UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





x  QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES


EXCHANGE
ACT OF 1934





FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 2009





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


EXCHANGE ACT OF 1934





COMMISSION
FILE NUMBER 0-10999





COMPOSITE
TECHNOLOGY CORPORATION


(Exact
Name of Registrant as Specified in Its Charter)





NEVADA
                    
                    59-2025386State
      or Other Jurisdiction of
                      Incorporation
      or Organization)
                    
                    (I.R.S.
      Employer Identification
No.)





2026
      McGaw Avenue, Irvine, CA
              
              92614(Address
      of Principal Executive Offices)
              
              (Zip
      Code)




(949)
428-8500


(Registrant's
Telephone Number, Including Area Code)





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  x NO   ̈




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




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





Large
      accelerated filer o
                Accelerated
      filer xNon-accelerated
      filer o (Do not check if a smaller reporting
      company)
                Smaller
      reporting company o





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





APPLICABLE
ONLY TO ISSUERS INVOLVED IN BANKRUPTCY


PROCEEDING
DURING THE PRECEDING FIVE YEARS:





Indicate
by check mark whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. YES  x
NO o





APPLICABLE
ONLY TO CORPORATE ISSUERS:





Indicate
the number of shares outstanding of each of the issuer's classes of common stock
as of: May 4, 2009





CLASS
                    
                    NUMBER
      OF SHARES OUTSTANDINGCommon
      Stock, par value $0.001 per share
                    
                    287,988,370
      shares








COMPOSITE
TECHNOLOGY CORPORATION


Form 10-Q
for the Quarter ended March 31, 2009


Table of
Contents





PagePART I – FINANCIAL
      INFORMATIONItem 1    
      Financial Statements
                    3Item 2    
      Management's Discussion and Analysis of Financial Condition and Results of
      Operations
                    27Item 3    
      Quantitative and Qualitative Disclosures About Market
      Risk
                    38Item 4    
      Controls and Procedures
                    38PART II – OTHER
      INFORMATIONItem 1     Legal
      Proceedings
                    40Item 1A  Risk
      Factors
                    40Item 2    
      Unregistered Sales of Equity Securities and the Use of
      Proceeds
                    42Item 3    
      Defaults Upon Senior Securities
                    42Item 4    
      Submission of Matters to a Vote of Security Holders
                    42Item 5     Other
      Information
                    42Item 6    
      Exhibits
                    44SIGNATURE
                    45INDEX TO
    EXHIBITS


2





ITEM
1


PART
1 - FINANCIAL STATEMENTS


COMPOSITE
TECHNOLOGY CORPORATION


AND
SUBSIDIARIES


CONSOLIDATED
CONDENSED BALANCE SHEETS


(IN
THOUSANDS)





March 31, 2009
                                        
                                        
                                        September 30, 2008(unaudited)
                                        
                                        
                                        (restated)ASSETSCURRENT
      ASSETSCash
      and Cash Equivalents
                                        
                                        $
                                        3,494
                                        
                                        
                                        $
                                        22,594Restricted
      Cash
                                        
                                        
                                        —
                                        
                                        
                                        
                                        693Accounts
      Receivable, current, net of reserve of $672 and $687
                                        
                                        
                                        10,164
                                        
                                        
                                        
                                        11,773Inventory,
      net
                                        
                                        
                                        58,746
                                        
                                        
                                        
                                        42,088Advanced
      Payments for Turbine Inventory
                                        
                                        
                                        12,052
                                        
                                        
                                        
                                        31,245Prepaid
      Expenses and Other Current Assets
                                        
                                        
                                        1,753
                                        
                                        
                                        
                                        1,400Total
      Current Assets
                                        
                                        
                                        86,209
                                        
                                        
                                        
                                        109,793Long
      Term Trade Receivables
                                        
                                        
                                        265
                                        
                                        
                                        
                                        248Property
      and Equipment, net
                                        
                                        
                                        11,706
                                        
                                        
                                        
                                        7,955Goodwill
                                        
                                        
                                        24,218
                                        
                                        
                                        
                                        24,218Intangible
      Assets, net
                                        
                                        
                                        19,924
                                        
                                        
                                        
                                        21,549Other
      Assets
                                        
                                        
                                        603
                                        
                                        
                                        
                                        1,289TOTAL
      ASSETS
                                        
                                        $
                                        142,925
                                        
                                        
                                        $
                                        165,052LIABILITIES
      AND SHAREHOLDERS’ EQUITYCURRENT
      LIABILITIESAccounts
      Payable and Other Accrued Liabilities
                                        
                                        $
                                        30,809
                                        
                                        
                                        $
                                        32,558Deferred
      Revenues and Customer Advances
                                        
                                        
                                        35,338
                                        
                                        
                                        
                                        33,525Warranty
      Provision
                                        
                                        
                                        1,403
                                        
                                        
                                        
                                        1,462Provision
      for Loss on Turbine Contracts
                                        
                                        
                                        —
                                        
                                        
                                        
                                        7,597Convertible
      Notes – Current
                                        
                                        
                                        8,288
                                        
                                        
                                        
                                        —Net
      Liabilities for Deconsolidated Subsidiary in Liquidation
                                        
                                        
                                        20,000
                                        
                                        
                                        
                                        21,169Total
      Current Liabilities
                                        
                                        
                                        95,838
                                        
                                        
                                        
                                        96,311LONG
      TERM LIABILITIESLong
      Term Portion of Deferred Revenues
                                        
                                        
                                        268
                                        
                                        
                                        
                                        727Long-Term
      Portion of Warranty Provision
                                        
                                        
                                        411
                                        
                                        
                                        
                                        496Convertible
      Notes – Long-Term
                                        
                                        
                                        —
                                        
                                        
                                        
                                        7,838Total
      Liabilities
                                        
                                        
                                        96,517
                                        
                                        
                                        
                                        105,372COMMITMENTS
      AND CONTINGENCIESSHAREHOLDERS’
      EQUITYCommon
      Stock, $.001 par value 600,000,000 shares authorized 287,988,370 and
      287,988,370 issued and outstanding
                                        
                                        
                                        288
                                        
                                        
                                        
                                        288Additional
      Paid-in Capital
                                        
                                        
                                        255,938
                                        
                                        
                                        
                                        252,445Accumulated
      Deficit
                                        
                                        
                                        (212,112
                                        )
                                        
                                        
                                        (193,123
                                        )Accumulated
      Other Comprehensive Income
                                        
                                        
                                        2,294
                                        
                                        
                                        
                                        70Total
      Shareholders’ Equity
                                        
                                        
                                        46,408
                                        
                                        
                                        
                                        59,680TOTAL
      LIABILITIES AND SHAREHOLDERS’ EQUITY
                                        
                                        $
                                        142,925
                                        
                                        
                                        $
                                        165,052





The
accompanying notes are an integral part of these financial
statements





3





COMPOSITE
TECHNOLOGY CORPORATION


AND
SUBSIDIARIES


CONSOLIDATED
CONDENSED STATEMENTS OF OPERATIONS


FOR THE
THREE MONTHS ENDED MARCH 31, 2009 AND 2008


(UNAUDITED)


AND FOR
THE SIX MONTHS ENDED MARCH 31, 2009 AND 2008


(UNAUDITED)





(IN
THOUSANDS, EXCEPT PER SHARE AMOUNTS)





Three Months ended
                                                      March 31, 2009
                                                    
                                                    
                                                    Three Months ended
                                                      March 31, 2008
                                                    
                                                    
                                                    Six Months ended
                                                      March 31, 2009
                                                    
                                                    
                                                    Six Months ended
                                                      March 31, 2008Revenue:Product
      Sales
                                                    
                                                    $
                                                    15,754
                                                    
                                                    
                                                    $
                                                    20,726
                                                    
                                                    
                                                    $
                                                    26,062
                                                    
                                                    
                                                    $
                                                    37,797Service
      Revenue
                                                    
                                                    
                                                    321
                                                    
                                                    
                                                    
                                                    440
                                                    
                                                    
                                                    
                                                    431
                                                    
                                                    
                                                    
                                                    955Total
      Revenue
                                                    
                                                    
                                                    16,075
                                                    
                                                    
                                                    
                                                    21,166
                                                    
                                                    
                                                    
                                                    26,493
                                                    
                                                    
                                                    
                                                    38,752Cost
      of Product Sold
                                                    
                                                    
                                                    15,050
                                                    
                                                    
                                                    
                                                    17,365
                                                    
                                                    
                                                    
                                                    23,132
                                                    
                                                    
                                                    
                                                    30,271Cost
      of Service Revenue
                                                    
                                                    
                                                    1,023
                                                    
                                                    
                                                    
                                                    410
                                                    
                                                    
                                                    
                                                    1,835
                                                    
                                                    
                                                    
                                                    1,050Gross
      margin
                                                    
                                                    
                                                    2
                                                    
                                                    
                                                    
                                                    3,391
                                                    
                                                    
                                                    
                                                    1,526
                                                    
                                                    
                                                    
                                                    7,431OPERATING
      EXPENSESOfficer
      Compensation
                                                    
                                                    
                                                    1,013
                                                    
                                                    
                                                    
                                                    351
                                                    
                                                    
                                                    
                                                    1,756
                                                    
                                                    
                                                    
                                                    605General
      and Administrative
                                                    
                                                    
                                                    3,653
                                                    
                                                    
                                                    
                                                    3,030
                                                    
                                                    
                                                    
                                                    7,676
                                                    
                                                    
                                                    
                                                    5,995Research
      and Development
                                                    
                                                    
                                                    2,018
                                                    
                                                    
                                                    
                                                    6,296
                                                    
                                                    
                                                    
                                                    4,632
                                                    
                                                    
                                                    
                                                    9,454Sales
      and Marketing
                                                    
                                                    
                                                    1,800
                                                    
                                                    
                                                    
                                                    1,312
                                                    
                                                    
                                                    
                                                    3,628
                                                    
                                                    
                                                    
                                                    2,367Depreciation
      & Amortization
                                                    
                                                    
                                                    1,685
                                                    
                                                    
                                                    
                                                    280
                                                    
                                                    
                                                    
                                                    1,954
                                                    
                                                    
                                                    
                                                    833Total
      operating expenses
                                                    
                                                    
                                                    10,169
                                                    
                                                    
                                                    
                                                    11,269
                                                    
                                                    
                                                    
                                                    19,646
                                                    
                                                    
                                                    
                                                    19,254LOSS
      FROM OPERATIONS
                                                    
                                                    
                                                    (10,167
                                                    )
                                                    
                                                    
                                                    (7,878
                                                    )
                                                    
                                                    
                                                    (18,120
                                                    )
                                                    
                                                    
                                                    (11,823
                                                    )OTHER
      EXPENSEInterest
      expense, net
                                                    
                                                    
                                                    (489
                                                    )
                                                    
                                                    
                                                    (609
                                                    )
                                                    
                                                    
                                                    (948
                                                    )
                                                    
                                                    
                                                    (1,505
                                                    )Other
      income
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    76
                                                    
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    76Total
      other expense
                                                    
                                                    
                                                    (489
                                                    )
                                                    
                                                    
                                                    (533
                                                    )
                                                    
                                                    
                                                    (948
                                                    )
                                                    
                                                    
                                                    (1,429
                                                    )Net
      Loss from Continuing Operations before Income Taxes
                                                    
                                                    
                                                    (10,656
                                                    )
                                                    
                                                    
                                                    (8,411
                                                    )
                                                    
                                                    
                                                    (19,068
                                                    )
                                                    
                                                    
                                                    (13,252
                                                    )Minority
      Interest in Consolidated Subsidiary
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    (87
                                                    )
                                                    
