worldwide will continue to be major customers for
some time.





4


We market
our products primarily through our internal sales personnel as well as a limited
network of independent sales representatives.  We intend to increase
both our internal and external sales force to improve our penetration into the
markets we serve.  We utilize internal transportation as well as
independent carriers to distribute our products to our customers.





Major
Suppliers





We use
three main suppliers of raw composites materials in our manufacturing
operations.  Payments to those suppliers accounted for 56% of all raw
materials purchased in 2008.  The same three suppliers accounted for
39% of all outstanding accounts payable at the end of 2008.





We have
established relationships with several domestic and foreign suppliers of the raw
materials used in our production processes and will use these sources according
to material availability and pricing.  In the event our primary
suppliers are unable to continue supplying our raw materials requirements, there
are several alternative suppliers available to fulfill our supply
needs.  We have not experienced supply procurement problems regarding
the primary raw materials used in the production process.





Plan
of Operation and Development





We have a
four-part expansion and diversification strategy encompassing activities that
promote “clean technology,” including expansion and diversification into the
alternative energy and environmental compliance sectors.  We believe
we are making progress across all four parts of our plan and we believe that we
will continue to meet our internal progress timetables.





Part
1:  We are expanding our market share in existing sectors:
bio-fuel, FGD, mining, environmental compliance, pulp and paper, and field
services product lines.  Three of these sectors (bio-fuel, mining, and
FGD) are still in the earliest stages of using composites, and we believe that
we are well positioned to deepen our vendor relationships with existing clients
as well as broaden our penetration to include other clients.  Market
growth in this sector is driven generally by regulatory
requirements.  For example, the federal government has mandated FGD
for power generation plants by 2015, environmental requirements for elimination
of the use of mercury in the production of chlorine-related products, and
federal mandates for bio-fuel production increasing from 6 billion gallons in
2007 to 36 billion in 2012.





We have
the ability to expand more aggressively into FGD services for the power
generation industry, and are focusing our marketing and client relationship
resources to strengthen that penetration.  Using mobile production
teams, we are penetrating this sector by using mobile units and dedicating a
portion of our fixed plant to support those teams.  As noted above, we
believe finishing our RTP-1 accreditation will enhance our ability to deliver a
stronger value proposition to utilities operating coal-fired power generation
plants and allow us to secure a price premium for our products and
services.  During 2008, we increased our field services capacity and
will continue to strengthen this capacity in parallel with the growth in demand
for our mobile manufacturing capability.  We are deploying both
marketing resources and technology resources to deliver FGD system components
with higher functionality, longer durability and lower costs.





Going
forward, Federal mandates for higher production levels in bio-fuels present an
attractive opportunity to expand within an existing market.  Recent
legislation calls for a six-fold increase in bio-fuel production over the next
five years, and since the Congress underestimated the capacity of the transport
and storage infrastructure for bio-fuels in the United States, the industry will
need to expand its efforts to deliver the needed complement of tanks, piping,
valves and other components for delivery of bio-fuels to the final
consumer.  We are in discussions with our largest bio-fuel customers
about their expansion plans, and are working to align our production schedules
with their needs.





We are
also expanding our mining sector support and production services to take
advantage of an anticipated upswing in North American mining operations due to
increased commodity pricing and substantial expansion of commodity demand in
China, Indonesia and other parts of the world.


5


We are in
negotiations to manufacture composite components, including tank/hulls and
ancillary structures. for a line of new-technology methane digesters used in the
production of farm-derived bio-fuel.  We believe that farm-derived
bio-fuel represents a substantial growth sector in the alternative fuels space,
and our value-added design and business model innovations for the sector should
help us grow our revenue in this sector over the next several
years.





Part
2:  We have entered the market for distributing epoxy resin raw
materials to wind system component manufacturers as part of an integrated
strategy to penetrate new markets like wind energy.  We are well along
in our negotiations to distribute carbon fiber raw material to the same
sector.  Our strategy is to become a significant distributor for
carbon fiber fabric, yarn and compatible epoxy resins as well as an exclusive
licensor for certain technology innovations and advanced design improvements for
use in the growing wind energy industry in North and South
America.  We plan to capitalize on a strong industry trend to build
and install larger wind turbines with longer, lighter blades designed to
increase the efficiency of the turbine’s generating performance and to shift
manufacture of nacelles and rotors from steel to carbon fiber and other
composite materials.





We have
negotiated an exclusive distribution agreement covering the Western Hemisphere
with a large Asian-based manufacturer of industrial grade epoxy resin for
fabrication using carbon fiber, and are in the final stages of a distribution
agreement negotiation for industrial grade carbon fiber fabrics and yarns with
another major supplier.  We also plan to supply epoxy resin to wind
energy manufacturers who are using conventional fibers in their component
design.





Part
3:  We have made substantial progress in the deployment of
our integrated strategy to diversify into the manufacture of composite
components for wind energy systems, especially blade assemblies, nacelle
housings and rotor components.  Use of composites in blade
manufacturing is at an early stage in the North American wind-energy
industry.  Many of the advanced manufacturing processes, material
selection, and product designs that we have deployed in our tank and piping
manufacturing business have not yet been deployed in the wind energy
industry.  We also have identified and/or developed additional
innovations that should provide substantial improvements to our wind energy
value proposition.  We intend to become a major manufacturer of wind
blades, blade components, and other system components by introducing these
composite manufacturing advancements into the wind energy industry.





We also
intend to become a significant provider of composites-related maintenance,
repair and overhaul services to the North American wind energy
industry.  Our field services capabilities, grown and strengthened in
our core markets, will be of substantial value to wind farm
operators.  We are devoting considerable marketing and engineering
resources to penetrate the wind MRO market, and believe that our value
proposition will make those efforts successful.





Part
4:  We believe there is an opportunity to produce structural
components for transportation and municipal water and wastewater infrastructure,
including rehabilitation of existing sewer lift stations and other system
components using composites rather than steel or concrete.  We have
developed advanced solutions that provide municipal wastewater agencies with
significant installed cost reductions and even more significant lifecycle cost
reductions, with important additional benefits in environmental protection and
worker health and safety.  We have already demonstrated the efficacy
of our approach in several key installations, and have devoted substantial
resources to expand our penetration of this sector significantly.  We
are looking at how to position our composites innovations and our raw material
distribution for the emerging transportation composites market, including new
construction and repair of existing infrastructure using carbon
fiber.  We intend to position ourselves as a manufacturer of these
components as this market continues to develop.





Taken
together, we believe our four-part strategy is establishing us as a leader in
the use of advanced composites across the alternative energy and environmental
compliance and protection industries, providing a promising platform for
sustainable and managed growth.





Future
Funding Requirements





We
require two tranches of funding to continue our expansion efforts and pursue our
plan to capture market share in our industry.  In 2008, we completed
the initial tranche of $6.37 million which provided the capital necessary to
purchase additional mobile winders to accelerate our penetration of the FGD
market.  The first tranche






6
 
 also
provided important working capital for the expansion of our carbon fiber and
resin distribution division as well as our wind blade component manufacturing
efforts.  We also used part of this first tranche in the purchase of
our manufacturing facility.  This first tranche of funding has
provided sufficient capital to allow us to pursue the first part of our growth
strategy during 2008.  We will need a second tranche of capital
to continue our expansion efforts and capture greater market share in new and
dynamic markets that are still in the early stages of utilizing composite
components and products.





We plan a
second tranche of financing of approximately $25 million to provide the initial
capital required for rapid expansion into the wind energy market, including
development of a new 350,000 square-foot blade manufacturing facility in
Wisconsin Rapids.  We anticipate that the needed capital will come
from exercise of the Warrants sold with the Debentures from the first tranche of
financing as well as a secondary private placement offering.  There
can be no guarantee that the Warrants will be exercised.  There is
also no guarantee that the secondary private placement will be taken up by
investors, nor do we know the price at which we should sell debt or equity
securities under this placement.  If the Warrants are not exercised or
the secondary private placement is unsuccessful, we may be forced to pursue
other sources of debt or equity financing to continue to develop our business
plan.  We have not yet identified any additional sources of debt or
equity financing and such additional financing may not be available to us upon
favorable terms or at all.





The
remainder of our current business plan will be financed through retained
earnings, although we envision the possibility of acquisition in order to expand
our capacity more quickly and secure strategic market presence.  In
such an event, we may need to raise additional funds through the sale of debt or
equity instruments.





Competition





We face
robust competition in our markets, and several of our competitors have
operations in our geographic markets.  We believe that our new
manufacturing facility, our automated filament winding equipment, the expansion
of our field service crews in 2008, and continued investment in workforce
training will enable us to strengthen our competitive position in the markets we
serve.  We believe these investments have substantially increased
production capacity and thereby improved our competitive position in the markets
we serve.  The following lists major competitors of which we are aware
in each of our major markets:





Composite
tanks for bio-fuel storage, mining, pulp and paper and petrochemical:  Belding
Tank Technologies, Inc. (Michigan), Ershigs, Inc. (Washington), Tankinetics,
Inc. (Arkansas) and Design Tanks, Inc. (South Dakota).  We believe our
manufacturing capacity is more advanced than our competitors in this
sector.





Flue gas
desulfurization:  Tankinetics,
Inc. (Arkansas), Ershigs, Inc. (Washington), AN-COR Industrial Plastics, Inc.
(New York), Augusta Fiberglass, Inc. (South Carolina), Plasticon Europe, B.V.
(Netherlands).  We believe that the unmet demand driven by the 2015
regulatory deadline for power plants in the United States provides more than
adequate market growth opportunity for us despite competition in this
area.





Water
management and storage:  Belding
Tank Technologies (Michigan), Ershigs, Inc. (Washington), Tankinetics, Inc.
(Arkansas), Design Tanks, Inc. (South Dakota) and one main piping manufacturer,
Future Pipe Industries (Dubai).  We anticipate substantial growth in
demand for quality water storage and management infrastructure over the next
five years, and believe that the competitive environment in this sector will
become more favorable for us.





Our key
geographic markets are in North America, and there is no significant competition
from overseas production facilities in any of our existing market
sectors.  We believe we enjoy certain manufacturing advantages over
several of our competitors with our extensive use of automated fabrication
processes and our highly skilled work force.  We believe these
advantages will continue to drive our competitive value as we expand our share
of existing markets and enter new ones.





7


Employees





At March
24, 2009, we employed 91 employees, of which 89 are full-time.  21 of
our employees are represented by the United Association of Plumbers and
Steamfitters under a contract that expires on May 31, 2009, and 4 are
represented by the United Association of Journeymen and Apprentices of Plumbing
and Pipefitting Industry of the United States and Canada under a contract which
expires on May 31, 2009.  We believe that our relationship with all of
our employees is good.





Government
Regulation of the Environment and Occupational Health and Safety





We are
subject to various federal, state and local environmental laws and regulations
that apply to the production, use and sale of composites, emissions into the
air, discharges into waterways and other releases of materials into the
environment and the generation, handling, storage, transportation, treatment and
disposal of waste and hazardous materials.  Compliance with these
requirements increases our costs and can result in process or operational
modifications, the installation of pollution control devices or cleaning up
grounds or facilities.





We
incurred a total of $50,981 in environmental regulatory compliance expenses in
2008, and $478,278 in 2007.  Our environmental regulatory compliance
expenses in 2007 were largely related to the start up of our new plant and the
associated regulatory approvals of health and safety, environmental protection
and other systems.





Going
forward, we believe that compliance with all current government regulations will
not have a material adverse effect on our results of operations or financial
condition.  The risk of additional costs and liabilities, however, is
inherent in certain plant operations and certain products produced at our plant,
as is the case with other companies in the composites
industry.  Therefore, we may incur additional costs or liabilities in
the future for regulatory compliance.  Other developments, such as
increasingly strict environmental, safety and health laws, regulations and
related enforcement policies, discovery of unknown conditions, and claims for
damages to property, persons or natural resources resulting from plant emissions
or products could also result in additional costs or liabilities.





A number
of foreign countries and domestic communities have enacted, or are considering
enacting, laws and regulations concerning the use and disposal of composite
materials.  Widespread adoption of these laws and regulations, along
with public perception, may have an adverse impact on sales of our
products.  More stringent regulation of the use and disposal of
composites may have an adverse effect on our business.





Item
1A.          Risk
Factors.





Not
applicable to smaller reporting companies; however, we have described the
general risks associated with our business in our Definitive Information
Statement on Schedule 14(C), filed with the SEC on September 24,
2008.





Item
1B.          Unresolved Staff
Comments.





Not
applicable to smaller reporting companies.





Item
2.             Properties.





Principal
Office, Plant and Equipment





Our
manufacturing facility serves as our principal office.  As discussed
in Item 1, we own a 73,000 square-foot composites manufacturing plant in
Wisconsin Rapids, Wisconsin.  Our plant secures our obligations under
our industrial revenue bonds.  We have the option to purchase an additional
five acres of land adjacent to our existing facility, which would allow for
expansion of our plant by an additional 316,650 square feet.  We are
also in negotiations to purchase an additional 50 acres across the street from
our existing plant for the development of a facility in which we can manufacture
blades for the wind energy market.  Our plant currently features four
automated filament winders and one portable large diameter vertical
winder.  We are also purchasing a portable winder capable






8
 
 of
producing products up to 40 feet in diameter and 43 feet in length which we
expect to be available for service beginning in April 2009.  All of our
winders serve as collateral for some of our long-term debt
obligations.





Item
3.             Legal
Proceedings.





We are
not currently involved in any material pending legal proceedings other than
ordinary routine litigation incidental to our business.





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





On August
29, 2008, a majority of our stockholders executed a written consent in lieu of a
special meeting of the stockholders authorizing the acquisition of AFT, the
amendment and restatement of our Articles of Incorporation, and the adoption of
the 2008 Stock Incentive Plan.  We filed and mailed a Definitive
Information Statement on Schedule 14C to our stockholders on or about September
24, 2008 containing all the details of the actions taken by majority written
consent.  Please refer to the Definitive Information Statement on
Schedule 14C filed on September 24, 2008 for further information relating to the
vote taken by our stockholders.





PART
II





Item
      5.
            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.





Market
Information





Since
July 17, 2007, our common stock has been quoted and traded on the OTC Bulletin
Board.  The trading symbol was changed from “LPME” to “ENCC” effective
October 15, 2008.  The following table sets forth the range of high
and low bid quotations for each quarter from July 17, 2007 for the years ended
December 31, 2007 and 2008.  These quotations reflect inter-dealer
prices without retail mark-up, markdown, or commissions and may not necessarily
represent actual transactions.





