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

historical value. The operations of AFT were the only continuing operations of the Company.

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.

The estimated useful lives for computing depreciation are as follows:

                                                     Years
                     Building                         40
                     Building and land improvements   15
                     Computer equipment             3 to 5
                     Manufacturing equipment        5 to 10

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.

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

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.

We believe that the most meaningful measurement of our performance is EBITDA because of the substantial effect of the non-cash charges to the income statement due to start-up related matters and the method of accounting for convertible debt. On a stand-alone basis, EBITDA as of December 31, 2008 and 2007, excluding non-cash charges, was $(1,471,446) and $229,878, respectively. The current year EBITDA loss is largely due to the expansion of our manufacturing capabilities, the deployment of our field services division, and our investment in infrastructure. In 2008, we have invested time and money in our growth, which we believe has put us in a better position to capture market share, improve our revenues, and reduce our overhead as a percentage of revenue in the future.

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.

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 primarily associated with the same contract. Additionally, the net loss incurred in 2008 was primarily due to the aforementioned increases in selling, general and administrative expenses.

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.

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