                                                    
                                                    —Income
      Taxes (Benefit)
                                                    
                                                    
                                                    (13
                                                    )
                                                    
                                                    
                                                    3
                                                    
                                                    
                                                    
                                                    (4
                                                    )
                                                    
                                                    
                                                    10NET
      LOSS from Continuing Operations
                                                    
                                                    
                                                    (10,643
                                                    )
                                                    
                                                    
                                                    (8,414
                                                    )
                                                    
                                                    
                                                    (18,977
                                                    )
                                                    
                                                    
                                                    (13,262
                                                    )Discontinued
      Operations (Note 1)Loss
      from Discontinued Operations (including a net loss on sales of $0 and $0
      for the three and six months ending March 31, 2009, respectively, and net
      loss on sales of $315 and  $914 for the three and six months
      ending  March 31, 2008, respectively)
                                                    
                                                    
                                                    10
                                                    
                                                    
                                                    
                                                    2,929
                                                    
                                                    
                                                    
                                                    12
                                                    
                                                    
                                                    
                                                    5,441NET
      LOSS
                                                    
                                                    
                                                    (10,653
                                                    )
                                                    
                                                    
                                                    (11,343
                                                    )
                                                    
                                                    
                                                    (18,989
                                                    )
                                                    
                                                    
                                                    (18,703
                                                    )OTHER
      COMPREHENSIVE LOSSForeign
      Currency Translation Adjustment net of tax of $0 and $0
                                                    
                                                    
                                                    1,195
                                                    
                                                    
                                                    
                                                    (481
                                                    )
                                                    
                                                    
                                                    2,224
                                                    
                                                    
                                                    
                                                    (604
                                                    )COMPREHENSIVE
      LOSS
                                                    
                                                    $
                                                    (9,458
                                                    )
                                                    
                                                    $
                                                    (11,824
                                                    )
                                                    
                                                    $
                                                    (16,765
                                                    )
                                                    
                                                    $
                                                    (19,307
                                                    )BASIC
      AND DILUTED LOSS PER SHARELoss
      from continuing operations
                                                    
                                                    $
                                                    (0.04
                                                    )
                                                    
                                                    $
                                                    (0.04
                                                    )
                                                    
                                                    $
                                                    (0.07
                                                    )
                                                    
                                                    $
                                                    (0.06
                                                    )Loss
      from discontinued operations
                                                    
                                                    $
                                                    (0.00
                                                    )
                                                    
                                                    $
                                                    (0.01
                                                    )
                                                    
                                                    $
                                                    (0.00
                                                    )
                                                    
                                                    $
                                                    (0.02
                                                    )WEIGHTED-AVERAGE
      COMMON SHARES OUTSTANDING
                                                    
                                                    
                                                    287,988,370
                                                    
                                                    
                                                    
                                                    226,231,641
                                                    
                                                    
                                                    
                                                    287,988,370
                                                    
                                                    
                                                    
                                                    224,891,754





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


4


COMPOSITE
TECHNOLOGY CORPORATION


AND
SUBSIDIARIES


CONSOLIDATED
CONDENSED STATEMENTS OF CASH FLOWS


FOR
THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008


(IN
THOUSANDS)





For the Six
                                                      Months ending
                                                      March 31, 2009
                                                    
                                                    
                                                    For the Six
                                                      Months ending
                                                      March 31, 2008(unaudited)
                                                    
                                                    
                                                    (unaudited)CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                                                    
                                                    $
                                                    (18,989
                                                    )
                                                    
                                                    $
                                                    (18,703
                                                    )(Income)/Loss
      from discontinued operations
                                                    
                                                    
                                                    12
                                                    
                                                    
                                                    
                                                    5,441Adjustments
      to reconcile net loss to net cash used in operating
      activities:Depreciation
      & amortization
                                                    
                                                    
                                                    2,586
                                                    
                                                    
                                                    
                                                    1,443Amortization
      of prepaid expenses paid in stock
                                                    
                                                    
                                                    164
                                                    
                                                    
                                                    
                                                    191Interest
      amortization related to detachable warrants and fixed conversion
      features
                                                    
                                                    
                                                    543
                                                    
                                                    
                                                    
                                                    1,019Expense
      related to fair value of vested options
                                                    
                                                    
                                                    3,472
                                                    
                                                    
                                                    
                                                    878Issuance
      of warrants for services
                                                    
                                                    
                                                    22
                                                    
                                                    
                                                    
                                                    —Bad
      debt expense
                                                    
                                                    
                                                    14
                                                    
                                                    
                                                    
                                                    —Inventory
      reserve expense
                                                    
                                                    
                                                    6,559
                                                    
                                                    
                                                    
                                                    —Gain
      on sale of equipment
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    (75
                                                    )Changes
      in Assets / Liabilities:Accounts
      receivable
                                                    
                                                    
                                                    1,578
                                                    
                                                    
                                                    
                                                    (5,797
                                                    )Inventory
                                                    
                                                    
                                                    (30,815
                                                    )
                                                    
                                                    
                                                    (22,669
                                                    )Advanced
      payments for inventory
                                                    
                                                    
                                                    19,193
                                                    
                                                    
                                                    
                                                    1,433Prepaid
      expenses
                                                    
                                                    
                                                    28
                                                    
                                                    
                                                    
                                                    (268
                                                    )Restricted
      cash
                                                    
                                                    
                                                    693
                                                    
                                                    
                                                    
                                                    (200
                                                    )Other
      assets
                                                    
                                                    
                                                    50
                                                    
                                                    
                                                    
                                                    (187
                                                    )Accounts
      payable and accrued expenses
                                                    
                                                    
                                                    (5,261
                                                    )
                                                    
                                                    
                                                    13,230Accrued
      warranty liability
                                                    
                                                    
                                                    (143
                                                    )
                                                    
                                                    
                                                    (985
                                                    )Deferred
      revenue
                                                    
                                                    
                                                    1,352
                                                    
                                                    
                                                    
                                                    4,430Net
      Liabilities of Discontinued Operations
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    1,691Cash
      used in operating activities
                                                    
                                                    
                                                    (18,942
                                                    )
                                                    
                                                    
                                                    (19,128
                                                    )CASH
      FLOW FROM INVESTING ACTIVITIESProceeds
      from sale of equipment
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    110Purchase
      of property and equipment
                                                    
                                                    
                                                    (1,440
                                                    )
                                                    
                                                    
                                                    (2,457
                                                    )Cash
      used in investing activities
                                                    
                                                    
                                                    (1,440
                                                    )
                                                    
                                                    
                                                    (2,347
                                                    )CASH
      FLOW FROM FINANCING ACTIVITIESProceeds
      from exercise of warrants
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    3,721Proceeds
      from exercise of options
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    12Payments
      on capital lease assets
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    (77
                                                    )Cash
      provided by financing activities
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    3,656Effect
      of exchange rate changes on cash from continuing
operations
                                                    
                                                    
                                                    1,282
                                                    
                                                    
                                                    
                                                    (932
                                                    )Net
      increase/(decrease) in cash and cash equivalents from continuing
      operations
                                                    
                                                    
                                                    (19,100
                                                    )
                                                    
                                                    
                                                    (18,751
                                                    )CASH
      FLOWS FROM DISCONTINUED OPERATIONS:Cash
      used in operating activities – discontinued
operations
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    (34
                                                    )Effect
      of exchange rate changes on cash – discontinued
      operations
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    38Net
      increase/(decrease) in cash and cash equivalents from discontinued
      operations
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    4Total
      net increase/(decrease) in cash and cash equivalents
                                                    
                                                    $
                                                    (19,100
                                                    )
                                                    
                                                    $
                                                    (18,751
                                                    )Cash
      and cash equivalents at beginning of period – continuing
      operations
                                                    
                                                    
                                                    22,594
                                                    
                                                    
                                                    
                                                    22,389Cash
      and cash equivalents at beginning of period – discontinued
      operations
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    268Cash
      and cash equivalents at beginning of period
                                                    
                                                    $
                                                    22,594
                                                    
                                                    
                                                    $
                                                    22,657Cash
      and cash equivalents at end of period – continuing
      operations
                                                    
                                                    
                                                    3,494
                                                    
                                                    
                                                    
                                                    3,638Cash
      and cash equivalents at end of period – discontinued
      operations
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    272Cash
      and cash equivalents at end of period
                                                    
                                                    $
                                                    3,494
                                                    
                                                    
                                                    $
                                                    3,910SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATIONINTEREST
      PAID
                                                    
                                                    $
                                                    374
                                                    
                                                    
                                                    $
                                                    540INCOME
      TAX PAID
                                                    
                                                    $
                                                    3
                                                    
                                                    
                                                    $
                                                    —





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


5


Supplemental
Schedule for Non Cash Financing Activities





During
the first six months of fiscal 2009, the Company issued the
following:





In
October, 2008 the Company issued 150,000 warrants at an exercise price of $0.96
per share in settlement of a disputed financing fee related to the May, 2008
Debt financing.  The Company had accrued $18,000 in general and
administrative expense in fiscal 2008 for the issuance of these
warrants.





In
December, 2008 the Company re-priced 200,000 $1.75 warrants, 200,000 $1.50
warrants, and 200,000 $1.25 warrants to a strike price of $0.75 per warrant for
all three series of warrants.  The Company recorded $22,062 to general
and administrative expense for the re-pricing of these
warrants.


6


COMPOSITE
TECHNOLOGY CORPORATION


AND
SUBSIDIARIES


NOTES
TO FINANCIAL STATEMENTS





NOTE
1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES





Company




Composite
Technology Corporation originally incorporated in Florida and reincorporated in
Nevada, is an Irvine, CA based company operating in two segments: CTC Cable
(“Cable”) and DeWind (“Wind”). The Cable Segment sells high energy efficiency
patented composite core conductors known as “ACCCTM
conductors” for use in electric transmission and distribution
lines.  ACCC conductor is commercially available in the United States
and Canada, China, Europe, the Middle East, and South America through direct
sales to utilities and through distribution and purchase agreements. The Wind
segment sells electricity generating wind turbines under the brand name DeWind,
and during the current fiscal year, the Company entered into a joint venture
development agreement with Higher Perpetual Energy to create DeWind SWI Wind
Farms, LLC to jointly develop up to 620 Megawatts of wind farm properties using
leases obtained by Higher Perpetual and DeWind wind turbines.  See
Note 11.


Accounting





The
accompanying unaudited consolidated financial statements of Composite Technology
Corporation (the “Company” or “Composite Technology”) have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim financial information and with the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, they do not contain all of the
information and footnotes required for complete financial statements. Interim
information is unaudited; however, in the opinion of the Company's management,
the accompanying unaudited, consolidated financial statements reflect all
adjustments (consisting of normal, recurring adjustments) considered necessary
for a fair presentation of the Company's interim financial information. These
financial statements and notes should be read in conjunction with the audited
financial statements of the Company included in the Company's Annual Report on
Form 10-K/A for the fiscal year ended September 30, 2008 filed with the
Securities and Exchange Commission on March 9, 2009.





Discontinued
Operations





On
October 1, 2006, the Company’s wholly owned subsidiary, EU Energy Service GmbH
(EUES) entered into a recapitalization arrangement whereby 50% of the voting
stock of EUES was sold to Enertrag AG, a turbine service customer of EUES and a
new entity was created, called E Service. The new entity was operated under
joint control of both Enertrag and DeWind executives during the quarter ended
December 31, 2006.





On April
3, 2008 the Company sold its ownership stake in E Services for 500,000 Euros
($790,250 at April 3, 2008 exchange rates). The consolidated financial
statements of Composite Technology Corporation have been restated to present the
E Services operations, assets and liabilities as discontinued
operations.