Bid
      Prices ($)High
                Low2007
      Fiscal Year:September
      30, 2007
                $0.10
                $0.10December
      31, 2007
                $0.10
                $0.102008
      Fiscal Year:March
      31, 2008
                $0.10
                $0.10June
      30, 2008
                $0.10
                $0.10September
      30, 2008
                $0.10
                $0.10December
      31, 2008
                $4.55
                $0.10





On March
27, 2009, the closing bid price for the common stock was $3.15.





Holders





The
number of record holders of our common stock, as of March 20, 2009, was 111
according to our transfer agent.





Dividends





Holders
of shares of common stock are entitled to dividends when, and if, declared by
the board of directors out of legally available funds.  To date, we
have not declared or paid any dividends on our common stock.  We do
not intend to declare or pay any dividends on our common stock in the
foreseeable future, but rather to retain any earnings to finance the growth of
our business.  Any future determination to pay dividends will be at
the discretion of






9
 
 our board
of directors and will depend on our results of operations, financial condition,
contractual and legal restrictions and other factors the board of directors
deems relevant.





Recent
Sales of Unregistered Securities





During
the year ended December 31, 2008, we issued and sold the unregistered securities
set forth in the table below.


Date
                              Persons
      or Class of Persons
                              Securities
                              ConsiderationOctober
      14, 2008
                              2
      accredited investors
                              28,750,000
      shares of common stock
                              100%
      of AFT’s outstanding common stockAugust
      to December 2008
                              75
      accredited investors
                              Convertible
      Debentures and Warrants to purchase 2,548,000 shares of common
      stock
                              $6,370,000December
      31, 2008
                              24
      accredited investors
                              1,579,157
      shares of common stock
                              Conversion
      of $3,875,000 of Debenture principal and $72,893 of accrued
      interest





No
underwriters were used in the above 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
6.               Selected
Financial Data.





Not
applicable to smaller reporting companies.





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





The
following discussion should be read in conjunction with the financial statements
and the related notes included herein as Item 8.  This discussion
contains forward-looking statements that involve risks and
uncertainties.  Our actual results could differ significantly from
those projected in the forward-looking statements.





Overview





AFT began
operations in 1995 as M&W.  All operating assets and liabilities
were transferred to AFT, a newly formed S-Corporation on January 1,
2005.  In 2007, M&W sold its former manufacturing facility and
built a larger facility in Wisconsin Rapids, Wisconsin.  In connection
with the sale of the former facility, AFT moved its operations to the new,
larger facility which AFT leased from M&W.  We purchased the new,
larger facility from M&W as of December 31, 2008 for
$4,500,000.  With the purchase of the manufacturing facility on
December 31, 2008, M&W is no longer considered a variable interest
entity.





During
2007 and for most of 2008, FPF operated in the same manufacturing facility as
AFT.  As of December 31, 2008, AFT was released as a guarantor of
FPF’s outstanding debt and FPF’s stockholder made a capital contribution to FPF
in the amount of $200,000 in order for FPF to have sufficient capital on its
own.  Therefore, as of December 31, 2008, FPF was no longer considered
a variable interest entity.





On
October 14, 2008, the Company completed a reverse acquisition of
AFT.  As a result of the reverse acquisition, the Company is no longer
considered a “development stage company” or a “shell” company.  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
(formerly Las Palmas Mobile Estates), for financial reporting purposes, the
business combination has been accounted for as an additional capitalization of
Energy Composites Corporation (a reverse acquisition with AFT as the accounting
acquirer).  Accordingly, AFT’s net assets were included in the
consolidated balance sheet at their


10






The
discussion of the results of AFT’s operations and financial condition included
herein includes the operations of M&W and FPF through December 30,
2008.  Neither M&W nor FPF were part of the reverse acquisition
transaction, therefore, the revenues and expenses attributable to M&W and
FPF should not be considered part of AFT.  The discussion below
separates the revenues and expenses attributable to M&W and
FPF.





Summary
of Significant Accounting Policies





The
discussion and analysis of our financial condition and results of operations are
based on our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the U.S.  While our
significant accounting policies are described in more detail in Note 1 to our
financial statements, we believe the following accounting policies to be
critical to the judgments and estimates used in preparation of our financial
statements.





Principles
of Consolidation and Basis of Presentation





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





We
consolidate our financial results in accordance with Financial Accounting
Standards Board (“FASB”) Interpretation No. 46R, Consolidation of Variable Interest
Entities (“FIN 46R”), which requires a company to consolidate entities
determined to be variable interest entities (“VIEs”), for which we are deemed to
be the VIE’s primary beneficiary.  Refer to Note 3 of our consolidated
financial statements, “Consolidation of Variable Interest Entities,” for further
information on consolidated VIEs.





Trade
Accounts Receivable





Trade
accounts receivable are recorded at the invoiced amount.  The
allowance for doubtful accounts is our best estimate of the amount of probable
credit losses in our existing accounts receivable.  We determine the
allowance based on our historical write-off experience.  We review our
allowance for doubtful accounts monthly.  Individual accounts with
past due balances over 90 days are specifically reviewed for
collectibility.  All other balances are reviewed on a pooled
basis.  Account balances are charged off against accounts receivable,
as bad debt, after all means of collection have been exhausted and the potential
for recovery is considered remote.  Finance charges are accrued
monthly, but not recognized on past due trade receivables until management
determines that such charges will be collected.





Inventories





Inventories
are stated at the lower of cost or market, with cost determined on the first-in,
first-out (“FIFO”) basis.  Reserves are recorded for estimated excess
and obsolete inventories based primarily on forecasts of product demand and
estimated production requirements.  No reserve was deemed necessary
for excess and obsolete inventories at December 31, 2008 and 2007.





Inventories
consists of raw materials, work-in-process and on a limited basis, finished
goods.  Raw materials consist of components and parts for general
production use.  Work-in-process consists of labor and overhead,
processing costs, purchased subcomponents and materials purchased for specific
customer orders.





Property
and Equipment





Property
and equipment are stated at cost.  Depreciation is provided on the
straight-line method over the estimated useful lives of the respective
assets.  Maintenance and repairs are charged to expense as incurred;
major renewals and betterments are capitalized.  As items are sold or
retired, the related cost and accumulated depreciation are removed from the
accounts and any gain or loss is included in operating income.





11


The
estimated useful lives for computing depreciation are as follows:





YearsBuilding
                40Building
      and land improvements
                15Computer
      equipment
                3
      to 5Manufacturing
      equipment
                5
      to 10Furniture
      and office equipment
                5
      to 10Vehicles
      and trailers
                5





Revenue
Recognition





We derive
revenue primarily from the sale of manufactured products (tanks, piping, &
ductwork), installation of those tanks on occasion and
service/repair.  In accordance with SEC Staff Accounting Bulletin No.
104, Revenue
Recognition (“SAB 104”), revenue is recognized when persuasive evidence
of an arrangement exists, the price is fixed and determinable, transfer of title
has occurred, services have been rendered or delivery has occurred per contract
terms and collection of the related receivable is reasonably
assured.  At times, customer deposits and other receipts are received
and are deferred and recognized as revenue when earned.





Most of
our products are sold without installation services included.  Revenue
for product only sales is generally recognized at the time of shipment and if
all other contractual obligations have been satisfied.  When we
provide a combination of products and installation services, the arrangement is
evaluated under Emerging Issues Task Force Issue (“EITF”) No. 00-21, Revenue Arrangements with Multiple
Deliverables.  Most installation work is generally done in a
short period of time (less than 30 days) and the corresponding revenue is
recorded upon the completion of the installation and all contractual obligations
have been met.





For any
service/repair, most work is performed on a time and material basis and revenue
is recognized upon performance.





Income
Taxes





Income
taxes are provided for using the liability method of accounting in accordance
with Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes,
and clarified by FIN 48, Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109.  A deferred
tax asset or liability is recorded for all temporary differences between
financial and tax reporting.  Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases.  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.  Deferred tax
assets and liabilities are adjusted for the effect of changes in tax laws and
rates on the date of enactment.





Prior to
January 1, 2008, we, with the consent of our stockholder, elected under the
Internal Revenue Code to be an S-Corporation.  In lieu of corporate
income taxes, the stockholders of an S-Corporation are taxed on their
proportionate share of the Company’s taxable income.  Therefore, no
provision or liability for federal or state income taxes had been recorded prior
to January 1, 2008.





Effective
January 1, 2008, we terminated our S-Corporation election.  We
operated as a C-Corporation in 2008 and are subject to income and deferred taxes
on taxable income or losses.





As
previously noted, we consolidate our financial results under the provisions of
FIN 46R.  For income tax purposes, however, we are not considered a
consolidated entity.  As a result, income generated by M&W and
FPF, as well as any losses recognized, are excluded from our net income (loss)
which is ultimately reported in our corporate tax returns.





12


Results
of Operations





For the
years ended December 31, 2008 and 2007, we generated $9,285,544 and $6,541,256
of consolidated revenue, respectively.  Revenue attributable to both
M&W and FPF represented $611,268 and $168,836 of total consolidated revenue
in 2008 and 2007, respectively.  The increased revenue of $2,744,288
in 2008 represents 42.0% growth in revenue over 2007.  $442,432 of
that increase, or 16.1% of total growth, is attributable to M&W and
FPF.  We successfully diversified our client base and strengthened our
expansion of core markets in concert with Part 1 of our growth
strategy.  Our revenue growth was primarily attributable to volume
increases in product sales to the corrosion resistance markets, including
flue-gas desulfurization, chemical storage, and water handling, as well as
growth in sales of service and installation contracts in the field service
division.  For the year ended December 31, 2008, we recorded
$1,263,325 of incremental revenue from product sales and $1,038,531 of
incremental revenue from service and installation sales compared to the year
ended December 31, 2007.  Our largest customer accounted for 17.3% of
total consolidated sales for the year ended December 31, 2008 compared to 47.3%
for the year ended December 31, 2007.





Cost of
goods sold was $7,668,832 and $5,067,245 during the years ended December 31,
2008 and 2007, respectively.  Consolidated cost of goods sold is net
of eliminations of rental activity for M&W of $399,000 and $169,000 in 2008
and 2007, respectively.  Costs of goods sold attributable to both
M&W and FPF represented $213,493 and $23,361 in 2008 and 2007,
respectively.  The increased cost of goods sold of $2,601,587
represents a 51.3% increase over 2007.  $190,132 of that increase, or
7.3%, is attributable to M&W and FPF.  On a non-consolidated
basis, the major 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 rent,
which is eliminated upon consolidation, and utilities and depreciation for our
manufacturing facility, travel and lodging expense associated with field service
activities, manufacturing supplies, and depreciation of manufacturing equipment
and building.  For the year ended December 31, 2008, on a
non-consolidated basis, our cost of materials decreased to 27% of revenue from
33% of revenue for the year ended December 31, 2007.  The primary
decrease in material cost is the result of operating efficiencies gained through
new plant equipment.  Our cost of labor increased to 38% of revenue
from 34% of revenue for the year ended December 31, 2007.  The primary
increases in labor costs, on a non-consolidated basis, are the start-up of the
field service division in 2008 and increased employee benefit costs, primarily
health insurance.  For the year ended December 31, 2008, on a
non-consolidated basis, manufacturing overhead increased to 21% of revenue from
13% of revenue for the year ended December 31, 2007.  The primary
increases in manufacturing overhead are increased costs associated with our new
manufacturing facility which we began occupying in August 2007.  We
purchased the manufacturing facility from M&W on December 31,
2008.  While our cost of goods sold results are not out-of-line with
our operating plan, we have identified several opportunities to reduce those
costs and have begun to implement those changes in 2009.





Gross
profit for the years ended December 31, 2008 and 2007 was $1,616,712 and
$1,474,011, or 17.4% and 22.5% of revenue, respectively.  Gross profit
attributable to both M&W and FPF in 2008 and 2007 was $397,775 and $145,475,
respectively.  Excluding M&W and FPF, our gross profit was
approximately 14.1% and 20.8% of its revenue in 2008 and 2007,
respectively.  Our 2008 gross profit results are several percentage
points lower than our operating plan, driven primarily by inefficiencies
associated with the start-up of our field services division in mid-2008 and the
higher manufacturing overhead charges associated with our investment in our new
factory.  We do not anticipate experiencing field service division
inefficiencies in 2009, and we believe that the increased production volume
projected for 2009 should spread our manufacturing overhead charges over a
larger base, thus returning gross profit margin in 2009 to our higher historic
levels.





Consolidated
selling, general and administrative expenses were $2,689,714 and $1,233,521 for
the years ended December 31, 2008 and 2007, and represents 29.0% and 18.9% of
revenue, respectively.  Consolidated selling, general and
administrative expenses are net of eliminations of rental activity for M&W
of $21,000 and $9,000 in 2008 and 2007, respectively.  Selling,
general and administrative expenses for both M&W and FPF were $35,467 and
$8,619 in 2008 and 2007.  The increase in our expenses is primarily
due to (i) increased sales and administrative headcount to support the growing
operations which increased expenses by $995,885 in 2008; (ii) increased overhead
associated with larger facilities which increased expenses by $68,113 in 2008;
(iii) an increase in






13
 
 our
allowance for doubtful accounts of $75,842; (iv) additional selling expenses of
$153,409; and (v) additional administrative and general overhead costs of
$136,096.  Our 2008 increase in selling, general and administration
expenses fell within expected ranges.  Our growth strategy, including
our emergence as an operating public company, has required us to invest in
certain in-house capabilities, such as expanded engineering and design, more
robust human resource management, and augmented financial and legal staff, as
well as in a more aggressive, and thus more costly, sales and marketing
program.  We anticipate these investments will generate substantial
revenue enhancement and cost reduction benefits in 2009 and
beyond.





In 2007,
we recognized a one-time gain on the sale of the land and building of
$100,220.  This gain was due to M&W’s sale of the former
manufacturing facility and was not attributable to us.





We
recorded merger expenses of $716,635 in 2008 related to the reverse acquisition
of AFT.  $420,000 of this expense was recorded for the issuance of
4,750,000 shares of common stock to a third party consultant for services
provided as part of the Share Exchange Agreement.  The remaining
$296,635 of expense was primarily legal, accounting and audit fees related to
the reverse acquisition transaction.