On
September 1, 2008 the board of directors of DeWind GmbH filed to place that
subsidiary into insolvency in Lubeck, Germany. This subsidiary primarily served
the acquired turbines under warranty and had operated at a substantial loss
since the July 3, 2006 acquisition of EU Energy. The directors faced a near term
requirement to recapitalize this subsidiary for approximately EUR 5 million. The
filing of insolvency for this subsidiary is not expected to have a material
impact on the future operations of the Company’s DeWind segment.  The
assets and liabilities of DeWind GmbH have been classified on the balance sheet
as Net Liabilities for Deconsolidated Subsidiary in Liquidation. See Note
4.




On
January 9, 2009 the directors of DeWind Holdings Ltd. filed for insolvency
proceedings in the Queen’s Bench Court. DeWind Holdings’ owned the share capital
of the now insolvent DeWind GmbH and, as of the date of the insolvency filing,
had other assets and liabilities consisting only of $23,000 of other current
assets and $1,936,000 of accounts payable and other accrued liabilities
consolidated into the Company’s balance sheet. The consolidated financial
statements of Composite Technology Corporation have been restated to present the
DeWind Holdings operations, assets and liabilities as discontinued
operations.




REVENUE
RECOGNITION





Revenues
are recognized based on guidance provided in the Securities and Exchange
Commission (SEC) Staff Accounting Bulletin No. 104 “Revenue Recognition in
Financial Statements,” as amended (SAB 104).   Accordingly, our
general revenue recognition policy is to recognize revenue when there is
persuasive evidence of an arrangement, the sales price is fixed or determinable,
collection of the related receivable is reasonably assured, and delivery has
occurred or services have been rendered.




The
Company derives, or seeks to derive revenues from following
sources:





(1)
Product revenue which includes revenue from:


a) The
sale of composite core, stranded composite core, core and stranded core
hardware, and other electric utility related products.


b) The
sale of electrical generation turbines, related turbine parts, and license
royalties on turbines sold by third parties.





(2)
Service revenue which includes revenue from the service and maintenance of
turbine generators under service contracts or revenue from billings on a cost
and materials basis.




7





In
addition to the above general revenue recognition principles prescribed by SAB
104, our specific revenue recognition policies for each revenue
source:





PRODUCT
REVENUES. Product revenues are recognized when product shipment has been made
and title has passed to the end user customer. Product revenues consist
primarily of revenue from the sale of: (i) stranded composite core and related
hardware to utilities either sold directly by the Company or through a
distribution agreement, ii) composite core and related hardware sold to a cable
stranding entity, or iii) turbines, turbine parts, or license rights sold
to wind farm operators, utilities, and technology licensees. Revenues are
deferred for product contracts where the Company is required to perform
installation services until after the installation is complete. Our distribution
agreements are structured so that our revenue cycle is complete upon shipment
and title transfer of products to the distributor with no right of
return.





CTC Cable
sales for the three and six months ended March 31, 2009 and 2008 consisted of
stranded ACCC conductor and ACCC hardware sold to end user utilities, sales of
ACCC conductor sold to our Chinese distributor, and sales of ACCC conductor core
and ACCC hardware to two of our stranding manufacturers. All ACCC related
product sales were recognized upon delivery of product and transfer of title.
There is no right of return for sales of ACCC conductor or ACCC core to our
Chinese distributor.  For ACCC conductor product sales made directly
by us and not through a manufacturer or distributor, we offer a product
replacement warranty of two years with an optional purchase of up to seven
years. We allocate a portion of sales proceeds to the estimated fair value of
the cost to provide such a warranty. To date, most of our ACCC related product
sales have been without warranty coverage.





DeWind
Turbine related sales for the three and six months ended March 31, 2009 and 2008
consisted of a completed and installed wind turbine unit, turbine parts, and
license fees. For DeWind turbine revenues, for turbine sales, we recognized
revenues for completed and installed wind turbine units upon the commissioning,
or operational viability of each wind turbine unit. We recognized revenues on
turbine parts sales upon delivery to the customer and title transfer. We
recognized revenues on the license fees upon collection of the license fees and
reporting by the licensee of units sold under each license
agreement.





For
turbine sales, our contracted sales typically include the turbine and warranty
services for up to two years after turbine installation and we offer extended
warranties for an additional fee. All other turbines sold carried a two year
warranty. Our turbine sales are documented by turbine supply agreements that
specify the contracted value of the turbine, the warranty service period, and
the timing of cash payments by our customers. Our operational history and the
value of extended warranties sold allow us to provide sufficient vendor specific
objective evidence (VSOE) to value the warranty included with a wind turbine,
generally $25,000 per rated megawatt of power per year representing expected
warranty and availability related liabilities during the warranty period. We
recognize as revenue the contracted turbine value reduced by the value of the
warranty portion when the revenue cycle is completed as described above.
Progress payments and customer deposits are recorded as deferred revenues until
the revenue cycle is completed. Costs incurred and turbine materials purchased
during the production of turbines in completion of the revenue cycle are
capitalized into inventory. Operating expenses, including indirect costs and
administrative expenses, are charged as incurred to periodic income and not
allocated to contract costs. The value of the warranty portion determined by the
VSOE is  deferred and recognized ratably over the life of the warranty
service period. For multiple element contracts where there is no vendor specific
objective evidence (VSOE) or third-party evidence that would allow the
allocation of an arrangement fee amongst various pieces of a multi-element
contract, fees received in advance of services provided would be recorded as
deferred revenues until additional operational experience or other vendor
specific objective evidence becomes available, or until the contract is
completed.





SERVICE
REVENUES. Service revenues consist of service and maintenance on our wind
turbines under flat rate contracts, typically billed in advance on an annual or
semi-annual basis on a flat rate, as a full service contract, typically
calculated as a rate per kilowatt of generation and billed monthly or quarterly
in arrears, or as a point of sale service call basis billed on a time and
materials basis. Service revenues are deferred and recognized ratably over the
life of a flat rate service contract, recognized as billed for full service
contracts, or for point of delivery services, when the service has been
provided. Direct costs of uncompleted work related to maintenance or repairs
activity is capitalized and expensed upon completion.  Billings for
turbines on a time and materials basis are recorded into revenue as the services
are delivered.





LICENSE
REVENUE. License revenues consist of cash payments for the licensing of our
older D6 and D8 turbines on a per unit delivered basis. We have license
agreements with three companies in China and India that call for progress
payments to DeWind upon the completion of certain technology transfer
milestones. We defer all payments received and recognize revenue when the
licensee has shipped the finished turbine to the wind farm
operator.




During
the quarter ended March 31, 2009 the Company’s DeWind segment entered into a
settlement agreement with one of its licensees.  In exchange for
3,000,000 Euros ($3,992,000 at March 31, 2009 exchange rates), which was
received in April and May, 2009 and forgiveness of all past and present claims,
the licensee received a perpetual royalty free non-exclusive paid up license to
produce 1.25 Megawatt D6 turbines in China.




WARRANTY,
RETROFIT, AND AVAILABILITY PROVISIONS





Warranty
provisions consist of the estimates of the costs and liabilities associated with
the post-sale servicing of our DeWind wind turbines, and the insured costs and
liabilities associated with any post-sales associated with our ACCC conductor
and related hardware parts.





Warranty
periods for our wind turbines range from zero to seven years and may include
parts-only warranties or parts and repair services warranties and may or may not
include revenue guarantees. Warranty conditions are specific to and are governed
by the turbine supply agreement contract. Warranty related liabilities for time
periods in excess of one year are classified as non-current
liabilities.




8





Warranties
related to our ACCC products relate to conductor and hardware sold directly by
us to the end-user customer. We mitigate our loss exposure through the use of
third party warranty insurance. Warranty related liabilities for time periods in
excess of one year are classified as non-current liabilities.





We use
the following terms, all of which are accounted for as warranty related
liabilities:





(1)
            Warranty
      provisions represent the estimated costs to perform expected future
      repairs of wind turbines, which are covered under a warranty. We estimate
      warranty provisions based on the historical cost to provide the services
      under warranty including monitoring, repairs, parts, and insurance and
      based on the age of the turbine under warranty. We also include as
      warranty provisions the estimated losses on “full service” contracts where
      we provide full service in exchange for a revenue share of the wind power
      produced. For the three months ended March 31, 2009, our estimated
      warranty costs averaged approximately $4,000 per turbine per month under
      warranty and as of March 31, 2009 we had approximately 247 turbine –
      months remaining under warranty. We amortize the estimated warranties
      ratably over the remaining warranty period against the actual expenses
      incurred and we amortize the projected loss provisions against the
      expected future periods of full service losses.(2)
            Retrofit
      provisions represent the estimated future cost to perform significant
      repairs for known defects in turbines that are expected to be incurred
      during the warranty period or were obligated to be repaired while a
      turbine was under warranty. Retrofit costs are estimated based on
      management’s projection of the costs to repair the known defects on a
      parts and labor basis. When completed, retrofit provisions are amortized
      against the actual expenses incurred. All retrofit accruals are recorded
      as current liabilities.(3)
            Availability
      penalties represent a combination of i) the calculated revenue guarantees
      under the turbine supply agreement and ii) the estimate of future payments
      for revenue guarantees. Actual penalties are calculated under the terms of
      each individual contract and represent the guaranteed value of the wind
      power generated under the term of the contract. If the turbine delivers
      less than the rated power determined under the contract, subject to
      minimum wind conditions, DeWind is obligated under some contracts to
      reimburse the wind turbine purchaser for the shortfall subject to contract
      or turbine maximums, as applicable. Actual availability penalties are
      recorded as current liabilities although such penalties are often disputed
      as to the amounts due and then subsequently mediated or negotiated and
      which often results in payments made in excess of one year. Estimated
      penalties are determined by past availability histories and management
      estimates of the required revenue reimbursement on a per turbine basis and
      calculated using the expected availability rate multiplied by the number
      of months remaining under warranty. Estimated availability penalties are
      amortized against actual availability penalties incurred ratably over the
      remaining warranty period. As of March 31, 2009 we have estimated
      availability penalties accrued of approximately $2,700 per turbine per
      month remaining under warranty. For warranty periods in excess of one
      year, the estimated availability penalty is recorded as a long term
      liability.





The
turbine related warranty liabilities were significantly reduced by the filing of
insolvency of DeWind GmbH as described below in Note 4. Prior to the insolvency
filing, approximately 90% of the Company’s warranty liabilities were related to
turbines under warranty and acquired through the EU acquisition, dating to
periods prior to July 2005.





PROVISION
FOR LOSS ON TURBINE CONTRACTS AND TURBINE CONTRACT INVENTORY





Provision
for loss on turbine contracts represents incurred and estimated costs in excess
of contracted and expected billings on turbine supply contracts.
Management reviews all turbine supply contracts and evaluates each contract on
an individual basis to determine if estimated costs to complete exceed projected
billings. For contracts projected to be at a loss, a provision for contract loss
is accrued and expensed to turbine cost of sales. After the related inventory is
purchased, the provision is reclassified to inventory reserves to reduce the
value of the inventory to the net realizable value based on the sales price
under the contract.





Total
unaudited contract provisions as of March 31, 2009 were $10,736,000, all of
which were included in inventory reserves. Total restated contract provisions as
of September 30, 2008 were $9,371,000 of which $1,774,000 were included in
inventory reserves and $7,597,000 were included in Provision for Loss on Turbine
Contracts.





Estimates





The
preparation of our financial statements conforms with accounting principles
generally accepted in the United States of America, which requires management to
make estimates and judgments in applying our accounting policies that have an
important impact on our reported amounts of assets, liabilities, revenue,
expenses and related disclosures at the date of our financial statements. On an
on-going basis, management evaluates its estimates including those related to
accounts receivable, inventories, stock-based compensation, warranty, retrofit
and availability provisions and goodwill and intangibles. Management bases its
estimates and judgments on historical experience and on various other factors
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from management’s estimates. We believe that the application of our
critical accounting policies requires significant judgments and estimates on the
part of management.   We believe that the estimates, judgments and
assumptions upon which we rely are reasonable, and based upon information
available to us at the time that these estimates, judgments and assumptions are
made. These estimates, judgments and assumptions can affect the reported amounts
of assets and liabilities as of the date of the financial statements as well as
the reported amounts of revenues and expenses during the period presented. To
the extent there are material differences between these estimates, judgments or
assumptions and actual results, our financial statements will be affected. In
many cases, the accounting treatment of a particular transaction is specifically
dictated by GAAP and does not require management's judgment in its application.
There are also many areas in which management's judgment in selecting among
available alternatives would produce a materially different result.




Our key
estimates we use that rely upon management judgment include:
 
 -
              The
      estimates pertaining to the likelihood of our accounts receivable
      collectibility, These estimates primarily rely upon past payment history
      by customer and management judgment on the likelihood of future payments
      based on the current business condition of each customer and the general
      business environment.-
              The
      estimates pertaining to the valuation of our inventories. These estimates
      primarily rely upon the current order book for each product in inventory
      along with management’s expectations and visibility into future sales of
      each product in inventory.-
              The
      assumptions used to calculate fair value of our stock based compensation,
      primarily the volatility component of the Black-Scholes-Merton option
      pricing model used to value our warrants and our employee and non-employee
      options. This estimate relies upon the past volatility of our share price
      over time.-
              The
      warranty, retrofit and availability provisions for our wind turbines.
      These estimates rely primarily on the past history of repairs and
      maintenance, turbine downtime and incurred availability charges as
      calculated under the terms of each contract, and management judgment on:
      i) the likelihood of customer claims for availability based on past
      history, ii) the likelihood of proactively solving or preventing similar
      repair, warranty, or availability expenses in the future, and iii) the
      projected recovery of sub-warranty claims, insurance claims, and other
      mitigating reimbursements.-
              The
      estimates pertaining to the completion of our wind farm.  These
      estimates primarily rely upon management’s expectations to reasonably
      estimate the costs to complete.-
              Goodwill
      and intangible valuation. These estimates rely primarily on financial
      models reviewed by senior management which incorporate business
      assumptions made by management on the underlying products and technologies
      acquired in the DeWind acquisition and the likelihood that the values
      assigned during the initial valuations will be recoverable over time
      through increased revenues, profits, and enterprise
  value.
 
 Except as
noted in this document, the methodology and assumptions used for the estimates
pertaining to the activity during the three and six months ended March 31, 2009
are consistent with those used for the estimates included in our Form 10-K/A for
the year ended September 30, 2008 filed on March 9, 2009.
 
 Reclassifications
 
 Certain
balances were reclassified to conform with current period
presentation.




9





DERIVATIVE
FINANCIAL INSTRUMENTS


The
Company issues financial instruments in the form of stock options, stock
warrants, and debt conversion features as part of its convertible debt
issuances. The Company has not issued any derivative instruments for hedging
purposes since inception. The Company uses the guidance of and has adopted the
disclosure requirements of Statement of Financial Accounting Standards No. 133
Accounting for Derivative
Instruments and Hedging Activities and the FASB Emerging Issues Task
Force (EITF) Issue No. 00-19 Accounting for Derivative
Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.Freestanding derivative contracts where settlement is required by
physical share settlement or in net share settlement; or where the Company has a
choice of share or net cash settlement are accounted for as equity. Contracts
where settlement is in cash or where the counterparty may choose cash settlement
are accounted for as debt. The Company has accounted for all derivative
instruments indexed to the Company’s stock as equity.
  The
values of the financial instruments are estimated using the Black-Scholes-Merton
(Black-Scholes) option-pricing model. Key assumptions used during the six months
ended March 31, 2009 and 2008 to value options and warrants granted or repriced
are as follows:
 
 Six
      Months EndedMarch
      31,2009
              
              
              2008Risk
      Free Rate of Return
              
              
              0.50-2.02
              %
              
              
              3.28-4.29
              %Volatility
              
              
              96
              %
              
              
              88
              %Dividend
      yield
              
              
              0
              %
              
              
              0
              %Expected
      life
              
              0-5
      yrs
              
              
              0-5
      yrs
 
 Stock-Based
Compensation
  In
December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No.
123R, Share-Based
Payments to require that compensation cost relating to share-based
payment arrangements be recognized in the financial statements. As of October 1,
2005, we adopted SFAS No. 123R using the modified prospective method, which
requires measurement of compensation cost for all stock-based awards at fair
value on date of grant and recognition of compensation over the service period
for awards expected to vest. The fair value of stock options was determined
using the Black-Scholes valuation model, which is consistent with our valuation
techniques previously utilized for stock options in footnote disclosures
required under SFAS No. 123, as amended by SFAS No. 148. Such fair value is
recognized as expense over the service period, net of estimated forfeitures. The
adoption of SFAS No.123R resulted in no cumulative change in accounting as of
the date of adoption.
 
 On
September 27, 2001, the FASB Emerging Issues Task Force (EITF) issued EITF Issue
96-18 “Accounting for Equity Instruments That are Issued to Other than Employees
for Acquiring, or in Conjunction with Selling, Goods or Services” which requires
that equity instruments issued in exchange for services be valued at the more
accurate of the fair value of the services provided or the fair value of the
equity instruments issued. For equity instruments issued that are subject to a
required service period the expense associated with the equity instruments is
recorded as the instruments vest or the services are provided. The Company has
granted options and warrants to non-employees and recorded the fair value of
these equity instruments on the date of issuance using the Black-Scholes
valuation model. The Company has granted stock to non-employees for services and
values the stock at the more reliable of the market value on the date of
issuance or the value of the services provided. For grants subject to vesting or
service requirements, expenses are deferred and recognized over the more
appropriate of the vesting period, or as services are provided.
  On March
29, 2005, the Securities and Exchange Commission published Staff Accounting
Bulletin No. 107 (SAB 107), which provides the Staff’s views on a variety of
matters relating to stock-based payments. SAB 107 requires stock-based
compensation to be classified in the same expense line items as cash
compensation. Information about stock-based compensation is described in Note
15.
  Convertible
Debt
  Convertible
debt is accounted for under the guidelines established by APB Opinion No. 14
Accounting for Convertible
Debt and Debt issued with Stock Purchase Warrants (APB14)under the
direction of Emerging Issues Task Force (EITF) 98-5, Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios, (EITF 98-5) EITF 00-27 Application of Issue No 98-5 to
Certain Convertible Instruments (EITF 00­27) , and EITF 05-8 Income Tax Consequences of Issuing
Convertible Debt with Beneficial Conversion Features.The Company records
a beneficial conversion feature (BCF) related to the issuance of convertible
debt that have conversion features at fixed or adjustable rates that are
in-the-money when issued and records the fair value of warrants issued with
those instruments. The BCF for the convertible instruments is recognized and
measured by allocating a portion of the proceeds to warrants and as a reduction
to the carrying amount of the convertible instrument equal to the intrinsic
value of the conversion features, both of which are credited to paid-in-capital.
The Company calculates the fair value of warrants issued with the convertible
instruments using the Black Scholes valuation method, using the same assumptions
used for valuing employee options for purposes of SFAS No. 123R, except that the
contractual life of the warrant is used. The Company evaluated the variable
conversion features and determined that they should be accounted for as equity
and accounted for under EITF 98-5 and 00-27. Under the guidelines of EITF 98-5
and 00-27, the Company first allocates the value of the proceeds received to the
convertible instrument and any other detachable instruments (such as detachable
warrants) on a relative fair value basis and then determine the amount of any
beneficial conversion feature based on effective conversion price to measure the
intrinsic value, if any, of the embedded conversion option. Using the effective
yield method, the allocated fair value is recorded as a debt discount or premium
and is amortized over the expected term of the convertible debt to interest
expense. For a conversion price change of a convertible debt issue, the
additional intrinsic value of the debt conversion feature, calculated as the
number of additional shares issuable due to a conversion price change multiplied
by the previous conversion price, is recorded as additional debt discount and
amortized over the remaining life of the debt.
  In
December 2006, the FASB issued FASB Staff Position EITF 00-19-2, Accounting for Registration Payment
Arrangements(“FSP 00-19-2”). FSP 00-19-2 specifies that the contingent
obligation to make future payments or otherwise transfer consideration under a
registration payment arrangement, whether issued as a separate agreement or
included as a provision of a financial instrument or other agreement, should be
separately recognized and measured in accordance with FASB Statement No. 5,
Accounting for Contingencies. As of January 1, 2007, the Company adopted FSP 00-19-2 and evaluated
the effective provisions, which specifies that the contingent obligation to make
future payments or otherwise transfer consideration under a registration payment
arrangement should be separately recognized and measured in accordance with FASB
Statement No. 5, Accounting
for Contingencies, pursuant to which a contingent obligation must be
accrued only if it is more likely than not to occur. In management’s estimation,
the contingent payments related to the registration payment arrangement are not
likely to occur, and thus no amount need be accrued. Accordingly, the adoption
did not have an effect on our financial statements as of the date of
adoption.


Recent
Pronouncements




Statement
No. 141R, “Business Combinations” (SFAS 141R)


In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 141R, Business
Combinations (SFAS 141R). SFAS 141R requires most identifiable assets,
liabilities, noncontrolling interests, and goodwill acquired in a business
combination to be recorded at “full fair value.” SFAS 141R applies to all
business combinations, including combinations among mutual entities and
combinations by contract alone. Under Statement 141R, all business combinations
will be accounted for by applying the acquisition method. Statement 141R is
effective for business combinations for which the acquisition date is on or
after the beginning of the first annual reporting period beginning on or after
December 15, 2008. We are currently evaluating the impact that SFAS 141R
will have on our consolidated financial statements.





Statement
No. 160, “Non-controlling Interests in Consolidated Financial Statements” (SFAS
160)


In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 160, Non-controlling
Interests in Consolidated Financial Statements (SFAS 160). SFAS 160
requires the ownership interests in subsidiaries held by parties other than the
parent to be treated as a separate component of equity and be clearly
identified, labeled, and presented in the consolidated financial statements.
SFAS 160 is effective for periods beginning on or after December 15, 2008.
Earlier adoption is prohibited. We are currently evaluating the impact that SFAS
160 will have on our consolidated financial statements.





Statement
No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (SFAS
161)


In March,
2008, the FASB issued Statement of Financial Accounting Standards No. 161,
Disclosures about Derivative
Instruments and Hedging Activities (SFAS 161). SFAS 161 amends and
expands the disclosure requirements of SFAS 133 by providing additional
disclosure on the use of derivative instruments including qualitative
disclosures about fair value amounts of gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features in
derivative agreements. SFAS 161 is effective for periods beginning on or after
November 15, 2008. We are currently evaluating the impact that SFAS 161 will
have on our consolidated financial statements.




Statement
No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (SFAS
162)


In
May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (SFAS 162). SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted accounting principles (the
GAAP hierarchy). SFAS 162 will become effective 60 days following the
SEC’s approval of the Public Company Accounting Oversight Board amendments to
AU Section 411, “The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles.” We do not currently expect the
adoption of SFAS 162 to have a material effect on our consolidated results of
operations and financial condition.