Income
(loss) from operations was $(1,789,637) and $340,710 for the years ended
December 31, 2008 and 2007, and represents (19.3%) and 5.2% of revenue,
respectively.  Income from operations attributable to both M&W and
FPF was $362,308 and $237,076 in 2008 and 2007, respectively.  After
removing the M&W and FPF income, (loss) from operations in 2008 was
$(2,151,945), or (23.2%) of revenue.  The $2,255,579 decrease in 2008
from 2007 is primarily due to increased cost of goods sold, reverse acquisition
related expenses, costs associated with public company reporting, and the
increase in selling, general and administrative expenses observed in 2008, as
described above.





Interest
expense was $4,394,866 and $132,274 for the years ended December 31, 2008 and
2007, respectively, an increase of $4,262,592.  Interest expense
relating to M&W and FPF for the years ended December 31, 2008 and 2007 was
$212,880 and $68,881, respectively.  Non-cash amortization of debt
discounts for warrants and beneficial conversion feature related to the
convertible debt was $3,918,891 in 2008.  The remaining increase is
due to increased short and long-term debt borrowings in 2008 relating to the new
manufacturing facility and equipment and working capital lines of credit to fund
our growing operations.  In 2008, interest expense was partially
offset by bank interest income of $6,618.  In 2007, interest expense
was partially offset by $2,783 in finance charges to customers.  AFT
was either a co-borrower or a guarantor on all of the consolidated Company’s
debt until December 2008, at which time we received a release of guaranty on all
FPF debt.  We purchased our manufacturing facility from M&W on
December 31, 2008 and assumed the related debt and therefore, we are no longer a
guarantor of any remaining M&W debt obligations.





Our
consolidated income (loss) before non-controlling interest in variable interest
entities was $(6,177,885) and $211,219 for the years ended December 31, 2008 and
2007, respectively.  The income attributable to both M&W and FPF
was $149,445 and $168,195 for 2008 and 2007, respectively, and has been
subtracted out to arrive at net income (loss) before income tax attributable to
us totaling $(6,327,330) and $43,024 for the years ended December 31, 2008 and
2007, respectively.





We
recorded a net income tax benefit for the year ended December 31, 2008 of
$2,215,000.  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.  We recorded an income
tax benefit totaling $2,325,000 for the year ended December 31,
2008.  We believe the full amount of the benefit is realizable due to
our previous history of operating profits and, therefore have not recorded a
valuation allowance against the deferred tax benefits.  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.  Since we operated as an S-Corporation in
2007, no income tax provision was recorded for that year.





Net loss
for the year ended December 31, 2008 was $(4,112,330) compared to a net income
of $43,024 for the year ended December 31, 2007, as a result of the factors
described above.





14






Liquidity
and Capital Resources





Our
liquidity and capital resources are driven by our growth
strategy.  Beginning in 2007 and continuing through 2008, we
significantly expanded our operations and our manufacturing
capabilities.  We have invested in our plant and equipment to become a
large manufacturing concern.  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.





As of
December 31, 2008, cash and cash equivalents totaled $2,985,289.  Our
primary source of liquidity is cash generated from operations and from short and
long-term term financing arrangements.  We believe we have available
resources to meet our liquidity requirements, including debt service, for the
remainder of 2009.  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.  As discussed in Item 1. of this report,
we believe we need additional capital of $25 million to expand our business
according to our four-part growth plan.  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.





In August
2008, we began a private placement offering of 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”).  This placement offering was in anticipation of the AFT
reverse acquisition taking place which became effective on October 14,
2008.





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.





The
private placement was closed on December 15, 2008.  Debentures in the
aggregate principal amount of $6,370,000 were sold which included the issuance
of 2,548,000 Warrants.  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.  We used the Black-Scholes-Merton pricing model as a
method for determining the estimated fair value of the Warrants.





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.  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 a 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.






15
 
 Operating
Cash Flows
 
 Operating
activities used $2,939,295 of cash for the year ended December 31, 2008, while
$113,673 of cash was provided by operating activities for the year ended
December 31, 2007.  The increase in cash used by operating activities
for 2008, compared to 2007, was due primarily to the significant increases in
accounts receivable and inventories associated with a large contract we were
engaged in at year end and the overall net loss for 2008.  These
increases in operating cash uses were partially offset by increases in accounts
payable and customer deposits





During
the year ended December 31, 2008, we recorded non-cash reverse acquisition
related expenses totaling $420,000 and non-cash expenses related to interest
payments on outstanding convertible debt and debt discounts on warrants and
convertible debt totaling $3,991,784.  In addition, a non-cash income
tax benefit of $2,215,000 was recorded for the year ended December 31,
2007.  There was no income tax effect in 2007 since we were operating
as an S-Corporation during that year.  For the year ended December 31,
2008, depreciation and amortization expense increased $201,016, from $150,065
during the year ended December 31, 2007 to $351,081 during the year ended
December 31, 2008.  The overall increase in depreciation and
amortization was primarily due to having a full year of expense related to
moving into the new plant and acquiring new equipment late in 2007 and during
2008.  Increases in other non-cash items such as accrued payroll and
accrued expenses associated with increased headcount at AFT were also recorded
in 2008, compared to 2007.  Our variable interest entities, FPF and
M&W, recorded similar results in 2008, compared to 2007 having minimal
impact on operating cash flows.





Investing
Cash Flows





Investing
activities used $1,709,926 of cash for the year ended December 31, 2008 and
provided $181,722 of cash for the year ended December 31, 2007.  The
primary use of cash in investing activities for 2008 was the purchase of
additional manufacturing equipment supporting plant and field service
activities, as well as purchase of office equipment for added office staff
positions.  Our consolidated balance sheet at December 31, 2008 does
not include the assets and liabilities of M&W and FPF.  We
purchased the manufacturing facility from M&W on December 31, 2008, the sole
stockholder of FPF contributed an additional $200,000 of capital to FPF on
December 31, 2008, and all our prior guarantees of M&W and FPF debt were
released by our lender.  Therefore, we concluded the primary
beneficiary relationship with these VIE entities terminated on December 30,
2008.  The impact of discontinuing the consolidation of FPF and
M&W is similar to that of a discontinued business operation and the related
cash balances of the entities are shown as decrease in cash from investing
activities in the amount of $72,381 for the year ended December 31,
2008.  Also, as part of the building purchase from M&W, we paid
$500,000 in cash.





The cash
provided by investing activities in 2007 was due to the sale of the prior
manufacturing facility by M&W netting $372,670 in proceeds, which was
partially offset by our $190,948 investment in new capital
equipment.





Financing
Cash Flows





Financing
activities provided $7,603,771 and used $278,855 for the years ended December
31, 2008 and 2007, respectively.  Proceeds from financing activities
for the year ended December 31, 2008 include $6,370,000 raised from the private
placement offering of convertible debt and warrants described above, as well as
$1,556,504 net borrowing from short-term notes.  Cash used in
financing activities for 2008 included a reduction in bank overdrafts of
$168,087, payments on long-term debt of $281,648, distributions to a stockholder
of $68,000 primarily for income taxes due by the shareholders relating to the
pass through income from M&W and FPF, and $10,620 for legal expenses related
to the issuance of convertible debt.





Financing
activities for 2007 included payments on long-term debt of $399,260 and net
payments to stockholders of $234,198 (consisting of AFT payments totaling
$90,699 and M&W and FPF payments totaling $143,499).  These
distributions to the stockholders were primarily for income taxes due by the
shareholder relating






16
 
 to the
pass through income from AFT, M&W and FPF.  These uses of cash
were partially offset by net short-term bank borrowings of
$411,916.
 In 2007,
M&W constructed the new manufacturing facility at Commerce Drive which AFT
leased.  Financing for the facility was completed with a $3,000,000
Industrial Revenue Bond issued by the City of Wisconsin Rapids.  This
is a 5.50% bond expiring July 2027.  Monthly principal and interest
payments are $20,766.  Plant and process equipment for the new
facility was financed by the Company with two additional $500,000 Industrial
Revenue Bonds expiring July 2014.  These bonds carry interest at
5.75%.  Monthly principal and interest payments for each
of these bonds are $7,266.  In addition to the $1,000,000 in revenue
bonds for equipment, the Company received a $500,000 Note from the City of
Wisconsin Rapids for additional equipment purchases.  This Note
expires April, 2012 and carries interest at 2%.





The
Industrial Revenue Bond Agreement states that the Industrial Revenue Bonds are
secured by all of the assets of the Company and that insurance be maintained on
the collateral.  The Bond Agreement requires us to comply with
standard covenants, including financial covenants relating to ratios of tangible
net worth, debt service coverage, and total indebtedness to tangible net
worth.  In addition, we must maintain a $4,000,000 key man life
insurance policy upon the life of Jamie Mancl, ECC’s President.  The
Industrial Revenue Bonds become immediately due and payable upon breach of any
covenants or representations made by us in the Bond Agreement and upon other
customary events of default.





At
December 31, 2008, the financial covenants applied to AFT alone and AFT was not
in compliance with the covenants.  AFT received a waiver letter from
its lender, Nekoosa Port Edwards State Bank (“NPESB”), dated August 26, 2008,
which waives the financial covenants through December 30, 2009.  On
March 13, 2009, we 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 us and our subsidiary AFT on a consolidated basis.  The
covenants require the consolidated Company to maintain (a) Debt Service Coverage
Ratio of not less than 1.25 to 1, (b) Debt to Equity Ratio of not more than 3.5
to 1, and (c) Equity level of not less than $600,000.  The next
measurement date of these covenants will be December 31, 2009.





For the
year ended December 31, 2008, we increased our borrowing under one of the
$500,000 industrial revenue bonds by $67,673 to fully use the available loan
amount.  The borrowing financed the purchase of additional
manufacturing equipment.  As of March 25, 2009, we have increased our
short-term borrowings for working capital purposes through two new short-term
notes totaling $500,000.  Each note carries a three-month term, 6.75%
interest per annum, is secured by our business assets and receivables and
certain customer purchase orders.





We have
entered into various operating leases to support operations in
2008.  We lease several vehicles supporting our Field Services
Division, forklifts for the plant, office equipment, office space in Hastings,
Michigan, and lodging space in Biron, Wisconsin.  Total monthly lease
payments for this equipment and office space are $4,521.  The lease
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.  AFT leased its manufacturing facility at Commerce Drive,
Wisconsin Rapids, Wisconsin from M&W who was considered a variable interest
entity of AFT until December 31, 2008 when the Company purchased the facility
from M&W for $4,500,000.  The lease was established on August 1,
2007 for a 20-year term.  From August 1, 2007 to December 31, 2007,
AFT paid $30,000 per month.  Starting on January 1, 2008, the lease
called for monthly payments of $35,000 with an annual adjustment to reflect the
changes in the cost of living.





In May
2008, AFT received a $300,000 short-term bridge note from a consultant and
shareholder, who was helping with the reverse acquisition transaction, to assist
with operating cash flow until the Reverse Acquisition was
consummated.  $200,000 of this note was settled with the lender during
2008 and the balance was transferred to the private placement
offering.





17


Table
of Contractual Obligations





The
following table details the timing and total amounts payable by us as of
December 31, 2008 under our various contracts:





Payments
      due by periodContractual
      obligations
                                                  
                                                  Total
                                                  
                                                  
                                                  Less
      than 1 year
                                                  
                                                  
                                                  1-3
      years
                                                  
                                                  
                                                  3-5
      years
                                                  
                                                  
                                                  More
      than 5 yearsLong-Term
      Debts
                                                  
                                                  $
                                                  8,225,567
                                                  
                                                  
                                                  $
                                                  496,475
                                                  
                                                  
                                                  $
                                                  3,481,224
                                                  
                                                  
                                                  $
                                                  968,644
                                                  
                                                  
                                                  $
                                                  3,279,224Capital
      Leases
                                                  
                                                  
                                                  13,451
                                                  
                                                  
                                                  
                                                  7,101
                                                  
                                                  
                                                  
                                                  6,350
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Operating
      Leases
                                                  
                                                  
                                                  115,715
                                                  
                                                  
                                                  
                                                  37,448
                                                  
                                                  
                                                  
                                                  56,678
                                                  
                                                  
                                                  
                                                  21,589
                                                  
                                                  
                                                  
                                                  -Purchase
      Obligations
                                                  
                                                  
                                                  463,143
                                                  
                                                  
                                                  
                                                  463,143
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Other
      Long-Term Liabilities
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Total
                                                  
                                                  $
                                                  8,817,876
                                                  
                                                  
                                                  $
                                                  1,004,167
                                                  
                                                  
                                                  $
                                                  3,544,252
                                                  
                                                  
                                                  $
                                                  990,233
                                                  
                                                  
                                                  $
                                                  3,279,224





Much of
our long-term debt can be attributed to our expansion, including the purchase of
our manufacturing plant, our investment in mobile manufacturing capabilities and
our field services division, and the increase in our administrative staff to
manage our growth.





Off-Balance
Sheet Arrangements





We did
not have any off-balance sheet arrangements as of December 31,
2008.





Item
7A.          Quantitative and
Qualitative Disclosure About Market Risk.





Not
applicable to smaller reporting companies.





Item
8.             Financial
Statements and Supplementary Data.





ENERGY
COMPOSITES CORPORATION


(Formerly
LAS PALMAS MOBILE ESTATES)


CONSOLIDATED
FINANCIAL STATEMENTS


FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007





ENERGY
      COMPOSITES CORPORATIONTABLE
      OF CONTENTSPAGEReport
      of Independent Registered Public Accounting Firm
                19Consolidated
      Financial Statements:Consolidated
      Balance Sheets
                20Consolidated
      Statements of Operations
                21Consolidated
      Statements of Stockholders’ Equity
                22Consolidated
      Statements of Cash Flows
                23Notes
      to Consolidated Financial Statements
                25


18





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM








To the
Board of Directors and Stockholders of


Energy
Composites Corporation





We have
audited the accompanying consolidated balance sheets of Energy Composites
Corporation as of December 31, 2008 and 2007, and the related consolidated
statements of operations, stockholders’ equity, and cash flows for the years
then ended.  Energy Composites Corporation’s management is responsible
for these financial statements. Our responsibility is to express an opinion on
these financial statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting.  Our audit included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company’s
internal control over financial reporting. Accordingly, we express no such
opinion.  An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.  We
believe that our audits provide a reasonable basis for our opinion.





In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Energy Composites Corporation as of
December 31, 2008 and 2007, and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.