10





Statement
No. 163,“Accounting
for Financial Guarantee Insurance Contracts” (SFAS 163)


In May,
2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee
Insurance Contracts-an interpretation of FASB Statement No. 60 (SFAS
163). SFAS 163 requires that an insurance enterprise recognize a claim liability
prior to an event of default (insured event) when there is evidence that credit
deterioration has occurred in an insured financial obligation. SFAS 163 also
clarifies how Statement 60 applies to financial guarantee insurance contracts,
including the recognition and measurement to be used to account for premium
revenue and claim liabilities. SFAS 163 is effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those fiscal years. We do not currently expect the adoption of SFAS 163
to have a material effect on our consolidated results of operations and
financial condition.





Significant
new accounting policies adopted or implemented during the six months ended March
31, 2009




In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS
157), which defines the fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. This statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal
years.   The Company is subject to the provisions of SFAS 157 as
of October 1, 2007.




In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities, Including an
amendment of FASB Statement No. 115 (SFAS 159), which permits entities to
choose to measure many financial instruments and certain other items at fair
value.  The statement is effective for financial statements issued for
fiscal years beginning after November 15, 2007; this Statement should not be
applied retrospectively to fiscal years beginning prior to the effective date,
except as permitted in paragraph 30 for early adoption. The Company is subject
to the provisions of SFAS 159 as of October 1, 2008.


NOTE
2 - GOING CONCERN





The
Company has received a report from its independent auditors for the year ended
September 30, 2008 that includes an explanatory paragraph describing the
uncertainty as to the Company's ability to continue as a going concern. These
consolidated financial statements contemplate the ability to continue as such
and do not include any adjustments that might result from this
uncertainty





During
the year ended September 30, 2008, the Company incurred a net loss of
$53,513,000 and negative cash flows from operations of $51,360,000. In addition,
the Company had an accumulated deficit of $193,123,000 at September 30, 2008.
The Company's ability to continue as a going concern is dependent upon its
ability to generate profitable operations in the future and/or to obtain the
necessary financing to meet its obligations and repay its liabilities arising
from normal business operations when they come due. The outcome of these matters
cannot be predicted with any certainty at this time.





Our
principal sources of working capital have been private debt and equity issuances
and historically, the Company has issued registered stock and unregistered,
restricted stock, stock options, and warrants in settlement of both operational
and non-operational related liabilities and as a source of funds.





Commercial
orders: To date, since inception for our Cable products and since the
acquisition of DeWind, we have received orders including revenues recognized and
unfilled orders for approximately $67 million in ACCC conductor products and
$253 million of Wind turbines. We will require a significant increase in
customer orders at sufficient profit margin levels to cover our expenses and
generate sufficient cash from operations.





There is
no guarantee that our products will be accepted or provide a marketable
advantage and therefore no guarantee that our products will ever be profitable.
In addition, management plans to ensure that sufficient capital will be
available to provide for its capital needs with minimal borrowings and may issue
equity securities to ensure that this is the case. However, there is no
guarantee that the Company will be successful in obtaining sufficient capital
through borrowings or selling equity securities. These financial statements do
not include any adjustments to the amounts and classification of assets and
liabilities that may be necessary should the Company be unable to become a going
concern.





We
believe our cash position, as of March 31, 2009, of $3.5 million and expected
cash flows from revenue orders may not be sufficient to fund operations for the
next two calendar quarters for both of our business segments. We believe that we
will have positive cash flow from our Cable business to fund its operations. We
anticipate that additional cash is needed to fund operations beyond March, 2009
for our DeWind business, absent a large cash deposit for a future turbine order
and to the extent required the Company intends to continue the practice of
issuing stock, debt or other financial instruments for cash or for payment of
services until our cash flows from the sales of our primary products is
sufficient to provide cash from operations or if we believe such a financing
event would be a sound business strategy.





NOTE
3 – RESTATEMENT





The
financial statements included herein have been restated to correct an error in
accounting for turbine supply contract losses for costs incurred during the
three and six months ended March 31, 2009 but which were committed during the
quarter ended September 30, 2008 and for which sufficient information was
available for management to make an estimate of the contract losses for the
quarter and year ended September 30, 2008.




11





During
the six months ended March 31, 2009, the Company’s DeWind segment delivered 10
unit D8 2 megawatt wind turbines under two supply contracts for the same
customer in South America with an original value of $19,100,000 for the supply
of turbine nacelles, hubs, and blades. The contracts were negotiated and signed
in June 2007 at a time when turbine component costs were substantially lower
than during the quarter ended September 30, 2008. During the quarter ended
September 30, 2008 the Company agreed to a supply delay penalty of $955,000,
which reduced the value of the contract to $18,145,000. Also during the quarter
ended September 30, 2008, the Company revised purchase commitments to vendors to
supply the wind turbine nacelle components at a higher price than were
previously estimated. The revised commitments when added to the other estimated
costs to complete resulted in an estimated cost to fulfill the contract of
$25,742,000. The difference of $7,597,000 represents the estimated loss on the
turbine supply contract. An additional $363,000 of contract losses under a
separate contract was also understated for a total accrual of $7,960,000
($7,597,000 recorded as Provision for Loss on Turbine Contracts, and $363,000
recorded as reserve against inventory purchased and recorded as of September 30,
2008). The Company is recording this estimated loss into the quarter and year
ended September 30, 2008 to restate the financial statements to correct the
error.





The
effect to the Balance Sheet and Statement of Operations for the three months and
year ended September 30, 2008 was:





As Originally
                          
                          
                          Restatement( In Thousands except share and per share amounts)
                          
                          Reported
                          
                          
                          Adjustment
                          
                          
                          As RestatedBalance SheetInventory,
      net
                          
                          $
                          42,451
                          
                          
                          $
                          (363
                          )
                          
                          $
                          42,088Provision
      for Loss on Turbine Contracts
                          
                          $
                          —
                          
                          
                          $
                          7,597
                          
                          
                          $
                          7,597Accumulated
      Deficit
                          
                          $
                          (185,163
                          )
                          
                          $
                          (7,960
                          )
                          
                          $
                          (193,123
                          )Total
      Liabilities and Shareholders’ Equity
                          
                          $
                          165,440
                          
                          
                          $
                          (363
                          )
                          
                          $
                          165,077Statement of Operations:Cost
      of Product Sold
                          
                          $
                          62,184
                          
                          
                          $
                          7,960
                          
                          
                          $
                          70,144Net
      Loss
                          
                          $
                          (45,553
                          )
                          
                          $
                          (7,960
                          )
                          
                          $
                          (53,513
                          )Basic
      and Diluted Loss per Share
                          
                          $
                          (0.19
                          )
                          
                          $
                          (0.03
                          )
                          
                          $
                          (0.22
                          )Weighted-Average
      Common Shares Oustanding
                          
                          
                          243,369,110
                          
                          
                          
                          243,369,110
                          
                          
                          
                          243,369,110





NOTE
4 – DISCONTINUED OPERATIONS OF DEWIND SUBSIDIARIES





During
fiscal 2008 two subsidiaries of DeWind with operations in Europe were either
disposed of or put into insolvency.  On January 9, 2009, one
additional subsidiary was put into insolvency.





DeWind
GmbH:


On
September 1, 2008 the board of directors of DeWind GmbH filed to place that
subsidiary into insolvency in Lubeck, Germany.   The assets and
liabilities of DeWind GmbH have been classified on the balance sheet as Net
Liabilities for Deconsolidated Subsidiary in Liquidation.  The asset
and liabilities comprising this balance consisted of:





(In Thousands)
                              
                              March 31, 2009
                              
                              
                              September 30, 2008(unaudited)
                              
                              
                              (restated)ASSETSCash
      and Cash Equivalents
                              
                              $
                              464
                              
                              
                              $
                              491Accounts
      Receivable, net
                              
                              
                              6,579
                              
                              
                              
                              6,961Prepaid
      Expenses and Other Current Assets
                              
                              
                              517
                              
                              
                              
                              548Property
      and Equipment, net
                              
                              
                              10
                              
                              
                              
                              10TOTAL
      ASSETS
                              
                              $
                              7,570
                              
                              
                              $
                              8,010LIABILITIESAccounts
      Payable and Other Accrued Liabilities
                              
                              $
                              13,256
                              
                              
                              $
                              14,026Deferred
      Revenues and Customer Advances
                              
                              
                              1,780
                              
                              
                              
                              1,883Warranty
      Provision
                              
                              
                              10,628
                              
                              
                              
                              11,246Total
      Liabilities
                              
                              $
                              25,664
                              
                              
                              $
                              27,155Net
      Liabilities for Deconsolidated Subsidiary in Liquidation
                              
                              $
                              18,094
                              
                              
                              $
                              19,145





12




There has
been no significant change to the Net Liabilities for Deconsolidated
Subsidiaries in Liquidation, as it relates to DeWind GmbH, during the six months
ended March 31, 2009. The remaining assets and liabilities of DeWind GmbH are
under the control of the court-appointed receiver in Germany. In December, 2008
a receiver status update was provided that did not result in any changes or
impacts to either the assets or liabilities of DeWind GmbH. The next status
update is expected in June, 2009.





The net
income from operations of DeWind GmbH through the date of insolvency has been
classified on the statement of operations and comprehensive loss as loss from
discontinued operations. Summarized results of discontinued operations are as
follows:




(In thousands)
                          
                          Three months ended
                          
                          
                          Six months endedMarch 31, 2009
                          
                          
                          March 31, 2008
                          
                          
                          March 31, 2009
                          
                          
                          March 31, 2008(unaudited)
                          
                          
                          (unaudited)
                          
                          
                          (unaudited)
                          
                          
                          (unaudited)Service
      Revenues
                          
                          $
                          —
                          
                          
                          $
                          315
                          
                          
                          $
                          —
                          
                          
                          $
                          914Cost
      of Service Revenues
                          
                          
                          —
                          
                          
                          
                          1,292
                          
                          
                          
                          —
                          
                          
                          
                          3,703Operating
      Expenses
                          
                          
                          —
                          
                          
                          
                          797
                          
                          
                          
                          —
                          
                          
                          
                          1,122Other
      Income
                          
                          
                          —
                          
                          
                          
                          (202
                          )
                          
                          
                          —
                          
                          
                          
                          (225
                          )Taxes
                          
                          
                          —
                          
                          
                          
                          4
                          
                          
                          
                          —
                          
                          
                          
                          4Loss
      from discontinued operations
                          
                          $
                          —
                          
                          
                          $
                          1,568
                          
                          
                          $
                          —
                          
                          
                          $
                          3,682





DeWind
Service/Eservice:


On
October 1, 2006, the Company’s wholly owned subsidiary, EU Energy Service GmbH
(EUES) entered into a recapitalization arrangement whereby 50% of the voting
stock of EUES was sold to Enertrag AG, a turbine service customer of EUES and a
new entity was created, called E Service. The new entity was operated under
joint control of both Enertrag and DeWind executives during the quarter ended
December 31, 2006.





The
Company determined that the arrangement was within the scope of FIN 46R as a
Variable Interest Entity. During the fiscal quarter beginning October 1,
2006, the Company accounted for the arrangement as a Variable Interest Entity
(VIE) under the provisions of FIN 46R. This required the Company to consolidate
the balances and operations of E Service with the balances and operations of the
remainder of the Company.