/s/
Carver Moquist & O’Connor, LLC











Bloomington,
Minnesota


March 23,
2009

















19




ENERGY
      COMPOSITES CORPORATIONCONSOLIDATED
      BALANCE SHEETSDecember
      31,2008
                              
                              
                              2007ASSETSCurrent
      assets:Cash
                              
                              $
                              2,985,289
                              
                              
                              $
                              30,739Accounts
      receivable, net of allowance for doubtfulaccounts
      of $108,000 in 2008 and $26,000 in 2007
                              
                              
                              2,556,945
                              
                              
                              
                              1,152,089Inventories,
      net
                              
                              
                              1,353,915
                              
                              
                              
                              864,698Deferred
      income taxes
                              
                              
                              68,000
                              
                              
                              
                              -Other
      current assets
                              
                              
                              107,423
                              
                              
                              
                              25,772Total
      current assets
                              
                              
                              7,071,572
                              
                              
                              
                              2,073,298Property
      and equipment, net
                              
                              
                              5,682,457
                              
                              
                              
                              4,817,856Other
      assets:Deferred
      income taxes
                              
                              
                              1,787,000
                              
                              
                              
                              -Intangible
      assets, net
                              
                              
                              69,815
                              
                              
                              
                              77,397Total
      other assets, net
                              
                              
                              1,856,815
                              
                              
                              
                              77,397Total
      assets
                              
                              $
                              14,610,844
                              
                              
                              $
                              6,968,551LIABILITIES AND STOCKHOLDERS’
      EQUITYCurrent
      liabilities:Current
      portion of long-term debt obligations
                              
                              $
                              503,576
                              
                              
                              $
                              337,533Lines
      of credit - bank
                              
                              
                              -
                              
                              
                              
                              224,378Short-term
      notes payable
                              
                              
                              1,000,000
                              
                              
                              
                              500,000Book
      overdraft payable
                              
                              
                              -
                              
                              
                              
                              168,087Accounts
      payable
                              
                              
                              1,421,423
                              
                              
                              
                              662,409Accounts
      payable - related party
                              
                              
                              89,372
                              
                              
                              
                              -Accrued
      expenses
                              
                              
                              162,136
                              
                              
                              
                              17,298Accrued
      payroll and payroll taxes
                              
                              
                              324,339
                              
                              
                              
                              166,145Due
      to officer/stockholder
                              
                              
                              -
                              
                              
                              
                              22,851Customer
      deposits
                              
                              
                              431,775
                              
                              
                              
                              150,000Total
      current liabilities
                              
                              
                              3,932,621
                              
                              
                              
                              2,248,701Long-term
      debt obligations, net of current portion
                              
                              
                              5,487,293
                              
                              
                              
                              4,141,473Non-controlling
      interest in variable interest entities
                              
                              
                              -
                              
                              
                              
                              100,367Stockholders’
      equity :Common
      stock - $.001 par value; 100,000,000 sharesauthorized,
      41,579,157 and 24,000,000 shares issuedand
      outstanding, respectively
                              
                              
                              41,579
                              
                              
                              
                              24,000Additional
      paid-in capital
                              
                              
                              8,998,941
                              
                              
                              
                              191,270Retained
      earnings (deficit)
                              
                              
                              (3,849,590
                              )
                              
                              
                              262,740Total
      stockholders’ equity
                              
                              
                              5,190,930
                              
                              
                              
                              478,010Total
      liabilities and stockholders’ equity
                              
                              $
                              14,610,844
                              
                              
                              $
                              6,968,551





See notes
to the consolidated financial statements.


20





ENERGY
      COMPOSITES CORPORATIONCONSOLIDATED
      STATEMENTS OF OPERATIONSFor
      the YearsEnded
      December 31,2008
                                  
                                  
                                  2007Revenue
                                  
                                  $
                                  9,285,544
                                  
                                  
                                  $
                                  6,541,256Cost
      of goods sold
                                  
                                  
                                  7,668,832
                                  
                                  
                                  
                                  5,067,245Gross
      profit
                                  
                                  
                                  1,616,712
                                  
                                  
                                  
                                  1,474,011Selling,
      general and administrative expenses
                                  
                                  
                                  2,689,714
                                  
                                  
                                  
                                  1,233,521Merger
      expenses
                                  
                                  
                                  716,635
                                  
                                  
                                  
                                  -Gain
      on sale of land and building - variable interest entity
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (100,220
                                  )Income
      (loss) from operations
                                  
                                  
                                  (1,789,637
                                  )
                                  
                                  
                                  340,710Other
      income (expense):Interest
      expense
                                  
                                  
                                  (4,394,866
                                  )
                                  
                                  
                                  (132,274
                                  )Interest
      income
                                  
                                  
                                  6,618
                                  
                                  
                                  
                                  2,783Total
      other income (expense)
                                  
                                  
                                  (4,388,248
                                  )
                                  
                                  
                                  (129,491
                                  )Income
      (loss) before non-controlling interest in variable interest
      entities
                                  
                                  
                                  (6,177,885
                                  )
                                  
                                  
                                  211,219Non-controlling
      interest in variable interest entities
                                  
                                  
                                  (149,445
                                  )
                                  
                                  
                                  (168,195
                                  )Income
      (loss) before provision for income taxes
                                  
                                  
                                  (6,327,330
                                  )
                                  
                                  
                                  43,024Income
      tax benefit
                                  
                                  
                                  (2,215,000
                                  )
                                  
                                  
                                  -Net
      income (loss)
                                  
                                  $
                                  (4,112,330
                                  )
                                  
                                  $
                                  43,024Net
      loss per common share - basic and diluted
                                  
                                  $
                                  (0.14
                                  )
                                  
                                  $
                                  -Weighted
      average shares outstanding - basic and diluted
                                  
                                  
                                  28,903,102
                                  
                                  
                                  
                                  24,000,000





See notes
to the consolidated financial statements.


21





ENERGY
      COMPOSITES CORPORATIONCONSOLIDATED
      STATEMENTS OF STOCKHOLDERS’ EQUITYFor
      the Years Ended December 31, 2008 and 2007Additional
                          
                          
                          Retained
                          
                          
                          TotalCommon
      Stock
                          
                          
                          Paid-In
                          
                          
                          Earnings
                          
                          
                          Stockholders’Shares
                          
                          
                          Amount
                          
                          
                          Capital
                          
                          
                          (Deficit)
                          
                          
                          EquityBalance
      at December 31, 2006
                          
                          
                          24,000,000
                          
                          
                          $
                          24,000
                          
                          
                          $
                          191,270
                          
                          
                          $
                          333,266
                          
                          
                          $
                          548,536Net
      income
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          43,024
                          
                          
                          
                          43,024Stockholders’
      distributions
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (113,550
                          )
                          
                          
                          (113,550
                          )Balance
      at December 31, 2007
                          
                          
                          24,000,000
                          
                          
                          
                          24,000
                          
                          
                          
                          191,270
                          
                          
                          
                          262,740
                          
                          
                          
                          478,010Recapitalization
      of ECC upon executionof
      share exchange agreement
                          
                          
                          11,250,000
                          
                          
                          
                          11,250
                          
                          
                          
                          (11,250
                          )
                          
                          
                          
                          
                          
                          
                          -Stock
      issued for merger transaction costs
                          
                          
                          4,750,000
                          
                          
                          
                          4,750
                          
                          
                          
                          415,250
                          
                          
                          
                          
                          
                          
                          
                          420,000Transfer
      of net tangible assets frommerger
      transactions
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          3,792,991
                          
                          
                          
                          
                          
                          
                          
                          3,792,991Issuance
      of warrants and recordinga
      beneficial conversion chargerelated
      to convertible debt
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          1,458,000
                          
                          
                          
                          
                          
                          
                          
                          1,458,000Convertible
      debt converted to common stock
                          
                          
                          1,550,000
                          
                          
                          
                          1,550
                          
                          
                          
                          3,873,450
                          
                          
                          
                          
                          
                          
                          
                          3,875,000Stock
      issued for interest owed onconvertible
      debt
                          
                          
                          29,157
                          
                          
                          
                          29
                          
                          
                          
                          72,864
                          
                          
                          
                          
                          
                          
                          
                          72,893Net
      loss
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (4,112,330
                          )
                          
                          
                          (4,112,330
                          )Adjustment
      to equity related to purchase ofproperty
      from a commonly controlledvariable
      interest entity (Note 12)
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (793,634
                          )
                          
                          
                          
                          
                          
                          
                          (793,634
                          )Balance
      at December 31, 2008
                          
                          
                          41,579,157
                          
                          
                          $
                          41,579
                          
                          
                          $
                          8,998,941
                          
                          
                          $
                          (3,849,590
                          )
                          
                          $
                          5,190,930




















See notes
to the consolidated financial statements.


22





ENERGY
      COMPOSITES CORPORATIONCONSOLIDATED
      STATEMENTS OF CASH FLOWSFor
      the YearsEnded
      December 31,2008
                          
                          
                          2007Cash
      flows from operating activities:Net
      income (loss)
                          
                          $
                          (4,112,330
                          )
                          
                          $
                          43,024Adjustments
      to reconcile net loss to net cash provided by (used in) operating
      activities:Non-controlling
      interest in variable interest entities
                          
                          
                          149,445
                          
                          
                          
                          168,195Depreciation
      and amortization
                          
                          
                          351,081
                          
                          
                          
                          150,065Gain
      on sale of land and building - variable interest entity
                          
                          
                          -
                          
                          
                          
                          (88,046
                          )Loss
      on sale of other assets
                          
                          
                          3,285
                          
                          
                          
                          -Amortization
      of debt discount for imputed interest
                          
                          
                          3,660
                          
                          
                          
                          12,945Amortization
      of discount for warrants and beneficial conversion feature on convertible
      debt
                          
                          
                          3,918,891
                          
                          
                          
                          -Stock
      issued for interest payments
                          
                          
                          72,893
                          
                          
                          
                          -Stock
      issued for merger cost
                          
                          
                          420,000
                          
                          
                          
                          -Deferred
      income taxes
                          
                          
                          (2,215,000
                          )
                          
                          
                          -Changes
      in operating assets and liabilities:Accounts
      receivable, net
                          
                          
                          (1,552,016
                          )
                          
                          
                          (387,485
                          )Inventories,
      net
                          
                          
                          (1,321,746
                          )
                          
                          
                          (524,347
                          )Other
      current assets
                          
                          
                          (84,055
                          )
                          
                          
                          (12,747
                          )Accounts
      payable
                          
                          
                          770,066
                          
                          
                          
                          491,414Accounts
      payable - related party
                          
                          
                          89,247
                          
                          
                          
                          -Accrued
      expenses
                          
                          
                          123,010
                          
                          
                          
                          (273
                          )Accrued
      payroll and payroll taxes
                          
                          
                          162,499
                          
                          
                          
                          113,256Customer
      deposits
                          
                          
                          281,775
                          
                          
                          
                          147,672Net
      cash provided by (used in) operating activities
                          
                          
                          (2,939,295
                          )
                          
                          
                          113,673Cash
      flows from investing activities:Purchase
      of property and equipment
                          
                          
                          (1,154,045
                          )
                          
                          
                          (190,948
                          )Proceeds
      from sale of property and equipment
                          
                          
                          16,500
                          
                          
                          
                          372,670Cash
      paid to variable interest entity for property
                          
                          
                          (500,000
                          )
                          
                          
                          -Reduction
      in cash attributable to deconsolidated variable interest
      entities
                          
                          
                          (72,381
                          )
                          
                          
                          -Net
      cash provided by (used in) investing activities
                          
                          
                          (1,709,926
                          )
                          
                          
                          181,722

















See notes
to the consolidated financial statements.


23





ENERGY
      COMPOSITES CORPORATIONCONSOLIDATED
      STATEMENTS OF CASH FLOWS (continued)For
      the YearsEnded
      December 31,2008
                        
                        
                        2007Cash
      flows from financing activities:Increase
      (decrease) in bank overdraft payable
                        
                        
                        (168,087
                        )
                        
                        
                        (47,303
                        )Net
      borrowings from lines of credit -bank
                        
                        
                        205,622
                        
                        
                        
                        64,916Financing
      costs for long-term debt
                        
                        
                        (10,620
                        )
                        
                        
                        (10,010
                        )Distributions
      to stockholder - AFT
                        
                        
                        -
                        
                        
                        
                        (113,550
                        )Borrowings
      from officer/stockholder
                        
                        
                        -
                        
                        
                        
                        22,851Net
      borrowings from short-term notes payable
                        
                        
                        1,556,504
                        
                        
                        
                        347,000Proceeds
      from long-term debt
                        
                        
                        6,370,000
                        
                        
                        
                        -Payments
      on long-term debt
                        
                        
                        (281,648
                        )
                        
                        
                        (399,260
                        )Capital
      distributions by variable interest entities
                        
                        
                        (68,000
                        )
                        
                        
                        (143,499
                        )Net
      cash provided by (used in) financing activities
                        
                        
                        7,603,771
                        
                        
                        
                        (278,855
                        )Net
      increase in cash and cash equivalents
                        
                        
                        2,954,550
                        
                        
                        
                        16,540Cash
      and cash equivalents:Beginning
      of period
                        
                        
                        30,739
                        
                        
                        
                        14,199End
      of period
                        
                        $
                        2,985,289
                        
                        
                        $
                        30,739Supplemental
      disclosure of cash flow information:Cash
      paid for interest
                        
                        $
                        348,675
                        
                        
                        $
                        118,510Building
      construction period interest capitalized
                        
                        $
                        -
                        
                        
                        $
                        59,377Non-cash
      investing and financing activities:Purchase
      of property and equipment with long-term debt
                        
                        $
                        1,113,001
                        
                        
                        $
                        4,449,268Deferred
      financing costs incurred with long-term debt
                        
                        $
                        -
                        
                        
                        $
                        45,387Debt
      converted to common stock
                        
                        $
                        3,875,000
                        
                        
                        $
                        -




















See notes
to the consolidated financial statements.


24





ENERGY
      COMPOSITES CORPORATIONNOTES
      TO CONSOLIDATED FINANCIAL
STATEMENTS





Note
1.  Nature of Business and Significant Accounting
Policies





Nature
of Business





Energy
Composites Corporation (formerly Las Palmas Mobile Estates) (“Company”) (“ECC”)
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, and, in accordance with Statement of Financial
Accounting Standard (SFAS) No. 7, Accounting and Reporting by
Development Stage Enterprises, was considered a Development Stage
Enterprise.  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”).  AFT is a
manufacturer, installer and marketer of fiberglass products.