On
January 19, 2007 we agreed to amend our agreement between Enertrag AG that
formed our E Services venture. This resulted in a decrease in our share of E
Services share capital to 24.9%. Upon review of the new arrangement, the Company
determined that E Services no longer met the reporting requirements for Variable
Interest Entities under FIN 46R. As a result, effective as of January 19, 2007,
the Company has been recording its interest in E Service as an investment using
the equity reporting method rather than consolidating the assets, liabilities,
and operations of E Service with those of the Company.





On April
3, 2008 the Company and Enertrag closed the sale of the remaining 24.9%
ownership in E Services for 500,000 Euros ($790,250 at April 3, 2008 exchange
rates). The consolidated financial statements of Composite Technology
Corporation have been restated to present the E Services operations, assets and
liabilities as discontinued operations.




The net
income from operations of E Services has been classified on the statement
of operations and comprehensive loss as loss from discontinued
operations. Summarized results of discontinued operations are as
follows:





(In Thousands)
                        
                        Three months ended
                        
                        
                        Six months endedMarch 31, 2009
                        
                        
                        March 31, 2008
                        
                        
                        March 31, 2009
                        
                        
                        March 31, 2008(unaudited)
                        
                        
                        (unaudited)
                        
                        
                        (unaudited)
                        
                        
                        (unaudited)Loss
      from unconsolidated subsidiary accounted for under the equity
      method
                        
                        $
                        —
                        
                        
                        $
                        —
                        
                        
                        $
                        —
                        
                        
                        $
                        57Impairment
      of long term assets
                        
                        
                        —
                        
                        
                        
                        1,421
                        
                        
                        
                        —
                        
                        
                        
                        1,421Loss
      from discontinued operations
                        
                        $
                        —
                        
                        
                        $
                        1,421
                        
                        
                        $
                        —
                        
                        
                        $
                        1,478





13





DeWind
Holdings Ltd.:


On
January 9, 2009 the Company placed DeWind Holdings Ltd. into insolvency. As of
March 31, 2009, DeWind Holdings owned the share capital of the now insolvent
DeWind GmbH and had other assets and liabilities consisting of $23,000 of other
current assets and $1,936,000 of accounts payable and other accrued liabilities
consolidated into the Company’s balance sheet. There were no revenues for DeWind
Holdings Ltd., and expenses totaled only $10,000 and $2,000 during the three and
six months ended March 31, 2009, respectively. During the six months ended March
31, 2008, DeWind Holdings recorded $281,000 of General and Administrative
expenses related to receivable reserves.





NOTE
5 – FAIR VALUE MEASUREMENTS





On
October 1, 2008, the Company adopted SFAS No. 157 which defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles, and expands disclosures about fair value measurements.
SFAS 157 does not require any new fair value measurements, but provides guidance
on how to measure fair value by providing a fair value hierarchy used to
classify the source of the information. In February 2008, the FASB deferred the
effective date of SFAS 157 by one year for certain non-financial assets and
non-financial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least annually). The
Company adopted the provisions of SFAS 157, except as it applies to those
nonfinancial assets and nonfinancial liabilities for which the effective date
has been delayed by one year.





SFAS
No. 157 establishes a three-level valuation hierarchy of valuation
techniques that is based on observable and unobservable inputs. Classification
within the hierarchy is determined based on the lowest level of input that is
significant to the fair value measurement. The first two inputs are considered
observable and the last unobservable, that may be used to measure fair value and
include the following:


Level 1
- Quoted prices in active markets for identical assets or
liabilities.


Level 2
- Inputs other than Level 1 that are observable, either directly or
indirectly, such as quoted prices for similar assets or liabilities; quoted
prices in markets that are not active; or other inputs that are observable or
can be corroborated by observable market data for substantially the full term of
the assets or liabilities.


Level 3
- Unobservable inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or
liabilities.





As of
March 31, 2009, the Company held certain assets and liabilities that are
required to be measured at fair value on a recurring basis, including its cash
and cash equivalents. The fair value of these assets and liabilities was
determined using the following inputs in accordance with SFAS 157 at March 31,
2009:




Fair Value Measurement as of March 31, 2009(In Thousands)
                          
                          Total
                          
                          
                          Level 1
                          
                          
                          Level 2
                          
                          
                          Level 3Description
                          
                          $
                          
                          
                          $
                          
                          
                          $
                          
                          
                          $Cash
      and cash equivalents (1)
                          
                          $
                          3,494
                          
                          
                          $
                          3,494
                          
                          
                          $
                          —
                          
                          
                          $
                          —





(1)
            Included
      in cash and cash equivalents on the accompanying consolidated balance
      sheet.





NOTE
6 – BALANCE SHEET DETAILS





Accounts
Receivable




Accounts
Receivable consisted of the following at March 31, 2009 and September 30,
2008:




(In Thousands)
                              
                              March 31,
                                2009
                              
                              
                              September 30,
                                2008(unaudited)
                              
                              
                              (restated)Turbine
      products and service receivables
                              
                              $
                              7,908
                              
                              
                              $
                              6,480Unbilled
      receivables
                              
                              
                              261
                              
                              
                              
                              1,744Cable
      products receivables
                              
                              
                              2,932
                              
                              
                              
                              4,484Gross
      Receivables
                              
                              $
                              11,101
                              
                              
                              $
                              12,708Reserves
                              
                              
                              (672
                              )
                              
                              
                              (687
                              )Net
      receivables
                              
                              $
                              10,429
                              
                              
                              $
                              12,021Portion
      relating to greater than one year, net of reserves of $554 and
      $0
                              
                              
                              265
                              
                              
                              
                              248$
                              10,164
                              
                              
                              $
                              11,773




14




The asset
unbilled receivables (noted in above table) represents revenue that is
recognizable due to the performance of services for which billings have not been
generated as of the balance sheet date. In general, amounts become billable
pursuant to contractual milestones or in accordance with predetermined billing
schedules.





Inventories
and Advanced Payments for Turbine Inventory




Inventories
and advanced payments for turbine inventory consisted of the following at March
31, 2009 and September 30, 2008:




(In Thousands)
                                    
                                    March 31,
                                      2009
                                    
                                    
                                    September 30,
                                      2008(unaudited)
                                    
                                    
                                    (restated)Raw
      Materials and Turbine Parts
                                    
                                    $
                                    38,425
                                    
                                    
                                    $
                                    36,704Work
      in Progress
                                    
                                    
                                    33,324
                                    
                                    
                                    
                                    4,457Finished
      Goods
                                    
                                    
                                    4,164
                                    
                                    
                                    
                                    3,123Gross
      Inventory
                                    
                                    $
                                    75,913
                                    
                                    
                                    $
                                    44,284Reserves
                                    
                                    
                                    (17,167
                                    )
                                    
                                    
                                    (2,196
                                    )Net
      Inventory
                                    
                                    $
                                    58,746
                                    
                                    
                                    $
                                    42,088Advanced
      Payments for Turbine Inventory
                                    
                                    $
                                    12,052
                                    
                                    
                                    $
                                    31,245





Advanced
payments for turbine inventory represents payments made to suppliers in advance
for inventory not yet received as of the balance sheet date.





Property
and Equipment




Property
and equipment consisted of the following:




(In Thousands)
                      
                      Estimated
                        Useful Lives
                      
                      March 31,
                        2009
                      
                      
                      September 30,
                        2008(unaudited)
                      
                      
                      (restated)Office
      furniture and equipment
                      
                      3-10 yrs
                      
                      $
                      1,807
                      
                      
                      $
                      1,584Production
      equipment
                      
                      3-10 yrs
                      
                      
                      7,953
                      
                      
                      
                      6,390Wind
      turbines in production
                      
                      3-10 yrs
                      
                      
                      3,115
                      
                      
                      
                      3,296Wind
      farm construction in progress
                      
                      3-10 yrs
                      
                      
                      4,279
                      
                      
                      
                      —Automobiles
                      
                      3-5 yrs
                      
                      
                      34
                      
                      
                      
                      36Leasehold
      improvements
                      
                      7 yrs
                      
                      
                      740
                      
                      
                      
                      2,075Total
      Property
                      
                      
                      
                      $
                      17,928
                      
                      
                      $
                      13,381Accumulated
      depreciation
                      
                      
                      
                      
                      (6,222
                      )
                      
                      
                      (5,426
                      )Property,
      net
                      
                      
                      
                      $
                      11,706
                      
                      
                      $
                      7,955





Wind farm
construction in progress represents prepaid wind farm construction costs related
to wind farm infrastructure costs incurred towards the development of a wind
farm under development by DeWind SWI Wind Farms, LLC. See Note 11 for discussion
of this wholly owned subsidiary, accounted for as a Variable Interest
Entity.





Goodwill
and Intangible Assets




The
Company adopted SFAS No. 142 “Goodwill and Other Intangible Assets” (SFAS 142)
effective January 1, 2002.  In accordance with SFAS 142, the Company
does not amortize goodwill. The Company’s goodwill of $24,218 at March 31, 2009
is related to the acquisition of EU Energy on July 3, 2006 and is currently
attributable entirely to the DeWind segment. In accordance with SFAS 142, the
Company evaluates goodwill impairment annually at year-end and between annual
tests if situations arise that may require re-evaluation. We determined that as
of March 31, 2009 no goodwill impairment was required.




15





As  of
March 31, 2009, the Company had the following amounts related to other
intangible assets, all related to the acquisition of EU Energy on July 3, 2006
and therefore the Turbine segment:





(In Thousands)
                              Gross Carrying
                                Amount
                              
                              Accumulated Amortization
                              
                              Net Carrying
                                AmountSeptember 30,
                              
                              Sept 30,
                              
                              
                              
                              March 31,
                              
                              March 31,2008
                              
                              2008
                              
                              Amortized
                              
                              2009
                              
                              2009(restated)
                              
                              (restated)
                              
                              (unaudited)
                              
                              (unaudited)
                              
                              (unaudited)Supply
      Agreements
                              
                              $
                              12,347
                              
                              
                              $
                              (165
                              )
                              
                              $
                              —
                              
                              
                              $
                              (165
                              )
                              
                              $
                              12,182Tech
      Transfer Agreements
                              
                              
                              3,131
                              
                              
                              
                              (467
                              )
                              
                              
                              (1,436
                              )
                              
                              
                              (1,903
                              )
                              
                              
                              1,228Tradename
                              
                              
                              7,553
                              
                              
                              
                              (850
                              )
                              
                              
                              (189
                              )
                              
                              
                              (1,039
                              )
                              
                              
                              6,514Service
      Contracts
                              
                              
                              1,442
                              
                              
                              
                              (1,442
                              )
                              
                              
                              —
                              
                              
                              
                              (1,442
                              )
                              
                              
                              —Subtotal,
      Intangible Assets
                              
                              $
                              24,473
                              
                              
                              $
                              (2,924
                              )
                              
                              $
                              (1,625
                              )
                              
                              $
                              (4,549
                              )
                              
                              $
                              19,924




Aggregate
amortization expense associated with continuing operations of the intangible
assets with determinable lives was $1,625,000 and $531,000 for the six months
ended March 31, 2009 and 2008, respectively.




The
supply agreements are related to supplier agreements related to our DeWind D8.2
model. We will record amortization on this agreement over the life of the
agreement beginning with the first commercial shipments of our D8.2, two units
of which shipped in fiscal year 2008, and based on the expected units purchased
under this agreement. Our technology transfer agreements are related to our
China licensing arrangements. We will record amortization on these agreements as
we recognize revenues under these agreements which are based on the turbines
produced under these arrangements over three to five years. As of March 31,
2009, one of our China licensing arrangements were fully settled, and as such,
fully amortized in the current quarter, representing $1.2 million of the $1.6
million aggregate amortization expense for the six months ending March 31, 2009.
We have determined that our Trade name, DeWind, has a life of twenty years and
we will amortize this balance on a straight-line basis. Our service contracts
include service and maintenance contracts. We fully amortized the service
contracts as of September 30, 2007. All intangible assets listed are considered
to have no residual value.