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
the Company, 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 as of December 31, 2007 and for the year then
ended present the historical financial information of
AFT.  The  outstanding  common  shares
of AFT at December  31,  2006 and 2007
have  been  restated  to  reflect  the  shares  issued  upon
reorganization.  The accompanying financial statements as of December
31, 2008 and for the year then ended present the historical  financial
information of AFT for the year ended December 31, 2008 consolidated with Las
Palmas Mobile Estates from the date of  reorganization (October 14,
2008) to December 31, 2008.





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 composite products.  The Company
serves the paper, petro-chemical, water, waste-water, bio-fuel and power
industries.





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 shareholder of the
Company.  M&W had leased real estate at 16th Street
South, Wisconsin Rapids, Wisconsin to the Company, prior to February 2007, at
$48,000 annually (22,420 square-foot manufacturing facility and office
space).  This property was sold in February 2007 by M&W to the
City of Wisconsin Rapids for a sales price of $372,670 with a resulting gain of
$100,220.  As of August 2007, M&W began leasing a newly
constructed manufacturing and office facility (70,300 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, assumed all of
M&W’s debt related to the property and all M&W debt guarantees by the
Company were released by the lender.





25





ENERGY
      COMPOSITES CORPORATIONNOTES
      TO CONSOLIDATED FINANCIAL
STATEMENTS





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
shareholder of the Company.  FPF started operations as a newly formed
LLC 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, the
FPF became financially independent of the Company by the sole FPF stockholder
contributing $200,000 of additional capital to FPF and due to FPF’s lender
releasing the Company of its guarantee of any FPF financing.





Principles
of Consolidation and Basis of Presentation





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





The
Company consolidates its financial results in accordance with Financial
Accounting Standards Board (“FASB”), Interpretation No. 46R, Consolidation of Variable Interest
Entities (“FIN 46R”), which requires a company to consolidate entities
determined to be variable interest entities (VIEs), for which the Company is
deemed to be the VIE’s primary beneficiary. Refer to Note 3, “Consolidation of
Variable Interest Entities” for further information on consolidated
VIEs.





Use
of Estimates





The
preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America (“GAAP”) requires
management to make estimates and assumptions that affect certain reported
amounts of assets and liabilities and disclosures of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period.  Accordingly,
actual results could differ from those estimates.





Concentrations
of Risk





Cash Deposits: The
Company maintains its cash in high-quality financial
institutions.  The balances, at times, may exceed the federally
insured limits.





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 years ended December 31, 2008 and 2007 and significant
customer accounts receivable balances at December 31, 2008 and
2007:





Percentage
      of Total Sales
                            
                            Percentage
      of Trade Accounts ReceivableCustomer
                            
                            2008
                            
                            2007
                            
                            2008
                            
                            20071
                            
                            17.3%
                            
                            47.3%
                            
                            6.9%
                            
                            46.6%2
                            
                            11.9
                            
                            12.2
                            
                            27.7
                            
                            4.13
                            
                            9.6
                            
                            11.6
                            
                            -
                            
                            2.938.8%
                            
                            71.1%
                            
                            34.6%
                            
                            53.6%





Labor
Force:  A significant part of the Company’s production labor
force is covered by two collective bargaining agreements which expire in May
2009.





26





ENERGY
      COMPOSITES CORPORATIONNOTES
      TO CONSOLIDATED FINANCIAL
STATEMENTS





Cash
and Cash Equivalents





For
purposes of balance sheet presentation, the Company considers all unrestricted
demand deposits, money market funds, savings funds and investments with an
original maturity of three months or less to be cash and cash
equivalents.





Trade
Accounts Receivable





Trade
accounts receivable are recorded at the invoiced amount.  The
allowance for doubtful accounts is the Company’s best estimate of the amount of
probable credit losses in the Company’s existing accounts
receivable.  The Company determines the allowance based on historical
write-off experience by the Company.  The Company reviews its
allowance for doubtful accounts monthly. Individual accounts with past due
balances over 90 days are specifically reviewed for
collectibility.  All other balances are reviewed on a pooled
basis.  Account balances are charged off against accounts receivable,
as bad debt, after all means of collection have been exhausted and the potential
for recovery is considered remote.  Finance charges are accrued
monthly, but not recognized on past due trade receivables until management
determines that such charges will be collected.





Inventories





Inventories
are stated at the lower of cost or market, with cost determined on the first-in,
first-out (FIFO) basis.  Reserves are recorded for estimated excess
and obsolete inventories based primarily on forecasts of product demand and
estimated production requirements.  No reserve was deemed necessary
for excess or obsolete inventories at December 31, 2008 and 2007.





Inventories
consist of raw materials, work-in-process and on a limited basis, finished
goods.  Raw materials consist of components and parts for general
production use.  Work-in-process consists of labor and overhead,
processing costs, purchased subcomponents and materials purchased for specific
customer orders.





Property
and Equipment





Property
and equipment are stated at cost.  Depreciation is provided on the
straight-line method over the estimated useful lives of the respective
assets.  Maintenance and repairs are charged to expense as incurred;
major renewals and betterments are capitalized.  As items are sold or
retired, the related cost and accumulated depreciation are removed from the
accounts and any gain or loss is included in operating income.





The
estimated useful lives for computing depreciation are as follows:





YearsBuilding
                40Building
      and land improvements
                15Computer
      equipment
                3
      to 5Manufacturing
      equipment
                5
      to 10Furniture
      and office equipment
                5
      to 10Vehicles
      and trailers
                5





27





ENERGY
      COMPOSITES CORPORATIONNOTES
      TO CONSOLIDATED FINANCIAL
STATEMENTS





Intangible
Assets





Intangible
assets are stated at cost.  They comprise a non-compete agreement and
customer list acquired through an asset purchase acquisition in
2005.  Also included are deferred financing costs incurred with the
bond financing for the construction of the manufacturing facility in 2007 and
the 2008 convertible debt financing.  The non-compete agreement is
being amortized on the straight-line method over its 3-year life.  The
customer list is being amortized 33% per year based on a discounted cash flow
analysis.  The deferred financing costs are being amortized over the
term of the related debt on a straight-line basis which approximates the
effective interest method, and are being charged to interest
expense.





Impairment
of Long-lived Assets





The
recoverability of intangible assets and other long-lived assets is assessed
periodically or whenever adverse events or changes in circumstances or business
climate indicate that the expected cash flows previously anticipated warrant a
reassessment.  When such reassessments indicate the potential for
impairment, all business factors are considered and, if the carrying value of
such intangible assets and other long-lived assets are not likely to be
recovered from future undiscounted operating cash flows, they will be written
down for financial reporting purposes to their fair values.  There
were no impairment charges for the years ended December 31, 2008 and
2007.





Revenue
Recognition





The
Company derives revenue primarily from the sale of the Company’s manufactured
products (tanks, piping, and ductwork), installation of those tanks on occasion
and service/repair.  In accordance with SEC Staff Accounting Bulletin
No. 104, Revenue
Recognition (“SAB 104”), revenue is recognized when persuasive evidence
of an arrangement exists, the price is fixed and determinable, transfer of title
has occurred, services have been rendered or delivery has occurred per contract
terms and collection of the related receivable is reasonably
assured.  At times, customer deposits and other receipts are received
and are deferred and recognized as revenue when earned.





Most of
the Company’s products are sold without installation services
included.  Revenue for product only sales is generally recognized at
the time of shipment and if all other contractual obligations have been
satisfied.  When the Company provides a combination of products and
installation services, the arrangement is evaluated under Emerging Issues Task
Force Issue (“EITF”) No. 00-21 Revenue Arrangements with Multiple
Deliverables.  Most installation work is generally done in a
short period of time (less than 30 days) and the corresponding revenue is
recorded upon the completion of the installation and all contractual obligations
have been met.





For any
service/repair, most work is performed on a time and material basis and revenue
is recognized upon performance.





Product Warranty
Liability





The
Company offers a standard one year warranty for product and service
sales.  In certain cases, the Company has offered warranty periods
greater than one year.  Accruals necessary for product warranties are
estimated based upon historical warranty costs.  As of December 31,
2008 and 2007, the Company’s estimated product warranty liability based on
historical activity was $18,000 and $0, respectively, and is recorded within
accrued liabilities on the consolidated balance sheets.





Cost
of Sales





The
Company’s cost of sales represents all direct and indirect costs associated with
the production of products for sale to customers.  This includes
operation and maintenance of equipment, direct and indirect labor and benefits,
repairs and maintenance of equipment, insurance, rentals, freight in, freight
out, and depreciation.





28





ENERGY
      COMPOSITES CORPORATIONNOTES
      TO CONSOLIDATED FINANCIAL
STATEMENTS





Income
Taxes





Income
taxes are provided for using the liability method of accounting in accordance
with Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes,
and clarified by FIN 48, Accounting for Uncertainty in Income
Taxes—an interpretation of FASB Statement No. 109.  A deferred
tax asset or liability is recorded for all temporary differences between
financial and tax reporting.  Temporary differences are the
differences between the reported amounts of assets and liabilities and their tax
bases.  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.  Deferred tax
assets and liabilities are adjusted for the effect of changes in tax laws and
rates on the date of enactment.





Prior to
January 1, 2008, the Company, with the consent of its stockholder, had elected
under the Internal Revenue Code to be an S-Corporation.  In lieu of
corporate income taxes, the stockholders of an S-Corporation are taxed on their
proportionate share of the Company’s taxable income.  Therefore, no
provision or liability for federal or state income taxes had been recorded prior
to January 1, 2008.





Effective
January 1, 2008, the Company terminated its S-Corporation
election.  The Company operated as a C-Corporation in 2008 and is
subject to income and deferred taxes on taxable income or losses.





As
previously noted, the Company consolidates its financial results under the
provisions of FIN 46R.  For income tax purposes, however, the Company
is not considered a consolidated entity.  As a result, income
generated by M&W and FPF, as well as any losses recognized, are excluded
from AFT’s net income (loss) which is ultimately reported in the Company’s
corporate tax returns.





Segment
Reporting





Through
December 31, 2008, the Company provided products and services into one
reportable operating segment, Industrial Tank and Piping. The detail of products
and service activity in this operating segment is further described in Note
14.





Advertising
Expense





The
Company expenses advertising costs as incurred.  Advertising expense
amounted to $16,904 and $41,548 for the years ended December 31, 2008 and 2007,
respectively.





Stock-Based
Compensation





The
Company accounts for stock-based compensation in accordance with SFAS No.
123(R), Share-Based
Payment (“SFAS 123(R)”).  SFAS 123(R) requires that all
share-based payments to employees and non-employee directors, including grant of
stock options and shares of non-vested stock, be recognized in the financial
statements based on the estimated fair value of the equity award
issued.





29





ENERGY
      COMPOSITES CORPORATIONNOTES
      TO CONSOLIDATED FINANCIAL
STATEMENTS





The
Company’s 2008 Stock Incentive Plan (“the 2008 Plan”) was adopted by the
Company’s shareholders as of August 29, 2008.  The 2008 Plan
authorizes awards to directors, employees and consultants equal to no more than
10% of the Company’s issued and outstanding common stock.  The 2008
Plan provides that no more than 1,000,000 shares may be issued during any
calendar year to any participant pursuant to options and stock appreciation
rights (SARS) awards under the 2008 Plan.  The term over which
participants may exercise options and SARS may not exceed ten years from the
date of the grant (five years in the case of incentive stock options granted to
employees who, at the time of grant, own more than 10% of our common
stock).  The 2008 Plan also authorizes the issuance of Restricted
Share, Unrestricted Share, Deferred Share, and Performance Awards under which
the Plan Committee has discretion in determining vesting conditions of
awards.  As of December 31, 2008, there were no awards issued under
the 2008 Plan.





Fair
Value of Financial Instruments





The
respective carrying value of certain on-balance sheet financial instruments
approximates their fair values.  These financial instruments include
cash, accounts receivable, accounts payable, accrued liabilities and
debt.  Fair values were assumed to approximate cost or carrying values
as most of the debt was incurred recently and the assets were acquired within
one year.





Comprehensive
Income (Loss)





Comprehensive
income (loss) includes net income (loss) and items defined as other
comprehensive income (loss).  Items defined as other comprehensive
income (loss) include items such as foreign currency translation adjustments and
unrealized gains and losses on certain marketable securities.  For the
years ended December 31, 2008 and 2007, there were no adjustments to net income
to arrive at comprehensive income.





Recent
Accounting Pronouncements





In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations— a replacement
of FASB Statement No. 141 (“SFAS 141R”).  SFAS 141R replaces
SFAS 141, Business
Combinations, and requires an acquirer to recognize the assets acquired,
the liabilities assumed, including those arising from contractual contingencies,
any contingent consideration, and any non-controlling interest in the acquiree
at the acquisition date, measured at their fair values as of that date, with
limited exceptions specified in the statement.  SFAS 141R also
requires the acquirer in a business combination achieved in stages (sometimes
referred to as a step acquisition) to recognize the identifiable assets and
liabilities, as well as the non-controlling interest in the acquiree, at the
full amounts of their fair values (or other amounts determined in accordance
with SFAS 141R).  In addition, SFAS 141R’s requirement to measure the
non-controlling interest in the acquiree at fair value will result in
recognizing the goodwill attributable to the non-controlling interest in
addition to that attributable to the acquirer.  SFAS 141R amends SFAS
109, Accounting for Income
Taxes, to require the acquirer to recognize changes in the amount of its
deferred tax benefits that are recognizable because of a business combination
either in income from continuing operations in the period of the combination or
directly in contributed capital, depending on the circumstances.  It
also amends SFAS 142, Goodwill
and Other Intangible Assets, to, among other things, provide guidance on
the impairment testing of acquired research and development intangible assets
and assets that the acquirer intends not to use.  SFAS 141R applies
prospectively to business combinations for which the acquisition date is on or
after January 1, 2009.  The Company will apply SFAS 141R to business
combinations consummated on or after January 1, 2009.





In April
2008, the FASB issued FASB Staff Position (FSP) No. FAS 142-3, Determination of the Useful Life of
Intangible Assets.  This guidance addresses the determination
of the useful life of intangible assets which have legal, regulatory or
contractual provisions that potentially limit a company’s use of an
asset.  Under the new guidance, a company should consider its own
historical experience in renewing or extending similar
arrangements.  The Company is required to apply the new guidance to
intangible assets acquired after December 31, 2008.