The
unamortized balance of intangible assets is estimated to be amortized as
follows:





(In Thousands)
                        
                        Estimated
                          Amortization
                          Expense(unaudited)Remainder
      of 2009
                        
                        $
                        4952010
                        
                        
                        3,2062011
                        
                        
                        3,8912012
                        
                        
                        3,5402013
                        
                        
                        3,980Thereafter
                        
                        
                        4,812Total
                        
                        $
                        19,924





Accounts
Payable and Accrued Liabilities




Accounts
payable and accrued liabilities consisted of the following:




(In Thousands)
                        
                        March 31,
                          2009
                        
                        
                        September 30,
                          2008(unaudited)
                        
                        
                        (restated)Trade
      Payables
                        
                        $
                        29,142
                        
                        
                        $
                        31,051Accrued
      Acquisition Costs
                        
                        
                        250
                        
                        
                        
                        250Accrued
      Payroll
                        
                        
                        1,247
                        
                        
                        
                        1,058Deferred
      Rents
                        
                        
                        170
                        
                        
                        
                        199Total
      Accounts Payable and Accrued Liabilities
                        
                        $
                        30,809
                        
                        
                        $
                        32,558




Accrued
acquisition costs represent primarily legal and statutory payments required as a
result of the EU acquisition.




16





Deferred
Revenues and Customer Advances




The
Company records all cash proceeds received from customers for advance payments
on turbines, turbine parts, or cable orders and extended warranties on cable, as
opted by the customer, to deferred revenues and customer advances until such
time as the revenue cycle is completed and the amounts are recognized into
revenues. Due to the long term nature of turbine sales which typically are
supported by contracts with substantial payments in advance of delivery,
deferred revenues and customer advances comprise a large component of our
balance sheet. Deferred revenues and customer advances consist of the
following:




(In Thousands)
                        
                        March 31,
                          2009
                        
                        
                        September 30,
                          2008(unaudited)
                        
                        
                        (restated)Customer
      advances on turbines and turbine parts sales
                        
                        $
                        31,635
                        
                        
                        $
                        26,846Deferred
      revenues – Other turbine related
                        
                        
                        2,600
                        
                        
                        
                        5,589Deferred
      revenues – Cable Sales
                        
                        
                        1,371
                        
                        
                        
                        1,817Total,
      Deferred revenues & customer advances
                        
                        $
                        35,606
                        
                        
                        $
                        34,252Balance
      included in current liabilities
                        
                        
                        35,338
                        
                        
                        
                        33,525Long
      Term Deferred Revenues
                        
                        $
                        268
                        
                        
                        $
                        727




Costs
incurred related to deferred revenues and customer advances are capitalized into
inventory as of the balance sheet date.




Warranty Reserve




Through
its ownership of EU Energy, operating as the Wind segment as DeWind, the Company
has financial obligations to customers related to warranty and the availability
performance of wind turbines and has made provisions to reflect these
liabilities. Turbines sold by DeWind are sold with product warranties, typically
between two and five years and which cover replacement parts for turbines and
labor.





Warranty
obligations reflect expected minor repairs during the period of warranty of the
turbine, between 2 and 5 years following installation (Warranty), and more major
repairs which may affect particular types of units (Retrofit). Provisions for
the former are based on historical experience of repair frequency and cost and
for the latter are based on engineering estimates of the likely incidence and
cost. In addition, turbines sold that remain under warranty carry guarantees of
availability (Availability) to produce electric power at certain levels. If a
turbine under warranty does not meet these availability thresholds due to
turbine failure covered by the warranty or servicing contract and the customer’s
turbine produces less power and therefore less revenue, the company reimburses
the customer for the lost value of the power shortfall. Availability provisions
are based on data obtained from the company’s turbine monitoring system, actual
performance being compared to contractual obligation, with provisions made for
any potential contractual liability and estimates of future availability
penalties based on
this historical performance. Warranties related to our ACCCTMproducts relate to
conductor and hardware sold directly by us to the end-user customer.
We mitigate our loss exposure through the use of third party warranty
insurance.We have classified all warranty and product guarantee reserves
considered to be payable within one year as current liabilities and all warranty
and product guarantee reserves considered to be payable greater than one year as
non-current liabilities.





March 31,
                            2009
                          
                          
                          September 30,
                            2008(In
      Thousands)
                          
                          (unaudited)
                          
                          
                          (restated)Turbine
      warranty reserves
                          
                          $
                          367
                          
                          
                          $
                          684Cable
      warranty reserves
                          
                          
                          408
                          
                          
                          
                          220Reserve
      for turbine availability
                          
                          
                          1,039
                          
                          
                          
                          1,054Total
      Warranty and Product Guarantee reserves
                          
                          
                          1,814
                          
                          
                          
                          1,958Less
      Amount classified as current liabilities
                          
                          
                          1,403
                          
                          
                          
                          1,462Long
      Term Warranty Liability
                          
                          $
                          411
                          
                          
                          $
                          496




March 31, 2009(In
      Thousands)
                      
                      (unaudited)Beginning
      balance
                      
                      $
                      1,958Additional
      reserves recorded to expense
                      
                      
                      1,425Reserves
      utilized
                      
                      
                      (1,569
                      )Ending
      balance
                      
                      $
                      1,814




17





NOTE 7 – OPERATING
SEGMENTS




During
the periods presented, our current Chief Executive Officer was identified as our
Chief Operating Decision Maker (CODM) as defined by SFAS No. 131,
“Disclosures About Segments of an Enterprise and Related Information”
(SFAS 131).




Our CODM
manages our company based primarily on broad functional categories of sales,
services, manufacturing, product development and engineering and marketing and
strategy. Our CODM reviews consolidated financial information on revenues and
gross margins for products and services and also reviews operating expenses,
certain of which have been allocated to our two operating segments.




CTC
conducts its operations in the following two business segments: CTC Cable
Division and DeWind Turbine Division. The segments have been organized on the
basis of products. All of each segment’s product revenues relate to external
customers. See also the analysis in Item 2 Management Discussion and
Analysis.




ACCCTMCable
Division


Located
in Irvine, California with sales operations in Irvine, California, Shanghai,
China, Brazil, and Europe, the CTC Cable segment produces and sells ACCCTM
conductor, ACCCTM core,
and related ACCCTM
hardware products for the electrical transmission market. ACCCTM
conductor production is a two step process. The Irvine operations produce
ACCCTM core
which is then shipped to one of four cable manufacturers in Canada, Belgium,
China, or Bahrain where the core is stranded with conductive aluminum wire to
become ACCCTM
conductor. ACCCTM
conductor is sold both through a distribution understanding and manufacturing
agreement with General Cable in the US and Canada, into Europe through a
distribution and manufacturing agreement with Lamifil in Belgium, into China
through a manufacturing and distribution agreement with Far East Composite
Cable, into the Middle East through a manufacturing and distribution agreement
with Midal in Bahrain, as well as directly by CTC Cable to utility customers
worldwide. ACCCTM
conductor has been sold commercially since 2005 and is currently marketed
worldwide to electrical utilities and transmission companies.





DeWind Turbine
Division


The Wind
division operates under the brand name DeWind. Located in Lubeck Germany with
sales operations in Dallas, Texas and Irvine, California, the DeWind Division
produces, services, and sells DeWind turbines in the 1.25 and 2.0 Megawatt
range.




Segment
information for the three months and six months ended March 31, 2009 and 2008 is
as follows:
 
 (In
      Thousands)
              Corporate
              
              Cable
              
              Turbine
              
              TotalThree Months
      Ended:
              (unaudited)
              
              (unaudited)
              
              (unaudited)
              
              (unaudited)March 31,
      2009Revenues
              
              $
              --
              
              
              $
              6,202
              
              
              $
              9,873
              
              
              $
              16,075Operating
      (loss)
              
              
              (2,640
              )
              
              
              (737
              )
              
              
              (6,790
              )
              
              
              (10,167
              )Total
      assets
              
              
              2,823
              
              
              
              14,712
              
              
              
              125,390
              
              
              
              142,925Goodwill
              
              
              --
              
              
              
              --
              
              
              
              24,218
              
              
              
              24,218Capital
      expenditures
              
              
              --
              
              
              
              491
              
              
              
              24
              
              
              
              515Depreciation
      & amortization
              
              
              --
              
              
              
              224
              
              
              
              1,757
              
              
              
              1,981March 31,
      2008Revenues
              
              $
              --
              
              
              $
              10,492
              
              
              $
              10,674
              
              
              $
              21,166Operating
      income (loss)
              
              
              (1,480
              )
              
              
              57
              
              
              
              (6,455
              )
              
              
              (7,878
              )Total
      assets
              
              
              1,592
              
              
              
              12,935
              
              
              
              117,508
              
              
              
              132,035Goodwill
              
              
              --
              
              
              
              --
              
              
              
              24,218
              
              
              
              24,218Capital
      expenditures
              
              
              --
              
              
              
              934
              
              
              
              1,523
              
              
              
              2,457Depreciation
      & amortization
              
              
              --
              
              
              
              205
              
              
              
              372
              
              
              
              577Six Months
      Ended:March 31,
      2009Revenues
              
              $
              --
              
              
              $
              10,562
              
              
              $
              15,931
              
              
              $
              26,493Operating
      (loss)
              
              
              (4,883
              )
              
              
              (2,249
              )
              
              
              (10,988
              )
              
              
              (18,120
              )Depreciation
      & amortization
              
              
              --
              
              
              
              465
              
              
              
              2,121
              
              
              
              2,586March 31,
      2008Revenues
              
              $
              --
              
              
              $
              21,486
              
              
              $
              17,266
              
              
              $
              38,752Operating
      income (loss)
              
              
              (2,827
              )
              
              
              2,230
              
              
              
              (11,226
              )
              
              
              (11,823
              )Depreciation
      & amortization
              
              
              --
              
              
              
              411
              
              
              
              1,032
              
              
              
              1,443


18




The
Company operates and markets its services and products on a worldwide basis with
its principal markets as follows:
  Three Months EndedMarch
      31, 2009
              
              March
      31, 2008(unaudited)
              
              (unaudited)Revenue
      allocation by geographic region based on location of
    customer:
              
              
              Cable
              
              
              
              Turbine
              
              
              
              Consolidated
              
              
              
              Cable
              
              
              
              Turbine
              
              
              
              ConsolidatedEurope
              
              $
              (91
              )
              
              $
              311
              
              
              $
              220
              
              
              $
              6,192
              
              
              $
              5,510
              
              
              $
              11,702China
      / Asia
              
              
              5,175
              
              
              
              7,573
              
              
              
              12,748
              
              
              
              4,188
              
              
              
              5,164
              
              
              
              9,352South
      America
              
              
              --
              
              
              
              --
              
              
              
              --
              
              
              
              68
              
              
              
              --
              
              
              
              68Central
      America
              
              
              5
              
              
              
              --
              
              
              
              5
              
              
              
              --
              
              
              
              --
              
              
              
              --North
      America
              
              
              1,113
              
              
              
              1,989
              
              
              
              3,102
              
              
              
              44
              
              
              
              --
              
              
              
              44Total
      Revenue
              
              $
              6,202
              
              
              $
              9,873
              
              
              $
              16,075
              
              
              $
              10,492
              
              
              $
              10,674
              
              
              $
              21,166Six Months EndedMarch
      31, 2009
              
              March
      31, 2008(unaudited)
              
              (unaudited)Revenue
      allocation by geographic region based on location of
    customer:
              