30





ENERGY
      COMPOSITES CORPORATIONNOTES
      TO CONSOLIDATED FINANCIAL
STATEMENTS





In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, Fair Value
Measurements (“SFAS 157”).  This standard clarifies the
principle that fair value should be based on the assumptions that market
participants would use when pricing an asset or
liability.  Additionally, it establishes a fair value hierarchy that
prioritizes the information used to develop those assumptions.  In
February 2008, the FASB issued FASB Staff Position No. 157-2 (“FSP 157-2”),
which delayed the effective date by which companies must adopt the provisions of
SFAS 157 for non-financial assets and liabilities.  FSP 157-2 defers
the effective date of SFAS 157 to fiscal years beginning after November 15,
2008, and interim periods within those fiscal years.  The adoption of
this standard is not anticipated to have a material impact on the Company’s
financial position, results of operations, or cash flows.





In
December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements (“SFAS 160”).  SFAS 160
amends Accounting Research Bulletin 51, Consolidated Financial
Statements, to establish accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary.  It also clarifies that a non-controlling interest in a
subsidiary is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements.  SFAS 160
also changes the way the consolidated income statement is presented by requiring
consolidated net income to be reported at amounts that include the amounts
attributable to both the parent and the non-controlling interest.  It
also requires disclosure, on the face of the consolidated statement of income,
of the amounts of consolidated net income attributable to the parent and to the
non-controlling interest.  SFAS 160 requires that a parent recognize a
gain or loss in net income when a subsidiary is deconsolidated and requires
expanded disclosures in the consolidated financial statements that clearly
identify and distinguish between the interests of the parent owners and the
interests of the non-controlling owners of a subsidiary.  SFAS 160 is
effective for fiscal periods, and interim periods within those fiscal years,
beginning on or after December 15, 2008.  The Company is currently
assessing the potential impact that the adoption of SFAS 160 could have on the
financial statements.





In June
2008, the FASB issued FSP No. EITF 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating
Securities.  This guidance states that unvested share-based
payment awards that contain non-forfeitable rights to dividends or dividend
equivalents are participating securities and should be included in the
computation of earnings per share using the two-class method outlined in SFAS
No. 128, Earnings per
Share.  The two-class method is an earnings allocation formula
that determines earnings per share for each class of common stock and
participating security according to dividends declared and participation rights
in undistributed earnings.  The adoption of this new guidance on
January 1, 2009 should not have an effect on the Company’s reported earnings per
share.





In June
2008, the FASB ratified the consensus reached by the EITF on Issue No. 07-5,
Determining Whether an
Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock (“EITF No.
07-5”). EITF No. 07-5 provides guidance for determining whether an
equity-linked financial instrument (or embedded feature) is indexed to an
entity’s own stock. EITF No. 07-5 applies to any freestanding financial
instrument or embedded feature that has all of the characteristics of a
derivative or freestanding instrument that is potentially settled in an entity’s
own stock (with the exception of share-based payment awards within the scope of
SFAS 123(R)).  To meet the definition of “indexed to own stock,” an
instrument’s contingent exercise provisions must not be based on (a) an
observable market, other than the market for the issuer’s stock (if applicable),
or (b) an observable index, other than an index calculated or measured solely by
reference to the issuer’s own operations, and the variables that could affect
the settlement amount must be inputs to the fair value of a “fixed-for-fixed”
forward or option on equity shares.  EITF No. 07-5 is effective for
fiscal years beginning after December 15, 2008, and interim periods within those
fiscal years.  The Company does not expect the adoption of EITF No.
07-5 to change the classification or measurement of its financial
instruments.





31





ENERGY
      COMPOSITES CORPORATIONNOTES
      TO CONSOLIDATED FINANCIAL
STATEMENTS





Note
2.  Reverse Acquisition





On
October 14, 2008, the Company, then known as Las Palmas Mobile Estates (LPME),
closed a share exchange agreement with AFT.  On that date, LPME had
33,000,000 shares outstanding; the Company cancelled 21,750,000 shares and
issued an additional 28,750,000 shares to existing AFT shareholders in exchange
for 100% of AFT’s outstanding shares.  Since this transaction resulted
in the existing shareholders of AFT acquiring control of LPME, for financial
reporting purposes, the business combination has been accounted for as an
additional capitalization of LPME (a reverse acquisition with AFT as the
accounting acquirer).  Accordingly, AFT’s net assets are included in
the consolidated balance sheet at their historical values.  LPME also
changed its name to Energy Composites Corporation.





In August
2008, prior to the closing of the share exchange agreement, LPME began to seek
capital funding for the planned, new combined entity.  The initial
plan was to sell stock through a private placement offering; however, the
acquisition was delayed for administrative reasons, and therefore, the funding
was changed to a convertible debt instrument instead of a stock
issuance.  Prior to the issuance of this convertible debt, LPME had no
assets.  Prior to the closing of the share exchange agreement on
October 14, 2008, LPME had already raised $4,720,000 from the issuance of
convertible debt, which included warrants and a beneficial conversion feature
(see additional details at Note 8).  A portion of these funds was
advanced to AFT as a working capital loan prior to the closing of the share
exchange agreement.  During the third quarter 2008, prior to the
closing the reverse acquisition, LPME incurred a $230,009 cumulative loss
consisting primarily of $202,960 of interest expense from the accretion of the
convertible debt discounts (see Note 8).  These results were disclosed
in the LPME September 30, 2008 Form 10-Q filing.  As part of the
reverse acquisition consummated on October 14, 2008, the following net tangible
assets and liabilities were transferred into the AFT financial statements as
additional paid in capital:





Cash
                      
                      $
                      2,911,682Intercompany
      advances to AFT
                      
                      
                      1,826,378Miscellaneous
      accrued expenses (primarily accruedinterest
      on the convertible debt)
                      
                      
                      (45,109
                      )Convertible
      debt, net of remaining unamortized value assignedto
      warrants and beneficial conversion feature
                      
                      
                      (202,960
                      )Deferred
      taxes established in connection with debtbeneficial
      conversion feature
                      
                      
                      (697,000
                      )Net
      assets transferred
                      
                      $
                      3,792,991





The
deferred taxes are a result of the timing difference created by the beneficial
conversion feature.  All costs associated with the reverse acquisition
have been expensed, since LPME had no cash assets prior to the convertible debt
issuance which was only done in contemplation of closing the reverse acquisition
with AFT.





Note
3.  Consolidation of Variable Interest Entities





FASB
Interpretation No. 46R (“FIN 46R” )provides a framework for identifying variable
interest entities (“VIEs”) and determining when a company should include the
assets, liabilities, non-controlling interests and results of activities of a
VIE in its consolidated financial statement.





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 (1) has an insufficient amount of equity to carry out its principal
activities without additional subordinated financial support, (2) has a group of
equity owners that are unable to make significant decisions about its
activities, or (3) 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.





32





ENERGY
      COMPOSITES CORPORATIONNOTES
      TO CONSOLIDATED FINANCIAL
STATEMENTS





FIN 46R
requires a VIE to be consolidated if a party with an ownership, contractual or
other financial interest in the VIE (“a variable interest holder”) is obligated
to absorb a majority of the risk of loss from the VIE’s activities, is entitled
to receive a majority of the VIE’s residual returns (if no party absorbs a
majority of the VIE’s losses), or both. A variable interest holder that
consolidates the VIE is called the primary beneficiary of the
VIE.  Upon consolidation, the primary beneficiary generally must
initially record all of the VIE’s assets, liabilities and non-controlling
interests at fair value and subsequently account for the VIE as if it were
consolidated based on majority voting interest.  FIN 46R also requires
disclosures about VIEs that the variable interest holder is not required to
consolidate but in which it has a significant variable interest.





The
Company has determined that M&W and FPF were VIEs until December 31, 2008
and that the Company was the primary beneficiary of such VIEs, as defined by FIN
46R.  M&W owned the manufacturing facility which was leased to the
Company and FPF is a wholesale distributor of fiberglass pipe fittings to the
Company and other third-party companies.  The sole stockholder of AFT,
now the majority shareholder of the Company, is the 100% owner of these
companies which resulted in AFT holding a significant influence over their
continuing operations.  Although AFT holds no legal ownership in the
VIEs, as a result of AFT guaranteeing the debt of M&W and FPF until December
31, 2008, this would suggest the VIEs cannot support and finance their
operations on their own, and AFT would likely absorb any expected future
losses.  As such, the Company has concluded that AFT is required to
consolidate the VIEs.  As of December 31, 2008, the Company has not
funded any losses of the VIEs.





As of and
for the years ended December 31, 2008 and 2007, the statements of operations and
cash flows, and the related footnotes of the Company have been presented on a
consolidated basis to include its variable interests in M&W and
FPF.  All significant intercompany accounts and transactions have been
eliminated in consolidation.





The
Company’s consolidated balance sheet at December 31, 2008 does not include the
assets and liabilities of M&W and FPF.  The Company purchased the
manufacturing facility from M&W on December 31, 2008, the sole stockholder
of FPF contributed an additional $200,000 of capital to FPF on December 31, 2008
in support of their operations, and all prior guarantees of M&W and FPF debt
by the Company had been released by lender of M&W and
FPF.  Therefore, the Company was no longer considered the primary
beneficiary of either VIE after December 30, 2008. The effect of the VIEs
consolidation on the Company’s consolidated balance sheet at December 31, 2007,
was an increase in the Company’s assets and liabilities of $3,680,009 and
$3,535,294, respectively.  The liabilities of the VIEs consolidated by
the Company in 2007 did not represent additional claims on the Company’s general
assets; rather, they represented claims against the specific assets of the
VIEs.





For the
year ended December 31, 2008, the revenue of the VIEs represented $610,068 or
6.6% of the consolidated revenue of the Company.  For the year ended
December 31, 2007, the revenue of the VIEs represented only $168,836 or 2.6% of
the consolidated revenue of the Company.  Through consolidation, the
Company recognizes all net losses of the VIEs in excess of the equity in those
VIEs which currently is none.  The Company recognizes net earnings of
the VIEs only to the extent it is recovering 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 are eliminated from the
Company’s earnings and are 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 years ended December 31, 2008 and 2007, the VIEs experienced a combined net
income of $149,445 and $168,195, respectively, which accordingly, resulted in a
non-controlling interest charge on the Company’s statement of
operations.





As
previously stated, as of December 31, 2008, the Company is no longer considered
the primary beneficiary of these two variable interest entities and, therefore,
will no longer be consolidated in the Company’s financial statements for all
future periods unless new circumstances arise.





33





ENERGY
      COMPOSITES CORPORATIONNOTES
      TO CONSOLIDATED FINANCIAL
STATEMENTS





Note
4.  Inventories, Net





Inventories
consist of the following:


December
      31,2008
                    
                    
                    2007Raw
      materials
                    
                    $
                    440,741
                    
                    
                    $
                    326,839Work
      in progress
                    
                    
                    913,174
                    
                    
                    
                    248,527Finished
      goods
                    
                    
                    -
                    
                    
                    
                    289,332Total
                    
                    $
                    1,353,915
                    
                    
                    $
                    864,698





Note
5.  Property and Equipment, Net





Property
and equipment are as follows:


December
      31,2008
                  
                  
                  2007Land
                  
                  $
                  74,023
                  
                  
                  $
                  41,265Buildings
      and improvements
                  
                  
                  3,590,267
                  
                  
                  
                  3,523,265Machinery
      and equipment
                  
                  
                  2,125,177
                  
                  
                  
                  1,256,202Vehicles
      and trailers
                  
                  
                  381,212
                  
                  
                  
                  229,995Computer
      equipment
                  
                  
                  173,926
                  
                  
                  
                  127,727Furniture
      and office equipment
                  
                  
                  104,813
                  
                  
                  
                  89,8966,449,418
                  
                  
                  
                  5,268,350Less
      accumulated depreciation
                  
                  
                  (766,961
                  )
                  
                  
                  (450,494
                  )Net
      property and equipment
                  
                  $
                  5,682,457
                  
                  
                  $
                  4,817,856





Depreciation
expense was $332,879 and $134,244 for the years ended December 31, 2008 and
2007, respectively.





The cost
and accumulated amortization of equipment under capital lease as of December 31,
2008 was $21,075 and $2,459, respectively. The cost and accumulated amortization
of equipment under capital lease as of December 31, 2007 was $21,075 and $351,
respectively.





Note
6.  Intangible Assets





Intangible
assets are as follows:


December
      31,2008
                  
                  
                  2007Non-compete
      agreement
                  
                  $
                  5,000
                  
                  
                  $
                  5,000Customer
      list
                  
                  
                  74,434
                  
                  
                  
                  74,434Deferred
      financing costs
                  
                  
                  66,017
                  
                  
                  
                  55,397145,451
                  
                  
                  
                  134,831Less
      accumulated amortization
                  
                  
                  (75,636
                  )
                  
                  
                  (57,434
                  )Net
      intangible assets
                  
                  $
                  69,815
                  
                  
                  $
                  77,397





34





ENERGY
      COMPOSITES CORPORATIONNOTES
      TO CONSOLIDATED FINANCIAL
STATEMENTS





Amortization
expense was $18,202 and $15,821 for the years ended December 31, 2008 and 2007,
respectively.  Estimated amortization expense for the next five years
is as follows:





2009
                        
                        $
                        10,5452010
                        
                        
                        8,7842011
                        
                        
                        7,6042012
                        
                        
                        5,3962013
                        
                        
                        4,8722014
      and thereafter
                        
                        
                        32,614Total
                        
                        $
                        69,815





Note
7.  Financing Arrangements





Lines
of Credit - Bank





The
Company utilizes lines of credit to fund current operations.  The
lines typically extend one year and are automatically renewed on an annual
basis.  Lines of credit outstanding are as follows:





December
      31,2008
                      
                      2007AFT
      has a revolving 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 December 31, 2008 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.
                      
                      $
                      -
                      
                      $
                      105,000AFT
      had a revolving line of credit with the same bank noted above that
      provided for maximum borrowings of $430,000 and carried interest at a
      fixed rate of 8.25%.  The line was secured by all business
      assets of AFT, an assignment of life insurance on the officer/stockholder,
      a mortgage on M&W, and an unlimited guaranty by FPF and its
      stockholder. The note was refinanced as a long-term note on October 28,
      2008.
                      
                      
                      -
                      
                      
                      70,500FPF
      had a revolving line of credit with the same bank noted above that
      provided for maximum borrowings of $125,000, carried interest at a fixed
      rate of 8.25% at December 31, 2007 and was paid off March 28,
      2008.
                      
                      
                      -
                      
                      
                      48,878Total
      lines of credit – bank
                      
                      $
                      -
                      
                      $
                      224,378





35





ENERGY
      COMPOSITES CORPORATIONNOTES
      TO CONSOLIDATED FINANCIAL
STATEMENTS





Short-Term
Notes Payable





AFT uses
short-term notes payable from NPESB to fund bulk purchases of inventory and
large jobs in addition to utilizing their lines 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 the business assets of each respective company.  AFT
guaranteed FPF notes until December 31, 2008 at which time AFT received a
release of all guarantees of FPF notes from NPESB.  As of December 31,
2008, FPF is no longer being consolidated as a variable interest
entity.  The notes bear interest at fixed rates.  The notes
are typically twelve months or less.  Short-term notes payable are as
follows:





December
      31,2008
                    
                    
                    2007AFT
                    
                    $
                    1,000,000
                    
                    
                    $
                    120,000FPF
                    
                    
                    N/A
                    
                    
                    
                    380,000Total
                    
                    $
                    1,000,000
                    
                    
                    $
                    500,000Weighted
      average interest rate
                    
                    
                    7.45
                    %
                    
                    
                    8.25
                    %





Long-Term
Debt Obligations





Long-term
debt obligations are as follows:


December
      31,AFT debt
                
                2008
                
                2007US
      Bank - a term loan secured by a vehicle, interest rate of 6.59%, due
      August 2009, monthly payments of $406 and was settled on June 4,
      2008
                
                $
                -
                
                $
                4,652NPESB
      - a term loan secured by 15 ton deck crane, interest rate of 7.25%, due
      October 2010, monthly payments of $948
                
                
                17,302
                
                
                27,429NPESB
      – 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
                
                
                51,808
                
                
                58,516NPESB
      - 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 payments of
      $7,266
                
                
                412,391
                
                
                473,515NPESB
      - 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
                
                
                406,761
                
                
                401,203City
      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 payments of
    $4,499
                
                
                439,545
                
                
                484,221





36





ENERGY
      COMPOSITES CORPORATIONNOTES
      TO CONSOLIDATED FINANCIAL
STATEMENTS





December
      31,AFT debt – continued
                
                2008
                
                2007Yale
      Financial Services, a capital lease term loan, secured by two Yale
      forklifts, interest rate 7.7%, due October 2010, monthly payments of
      $657
                
                
                13,451
                
                
                20,027City
      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 $27,240 at December 31, 2008, the loan
      balloons in August 2014; debt was assumed by AFT from M&W as part of
      the land and building purchase on December 31, 2008
                
                
                47,760
                
                
                44,100NPESB
      – 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 $20,766; debt was assumed by AFT
      from M&W as part of the land and building purchase on December 31,
      2008.  Also, the Company is required to maintain a $4,000,000
      key man life insurance policy upon the life of Jamie Mancl, ECC’s
      President.
                
                
                2,879,672
                
                
                2,965,343M&W
      LLC (related party) – an unsecured term loan, variable interest rate
      4.775% at December 31, 2008, due December 2015, quarterly payment of
      $24,493 beginning March 2009
                
                
                1,045,328
                
                
                -NPESB
      – 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
                
                
                430,000
                
                
                -Convertible
      notes payable ($2,495,000 face value) – see Note 8
                
                
                246,851
                
                
                -5,990,869
                
                
                4,479,006Less
      current portion of long-term obligations
                
                
                (503,576)
                
                
                (337,533)Total
      long-term debt obligations, net of current portion
                
                $
                5,487,293
                
                $
                4,141,473





Maturities
of long-term debt obligations are as follows:





2009
                    
                    $
                    503,5762010
                    
                    
                    489,1952011
                    
                    
                    2,998,3792012
                    
                    
                    631,5882013
                    
                    
                    337,056Thereafter
                    
                    
                    3,279,224$
                    8,239,018





37





ENERGY
      COMPOSITES CORPORATIONNOTES
      TO CONSOLIDATED FINANCIAL
STATEMENTS





At
December 31, 2008, the Company was not in compliance with various restrictive
financial covenants contained in the industrial revenue bonds.  The
tangible net worth covenant requires the Company to maintain at least $600,000
in net worth.  The debt service coverage ratio covenant requires the
Company to maintain at least 1.25 coverage.  The indebtedness to
tangible net worth ratio requires the Company to maintain a ratio of less than
3.5 to 1.0.  The Company, prior to December 31, 2008, received a
waiver letter on the covenant defaults from the lenders. These violated
covenants are waived through December 30, 2009.





Note
8.  Convertible Notes Payable





In August
2008, LPME 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 Debenture
(the “Warrants”).  This placement offering was in anticipation of the
pending AFT reverse acquisition, which became effective on October 14,
2008.





Interest
on the Debentures is payable in cash or in shares of the Company’s common stock
at $2.50 per share, in twelve quarterly installments starting on January 1, 2009
and each quarterly period thereafter until the principal amount and all accrued
and unpaid interest shall have been paid in full on the maturity
date.  The Maturity Date for each Debenture is three years after the
issue date.





The
Debentures are subject to prepayment at the option of the Company in whole or in
part after the one year anniversary of the date of each Debenture but prior to
the Maturity Date at any time and from time to time without penalty or premium
so long as all of the following conditions have been met: (i) the Company’s
common stock has traded above the Conversion Price for at least 20 consecutive
trading days immediately preceding the Prepayment Notice; (ii) the average
trading volume shall be at least 100,000 shares per day during such 20
consecutive trading day period; and (iii) the shares of common stock issuable
upon conversion of the Debentures shall be eligible for resale pursuant to Rule
144 under the Securities Act of 1933.  The Debentures are also
convertible into shares of the Company’s common stock at the option of the
Company provided that all of the conditions required for prepayment of the
Debentures have been met.





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 dividend of the
Company’s common stock.  No warrants were exercised during
2008.





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 under the accounting guidance of Emerging Issues Task Force
(“EITF”) 05-2, The Meaning of
‘Conventional Convertible Debt’ in Issue No. 00-19.





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 following assumptions were
used to estimate the fair market value of the Warrants: risk free interest rate
of 2.83%; expected life of 3 years; no expected dividends; and volatility of
171%.  The expected life of the Warrants was determined to be the
full-term of the Warrants because the Company has no previous history with
warrant exercises.  The risk-free interest rate is based on the
Federal Reserve Board’s constant maturities of U.S. Treasury bond obligations
with terms comparable to the expected life of the Warrants.  The
Company’s volatility is based on the historical volatility of the Company’s
stock blended with the historical stock volatility of a public company peer
group.





38





ENERGY
      COMPOSITES CORPORATIONNOTES
      TO CONSOLIDATED FINANCIAL
STATEMENTS





The
application of the provisions of EITF 98-5, Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios, and EITF 00-27, Application of Issue 98-5 to Certain
Convertible Instruments resulted in the proceeds of the Debentures being
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
intrinsic value 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.  Following the guidance
of Issue 6 in EITF 00-27, the Company is accreting the beneficial conversion
feature to interest expense over the 3-year term of the debt using the effective
interest method.





The
following table summarizes the convertible note balance as of December 31,
2008:


Pre-Acquisition
                  
                  
                  Post-Acquisition
                  
                  
                  TotalGross
      proceeds received
                  
                  $
                  4,720,000
                  
                  
                  $
                  1,650,000
                  
                  
                  $
                  6,370,000Less
      value assigned to:Warrants
                  
                  
                  (2,898,340
                  )
                  
                  
                  (1,170,082
                  )
                  
                  
                  (4,068,422
                  )Beneficial
      conversion feature allotted to:Additional
      paid-in capital
                  
                  
                  (1,124,660
                  )
                  
                  
                  (287,918
                  )
                  
                  
                  (1,412,578
                  )Deferred
      income tax liability
                  
                  
                  (697,000
                  )
                  
                  
                  (192,000
                  )
                  
                  
                  (889,000
                  )Sub-total
      of assigned values
                  
                  
                  (4,720,000
                  )
                  
                  
                  (1,650,000
                  )
                  
                  
                  (6,370,000
                  )Plus:
      accretion of original issue discount from warrants and beneficial
      conversion feature
                  
                  
                  202,960
                  
                  
                  
                  3,918,891
                  
                  
                  
                  4,121,851Less:
      conversion of debt to common stock
                  
                  
                  -
                  
                  
                  
                  (3,875,000
                  )
                  
                  
                  (3,875,000
                  )Balance
      at December 31, 2008 (face value of $2,495,000)
                  
                  $
                  202,960
                  
                  
                  $
                  43,891
                  
                  
                  $
                  246,851





All
outstanding convertible debentures at December 31, 2008 mature at various dates
in 2011.  The $2,495,000 of maturities related to these debentures are
included in the long-term debt maturities table found in Note 7.





The
effective interest rate for 2008 was 72%.  The rate is considerably
higher than the stated rate of 6% due to the discount recorded against the debt
for the detachable warrants and beneficial conversion feature.





Note
9.  Stockholders’ Equity





The
authorized common stock of the Company initially consisted of 2,500 shares of
common stock, no par value.  On June 29, 2000, the Company’s
stockholders approved (1) a forward split of its outstanding common stock at
1,000 shares for one share of the existing shares, and (2) restated Articles of
Incorporation, which increased its capitalization from 2,500 common shares to
25,000,000 common shares and changed the par value from no par value to $0.001
per share.  Prior period information has been restated to reflect the
stock splits and changes in par value.





On
October 29, 2007, the Company’s stockholders approved a stock dividend of its
common stock.  The dividend was 14 shares for each outstanding share
at November 14, 2007.  No fractional shares were
issued.  The number of common shares outstanding increased from
2,200,000 to 33,000,000.  The par value of the new shares exceeded the
original consideration received.  An adjustment to retained earnings
was made for $11,000 to account for this dividend.  Prior period
information has been restated to reflect the stock dividend.


39





ENERGY
      COMPOSITES CORPORATIONNOTES
      TO CONSOLIDATED FINANCIAL
STATEMENTS





Effective
with the execution of the Share Exchange Agreement on October 14, 2008, the
amended and restated Articles of Incorporation authorize capital stock
consisting of 100,000,000 common shares and 10,000,000 preferred
shares.  The par value of each of these classes of stock is $0.001 per
share.





Note
10.  Income Taxes





The
Company accounts for income taxes pursuant to SFAS No. 109, Accounting for Income Tax,
and FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes an interpretation of FASB Statement No.109.Deferred tax assets and
liabilities represent the future tax consequences of the differences between
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 carryforwards. Deferred 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 impact of tax rate
changes on deferred tax assets and liabilities is recognized in the year the
change is enacted.





Effective
January 1, 2008, the Company terminated its S-Corporation election and has been
operating as a C-Corporation which is subject to income and deferred taxes on
taxable income and losses. As a result of the tax status conversion, an initial
$110,000 of net deferred tax liabilities were recorded as income tax expense
during the year ended December 31, 2008.  Prior to January 1, 2008, no
provision was made for income taxes in 2007 because the income was included in
the personal tax returns of the Company’s shareholders.





The
income tax provision consisted of the following for the year ended December
31:





2008
                    
                    
                    2007Currently
      payable (refundable)
                    
                    $
                    -
                    
                    
                    $
                    -Deferred
      tax benefit
                    
                    
                    (2,325,000
                    )
                    
                    
                    -(2,325,000
                    )
                    
                    
                    -Establishment
      of the net deferred tax liabilities as of January 1, 2008 due to change in
      tax status
                    
                    
                    110,000
                    
                    
                    
                    -Total
      income tax benefit
                    
                    $
                    (2,215,000
                    )
                    
                    $
                    -





The
Company recorded a tax benefit relating to the loss incurred for the year ended
December 31, 2008.  The Company assessed the realizability of its
year-end deferred tax assets pursuant to SFAS No. 109 and determined it is more
likely than not that the full amount of the recorded deferred tax assets will be
realized based on the Company’s previous history of operating
profits.  Therefore, a valuation allowance was not recorded at
December 31, 2008.





The
reconciliation of the tax benefit computed at the statutory rate to the
effective tax rate is as follows for the years ended December 31:





2008
                    
                    
                    2007Statutory
      U.S. federal income tax rate
                    
                    
                    34.0
                    %
                    
                    
                    -
                    %State
      and local income taxes, net of federal income tax benefit
                    
                    
                    6.0
                    
                    
                    
                    -Non-deductible
      merger expenses
                    
                    
                    (3.3
                    )
                    
                    
                    -Establishment
      of deferred tax liability due to tax status change
                    
                    
                    (1.7
                    )
                    
                    
                    -Effective
      income tax rate
                    
                    
                    35.0
                    %
                    
                    
                    -
                    %





40





ENERGY
      COMPOSITES CORPORATIONNOTES
      TO CONSOLIDATED FINANCIAL
STATEMENTS





Significant
components of the Company’s estimated deferred tax assets and liabilities at
December 31 are as follows:





2008
                    
                    
                    2007Deferred
      tax assets:Accounts
      receivable allowance
                    
                    $
                    43,000
                    
                    
                    $
                    -Accruals
      and reserves
                    
                    
                    25,000
                    
                    
                    
                    -Fixed
      assets
                    
                    
                    485,000
                    
                    
                    
                    -Fair
      value of warrants
                    
                    
                    1,001,000
                    
                    
                    
                    -Net
      operating loss carryforwards
                    
                    
                    728,000
                    
                    
                    
                    -Total
      deferred tax assets
                    
                    
                    2,282,000
                    
                    
                    
                    -Deferred
      tax liabilities:Accumulated
      depreciation
                    
                    
                    (105,000
                    )
                    
                    
                    -Beneficial
      conversion feature
                    
                    
                    (322,000
                    )
                    
                    
                    -Total
      deferred tax liabilities
                    
                    
                    (427,000
                    )
                    
                    
                    -Net
      deferred tax asset
                    
                    $
                    1,855,000
                    
                    
                    $
                    -





Deferred
tax components included in the Company’s balance sheet at December 31 are as
follows:





2008
                    
                    
                    2007Current
      deferred tax asset
                    
                    $
                    68,000
                    
                    
                    $
                    -Long-term
      deferred tax asset
                    
                    
                    1,787,000
                    
                    
                    
                    -Net
      deferred tax asset
                    
                    $
                    1,855,000
                    
                    
                    $
                    -





As of
December 31, 2008, the Company had federal net operating loss carryforwards of
approximately $1,800,000 expiring in 2028.





The
Company adopted the provisions of FASB Interpretation No 48, Accounting for Uncertainty in Income
Taxes – an interpretation of FASB No. 109 (“FIN 48”), on January 1,
2008.  FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements in accordance with FASB
Statement 109, Accounting for Income Taxes, and prescribes a recognition
threshold and measurement process for financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax
return.  FIN 48 also provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition.





The
Company has concluded that there are no significant unrecognized tax
benefits.  The Company’s evaluation was performed for the tax year
ended December 31, 2008, the tax year that remains subject to examination by
major tax jurisdictions as of December 31, 2008.  The Company does not
believe there will be any material changes in its unrecognized tax positions
over the next 12 months.





The
Company may from time to time be assessed interest or penalties by major tax
jurisdictions, although any such assessments historically have been minimal and
immaterial to our financial results.  In accordance with FIN 48,
paragraph 19, the Company has decided to classify interest and penalties as a
component of income tax expense.





Note
11.  Employee Benefit Plans





The
Company provides a discretionary profit-sharing bonus plan for its employees,
whereby the Company may contribute a designated percent, annually, out of
earnings and profits.  Profit sharing plan expense was $0 and $9,136
for the years ended December 31, 2008 and 2007, respectively.


41





ENERGY
      COMPOSITES CORPORATIONNOTES
      TO CONSOLIDATED FINANCIAL
STATEMENTS





Note
12.  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.  Total lease payments to M&W
for the years ended December 31, 2008 and 2007 were $420,000 and $178,000,
respectively.





On
December 31, 2008, the Company exercised its option to purchase the
manufacturing facility it was leasing from M&W for a purchase price of
$4,500,000.  The purchase price for the facility was paid in the form
of: (i) an assumption of the industrial revenue bond (“IRB Debt”) and promissory
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 a promissory note
bearing a fixed rate of interest that was set at the twelve-month LIBOR rate as
of December 31, 2008 (2.025%) plus 2.75%, payable in quarterly installments of
principal and interest of $24,493 amortized over not more than 15 years with the
unpaid principal balance due not later than December 15, 2015.  The
IRB 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 bond was $2,879,672.





This
transaction was accounted for as an asset purchase between two commonly
controlled entities.  In accordance with SFAS No. 141, Business Combinations
(Appendix D, paragraphs D11-D13), when accounting for a transfer of assets
between entities under common control, the entity that receives the net assets
shall initially recognize the assets transferred at the carrying amounts on the
date of transfer.  Any difference in the amount paid versus the
historical cost of the assets transferred should be treated as an adjustment to
equity.  As of the purchase date on December 31, 2008, the historical
cost of the transferred assets on M&W’s books totaled
$3,177,366.  The purchase price of $4,500,000 resulted in an excess
purchase price of $1,322,634 over the historical cost of the transferred
assets.  After establishing a deferred tax asset of $529,000 for the
difference in basis between book and tax, the net adjustment to equity totaled
$793,634.





Other
Related Party Transactions





AFT
purchased fiberglass pipe fittings from FPF totaling $150,605 and $143,448 for
the years ended December 31, 2008 and 2007, respectively.





Note
13.  Commitments and Contingencies





Operating
Leases





The
Company leases office space in Hastings, Michigan for its Field Services
Division.  This lease was established on March 1, 2008 for a one year
term.  Monthly lease payments are $925.





Various
other operating leases expiring through March 2013 were entered into for
equipment, vehicles, and temporary lodging during the year ended December 31,
2008.  The monthly payment for all operating leases totals
$4,521.





42





ENERGY
      COMPOSITES CORPORATIONNOTES
      TO CONSOLIDATED FINANCIAL
STATEMENTS





Future
minimum operating lease payments for all leases for the years ending December 31
are as follows:





2009
                        
                        $
                        37,4482010
                        
                        
                        35,5982011
                        
                        
                        21,0802012
                        
                        
                        17,5722013
                        
                        
                        4,017Thereafter
                        
                        
                        -$
                        115,715





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
14.  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 as discrete financial information
is not available nor is the financial results of each component separately
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance.





Year
      Ended December 31, 2008Products
      & Components
                      
                      Service
      & Installation
                      
                      TotalNet
      sales
                      
                      $
                      5,860,421
                      
                      
                      $
                      3,425,123
                      
                      
                      $
                      9,285,544Cost
      of sales
                      
                      
                      5,058,983
                      
                      
                      
                      2,609,849
                      
                      
                      
                      7,668,832Gross
      profit
                      
                      $
                      801,438
                      
                      
                      $
                      815,274
                      
                      
                      $
                      1,616,712





Note
15.  Earnings Per Share





The
Company computes earnings per share in accordance with FASB Statement of
Financial Accounting Standards No. 128, Earnings Per Share (“SFAS
128”).  SFAS 128 requires companies to compute earnings per share
under 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 by the weighted average number of
shares of common stock outstanding. Diluted earnings per share are computed by
dividing net income by the weighted average number of common stock and common
stock equivalents outstanding.





43





ENERGY
      COMPOSITES CORPORATIONNOTES
      TO CONSOLIDATED FINANCIAL
STATEMENTS





The
following table provides a reconciliation of the numerators and denominators
used in calculating basic and diluted earnings per share for the years ended
December 31, 2008 and 2007:





2008
                  
                  
                  2007Basic
      earnings (loss) per share calculation:Net
      income (loss) to common shareholders
                  
                  $
                  (4,112,330
                  )
                  
                  $
                  43,024Weighted
      average of common shares outstanding
                  
                  
                  28,903,102
                  
                  
                  
                  24,000,000Basic
      net earnings (loss) per share
                  
                  $
                  (0.14
                  )
                  
                  $
                  -Diluted
      earnings (loss) per share calculation:Net
      income (loss) to common shareholders
                  
                  $
                  (4,112,330
                  )
                  
                  $
                  43,024Basic
      weighted average of common shares outstanding
                  
                  
                  28,903,102
                  
                  
                  
                  24,000,000Convertible
      debentures (1)
                  
                  
                  -
                  
                  
                  
                  -Warrants
      (2)
                  
                  
                  -
                  
                  
                  
                  -Diluted
      weighted average common shares outstanding
                  
                  
                  28,903,102
                  
                  
                  
                  24,000,000Diluted
      net income (loss) per share
                  
                  $
                  (0.14
                  )
                  
                  $
                  -





(1)
            At
      December 31, 2008, there were outstanding convertible debentures
      equivalent to 998,000 common shares.  The convertible debentures
      are anti-dilutive at December 31, 2008 and therefore have been excluded
      from diluted earnings per share.





(2)
            At
      December 31, 2008, there were outstanding warrants equivalent to 2,548,000
      common shares.  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 for the year-ended December 31, 2008 and
      therefore have been excluded from diluted earnings per
    share.





Note
16.  Subsequent events





Financing
Transactions





On March
13, 2009, the Company executed an amendment to the credit agreement for the
three industrial revenue bonds held by Nekoosa Port Edwards State
Bank.  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 subsidiary
AFT on a consolidated basis.  The covenants require the consolidated
Company to maintain (a) Debt Service Coverage Ratio of not less than 1.25 to 1,
(b) Debt to Equity Ratio of not more than 3.5 to 1, (c) Equity level of not less
than $600,000.  The next measurement date of these covenants will be
December 31, 2009.





Convertible
Debt Transactions





As of
March 16, 2009, holders of an additional $1,025,000 of convertible debentures
have converted to common stock of the Company.  The common shares
issued by the Company for principal and interest upon conversion of these
debentures totaled 417,200 shares.





44





Item
9.            Changes
In and Disagreements With Accountants on Accounting and Financial
Disclosure.





On
October 23, 2008, we dismissed Kyle L. Tingle, CPA, LLC (“Tingle”) as our
independent registered public accounting firm, effective
immediately.





Tingle’s
audit reports on our financial statements as of and for the years ended December
31, 2007 and 2006 did not contain any adverse opinion or disclaimer of opinion
and were not qualified or modified as to uncertainty, audit scope, or accounting
principles, except a separate paragraph stating:





“The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern.  As discussed in Note 1 to the
financial statements, the Company has limited operations and has no established
source of revenue.  This raises substantial doubt about its ability to
continue as a going concern.  Management’s plan in regard to these
matters is also described in Note 1.  The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.”





In
connection with Tingle’s audits for the years ended December 31, 2007 and 2006,
there have been no disagreements with Tingle on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which, if not resolved to Tingle’s satisfaction, would have caused
Tingle to make reference in connection with their opinion to the subject matter
of the disagreement, or “reportable events” as defined in Regulation S-K, Item
304(a)(1)(v).





On
October 23, 2008, we engaged Carver Moquist & O’Connor, LLC (“Carver
Moquist”) as our new independent registered public accountants to audit our
financial statements for the year ending December 31, 2008.  During
the two most recent years and through the date hereof, we have not consulted
with Carver Moquist regarding either (i) the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on our financial statements, and neither
a written report nor oral advice was provided to us that Carver Moquist
concluded was an important factor considered by us in reaching a decision as to
the accounting, auditing or financial reporting issue; or (ii) any matter that
was the subject of either a disagreement (as defined in Item 304(a)(1)(iv) of
Regulation S-K or the related instructions thereto) or a reportable
event.





Item
9A.         Controls and
Procedures.





Evaluation
of Disclosure Controls and Procedures and Changes in Internal
Controls





As of the
end of the period covered by this annual report on Form 10-K, we carried out an
evaluation under the supervision and with the participation of our management,
including the Chief Executive Officer (“CEO”) and Principal Financial Officer
(“CFO”), of the effectiveness of the design and operation of our disclosure
controls and procedures as defined in Exchange Act Rules
13a-15(e).  Disclosure controls and procedures are designed to ensure
that information required to be disclosed in our reports filed under the
Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed,
summarized and reported within the time periods specified by the SEC’s rules and
forms and that such information is accumulated and communicated to our
management, including the CEO and CFO, to allow timely decisions regarding
required disclosure.  Based on this evaluation, our CEO and CFO
concluded that the design and operation of our disclosure controls and
procedures were effective as of December 31, 2008.





On
October 14, 2008, we acquired AFT through a reverse acquisition.  We
excluded AFT from our evaluation of internal control over financial
reporting.  Due to the significance of this acquisition to our Company
as a whole and the limited amount of time available to us, we did not have
enough resources to assess the internal controls of AFT for this annual
report.  We will evaluate and report on our internal controls over
financial reporting, including AFT, in fiscal 2009.





Changes
in Internal Control over Financial Reporting





Other
than the new processes and procedures associated with the reverse acquisition of
AFT, there were no changes in our internal control over financial reporting
identified in connection with the evaluation required by






45
 
 Exchange
Act Rules 13a-15(d) and 15d-15(d) conducted as of the end of the period covered
by this annual report, that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.





Management’s
Annual Report on Internal Control over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and
15d-15(f).  Our internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.





Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.





Under the
supervision and with the participation of our management, including our CEO
and CFO, we conducted an evaluation of the effectiveness of our internal control
over financial reporting as of December 31, 2008 based on the criteria
established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.  Based on the results of
this evaluation, we concluded that our internal control over financial reporting
was effective as of December 31, 2008.





This
annual report does not include an attestation report of the company’s registered
public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation
requirements by our registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the company to
provide only management’s report in this annual report.





Respectfully,


Samuel W.
Fairchild, Chief Executive Officer (Principal Executive Officer)


Jeffrey
S. Keuntjes, Vice President - Finance (Chief Financial and Accounting
Officer)





Item
9B.        Other
Information.





None.





PART
III





Item
10.         Directors, Executive
Officers and Corporate Governance.





The
information required is incorporated herein by reference to our Proxy Statement
for our 2009 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission not later than 120 days after the year ended December 31,
2008, and is incorporated herein by reference.





Item
11.         Executive
Compensation.





The
information required is incorporated herein by reference to our Proxy Statement
for our 2009 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission not later than 120 days after the year ended December 31,
2008, and is incorporated herein by reference.





Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.





The
information required is incorporated herein by reference to our Proxy Statement
for our 2009 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission not later than 120 days after the year ended December 31,
2008, and is incorporated herein by reference.


46


Item
13.         Certain Relationships
and Related Transactions, and Director Independence.





The
information required is incorporated herein by reference to our Proxy Statement
for our 2009 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission not later than 120 days after the year ended December 31,
2008, and is incorporated herein by reference.





Item
14.         Principal Accountant
Fees and Services.





The
information required is incorporated herein by reference to our Proxy Statement
for our 2009 Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission not later than 120 days after the year ended December 31,
2008, and is incorporated herein by reference.





PART
IV





Item
15.         Exhibits, Financial
Statement Schedules.





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, 200916.1
              Letter
      from Kyle L. Tingle to Securities and Exchange Commission dated October
      23, 2008 (7)21
              List
      of subsidiaries31.1
              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 Current Report on Form 8-K dated October 23, 2008,
      filed October 28, 2008.







47


SIGNATURES





Pursuant
to the requirements of Section 13 or 15(d) 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:  March
      31, 2009
              By:
              /s/
      Samuel W. FairchildSamuel
      W. Fairchild, Chief Executive
Officer





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.




Signature
                
                Title
                
                Date/s/
      Samuel W. Fairchild
                
                Chief
      Executive Officer and Director
                  (Principal Executive Officer)
                
                March 31,
      2009Samuel
      W. Fairchild/s/
      Jeffrey S. Keuntjes
                
                Vice
      President-Finance (Principal Financial and Accounting
    Officer
                
                March
      31, 2009Jeffrey
      S. Keuntjes/s/
      Jamie Lee Mancl
                
                President
      and Director
                
                March
      31, 2009Jamie
      Lee Mancl


/s/
      Jennifer Lynn Mancl
                
                Vice
      President and Director
                
                March
      31, 2009Jennifer
      Lynn Mancl/s/
      Daniel P. Wergin
                
                Director
                
                March
      28, 2009Daniel
      P. Wergin/s/
      Thomas J. Klismith
                
                Director
                
                March
      30, 2009Thomas
      J. Klismith