              
              Cable
              
              
              
              Turbine
              
              
              
              Consolidated
              
              
              
              Cable
              
              
              
              Turbine
              
              
              
              ConsolidatedEurope
              
              $
              641
              
              
              $
              751
              
              
              $
              1,392
              
              
              $
              6,192
              
              
              $
              11,021
              
              
              $
              17,213China
      / Asia
              
              
              7,562
              
              
              
              13,191
              
              
              
              20,753
              
              
              
              15,176
              
              
              
              6,245
              
              
              
              21,421South
      America
              
              
              1
              
              
              
              --
              
              
              
              1
              
              
              
              68
              
              
              
              --
              
              
              
              68Central
      America
              
              
              529
              
              
              
              --
              
              
              
              529
              
              
              
              --
              
              
              
              --
              
              
              
              --North
      America
              
              
              1,829
              
              
              
              1,989
              
              
              
              3,818
              
              
              
              50
              
              
              
              --
              
              
              
              50Total
      Revenue
              
              $
              10,562
              
              
              $
              15,931
              
              
              $
              26,493
              
              
              $
              21,486
              
              
              $
              17,266
              
              
              $
              38,752
  March
      31, 2009
              
              
              September 30, 2008(unaudited)
              
              
              (restated)Long-lived
      assets (including goodwill and intangible assets) by geographic region
      based on location of operations:
              
              Cable
              
              
              Turbine
              
              
              Consolidated
              
              
              Cable
              
              
              Turbine
              
              
              ConsolidatedEurope
              
              $
              
              
              $
              47,770
              
              
              $
              47,770
              
              
              $
              --
              
              
              $
              50,292
              
              
              $
              50,292United
      States
              
              
              3,612
              
              
              
              4,466
              
              
              
              8,078
              
              
              
              3,430
              
              
              
              --
              
              
              
              3,430Total
      long-lived assets (including goodwill and intangible
    assets)
              
              $
              3,612
              
              
              $
              52,236
              
              
              $
              55,848
              
              
              $
              3,430
              
              
              $
              50,292
              
              
              $
              53,722
 
 During
the quarter, three customers in China represented 77.3% of revenues (two
customers from our DeWind segment and one customer from our Cable segment at
42.3% and 35.0%, respectively) and two customers in North America represented
20.8% of revenues (one customer from our Cable segment at 7.4% and one customer
from our DeWind segment at 13.5%). For the current six months, three customers
in China represented 78.2% of revenues (two customers from our DeWind segment
and one customer from our Cable segment at 49.7% and 28.5%, respectively) and
one customer in North America from our DeWind segment represented 7.5% of
revenues.  No other customer represented greater than 5% of
consolidated revenues.





NOTE
8 – EQUITY BASED COMPENSATION





The
Company historically has issued equity-based compensation in the form of stock
options to its employees and consultants via option grants. The Company uses the
guidelines of SFAS 123R, which requires fair value calculation of the grant and
recognition of the cost of employee services received in exchange for the award
over the period the employee is required to perform the services.





The
values of the financial instruments are estimated using the Black-Scholes-Merton
(Black-Scholes) option-pricing model. Key assumptions used during the six months
ended March 31, 2009 and 2008 to value options and warrants granted or repriced
are as follows:





Six Months EndedMarch 31,2009
                      
                      
                      2008Risk
      Free Rate of Return
                      
                      
                      0.50-2.02
                      %
                      
                      
                      3.28-4.29
                      %Volatility
                      
                      
                      96
                      %
                      
                      
                      88
                      %Dividend
      yield
                      
                      
                      0
                      %
                      
                      
                      0
                      %Expected
      life
                      
                      0-5
      yrs
                      
                      
                      0-5
      yrs





Our
computation of expected volatility for the six months ended March 31, 2009 and
2008 is based on historical and volatility over the expected life of the options
granted. Our computation of expected life is based on historical exercise
patterns. The interest rate for periods within the contractual life of the award
is based on the U.S. Treasury yield curve in effect at the time of
grant.




On March
29, 2006, the Securities and Exchange Commission published Staff Accounting
Bulletin No. 107 (SAB 107), which provides the Staff’s views on a variety of
matters relating to stock-based payments. On December 21, 2007, the Securities
and Exchange Commission published Staff Accounting Bulletin No. 110 (SAB 110),
which provides the Staff’s views on matter relating to share-based
payments.  In particular, SAB 110 allows for an extension past
December 31, 2007 for the use of a simplified method in developing an estimate
of the expected term of “plain vanilla” share options in accordance with SFAS
123R.  SAB 107 and SAB 110 require stock-based compensation to be
classified in the same expense line items as cash compensation. Information
about stock-based compensation included in the results of operations for the
three and six months ending March 31, 2009 and 2008 is as follows:




19








(In thousands)
                      
                      Three Months
                        Ended
                      
                      
                      Three Months
                        Ended
                      
                      
                      Six Months
                        Ended
                      
                      
                      Six Months
                        EndedMarch 31
                      
                      
                      March 31
                      
                      
                      March 31
                      
                      
                      March 312009
                      
                      
                      2008
                      
                      
                      2009
                      
                      
                      2008Cost
      of Product Sold
                      
                      $
                      29
                      
                      
                      $
                      15
                      
                      
                      $
                      45
                      
                      
                      $
                      30Officer
      Compensation
                      
                      
                      769
                      
                      
                      
                      110
                      
                      
                      
                      1,260
                      
                      
                      
                      110Selling
      and marketing
                      
                      
                      265
                      
                      
                      
                      168
                      
                      
                      
                      632
                      
                      
                      
                      210Research
      and development
                      
                      
                      465
                      
                      
                      
                      212
                      
                      
                      
                      886
                      
                      
                      
                      288General
      and administrative
                      
                      
                      391
                      
                      
                      
                      156
                      
                      
                      
                      649
                      
                      
                      
                      240Totals
                      
                      $
                      1,919
                      
                      
                      $
                      661
                      
                      
                      $
                      3,472
                      
                      
                      $
                      878





As of
March 31, 2009, there was $10.3 million of total unrecognized compensation cost
related to non-vested share-based compensation arrangements related to stock
options. The costs are expected to be recognized over a weighted-average period
of 2.5 years.  For options that vest on a quarterly basis, the actual
vesting is used to calculate the compensation expense.  For options
vesting on other than a quarterly basis, an estimate of the forfeiture rate,
between 0% and 15%, is used to calculate the expense, which is then trued up on
each vesting occurrence.  On January 20, 2009 the Company’s Board of
Directors voted to approve a re-pricing of options to $0.35 per share for all
individuals continuing to provide ongoing services to the Company including
substantially all employee, director, and consultant stock
options.  The Company has treated the re-pricing as a modification of
terms of the options outstanding.  The Company has expensed the
incremental fair value for all vested and re-priced options during the quarter
ended March 31, 2009.  The Company will expense the incremental fair
value for all unvested and re-priced options as these options are
vested.  The fair value of the modification was determined as the
difference in the fair value of each option immediately before and after the
re-pricing using the Black-Scholes-Merton option pricing model with a dividend
rate of 0%, a risk free rate of 1.48%, a volatility of 96%, a life of 4 years,
and a market price of $0.30 per share.   As a result of this
re-pricing, the Company incurred expenses of $554,000 in the March 31, 2009
quarter, which are included in the table above, for options which had vested
prior to the re-pricing and will recognize an additional $965,000 of as yet
unrecognized compensation cost related to non-vested options that were
re-priced.  The additional share-based compensation is expected to be
recorded to expense over the next 2.5 years.





Significantly
all of our existing options are subject to time of service vesting. Our stock
options vest either on an annual or a quarterly basis for options subject to
time of service vesting or for specific performance for option vesting tied to
performance criteria. For the remainder of fiscal 2009, we expect stock based
compensation expense related to employee stock options, including the expense
related to the option re-pricing of approximately $2,300,000 before income
taxes. Such amounts may change as a result of additional grants, forfeitures,
modifications in assumptions and other factors.





Certain
options granted under the 2008 Plan may be exercised at any time for restricted
stock of the Company if not otherwise prohibited by the Company’s Board of
Directors.  Any 2008 Plan option exercises for unvested options would
have restricted stock issued and which is earned according to the terms of the
option agreement that gave rise to the restricted stock issuance.  The
Company has the right, but not the obligation, to repurchase any restricted
stock that is unearned as of the date of any optionee’s
termination.  As of March 31, 2009 all of the 2008 Plan option grants
were exercisable. To date, no restricted stock has been issued under the 2008
Plan.  Of the 2008 plan options exercisable, 151,414 options were
vested and exercisable into unrestricted stock.





The
following table summarizes the Stock Plan stock option activity as of March 31,
2009:





2002 Plan
                                Number of
                                Options
                              
                              
                              2008 Plan
                                Number of
                                Options
                              
                              
                              Total Number of
                                Options
                              
                              
                              Average
                                Exercise
                                PriceOutstanding,
      September 30, 2008
                              
                              
                              17,899,521
                              
                              
                              
                              7,231,000
                              
                              
                              
                              25,130,521
                              
                              
                              $
                              1.14Granted
                              
                              
                              —
                              
                              
                              
                              2,780,000
                              
                              
                              
                              2,780,000
                              
                              
                              
                              0.35Exercised
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —
                              
                              
                              
                              —Cancelled
                              
                              
                              (584,501
                              )
                              
                              
                              (15,000
                              )
                              
                              
                              (599,501
                              )
                              
                              
                              0.42Outstanding,
      March 31, 2009
                              
                              
                              17,315,020
                              
                              
                              
                              9,996,000
                              
                              
                              
                              27,311,020
                              
                              
                              $
                              0.35Exercisable
      , March 31, 2009
                              
                              
                              12,070,116
                              
                              
                              
                              9,996,000
                              
                              
                              
                              22,066,116
                              
                              
                              $
                              0.35





On
October 15, 2008 the Company’s Board of Directors extended the termination date
of the 2002 Option Plan from December 31, 2011 to December 31,
2016.  The weighted-average remaining contractual life of the options
outstanding at March 31, 2009 was 8.2 years. The exercise prices of the options
outstanding at March 31, 2009 ranged from $0.25 to $1.00, and information
relating to these options is as follows:





Range of
                              Exercise
                              Prices
                            
                            Stock Options
                              Outstanding
                            
                            
                            Stock
                              Options
                              Exercisable
                            
                            
                            Weighted
                              Average
                              Remaining
                              Contractual
                              Life in years
                            
                            
                            Weighted
                              Average
                              Exercise Price
                              of Options
                              Outstanding
                            
                            
                            Weighted Average
                              Exercise Priceof
                              Options
                              Exercisable$0.25-$0.34
                            
                            
                            728,000
                            
                            
                            
                            728,000
                            
                            
                            
                            7.8
                            
                            
                            $
                            0.25
                            
                            
                            $
                            0.25$0.35-$0.49
                            
                            
                            26,553,620
                            
                            
                            
                            21,308,716
                            
                            
                            
                            8.3
                            
                            
                            $
                            0.35
                            
                            
                            $
                            0.35$0.50-$1.00
                            
                            
                            29,400
                            
                            
                            
                            29,400
                            
                            
                            
                            1.9
                            
                            
                            $
                            1.00
                            
                            
                            $
                            1.00Total
                            
                            
                            27,311,020
                            
                            
                            
                            22,066,116





20





NOTE
9 – EQUITY




COMMON
STOCK





The
Company issued no Common Stock during the six-months ended March 31,
2009.





WARRANTS





The
Company issues warrants to purchase common shares of the Company either as
compensation for consulting services, or as additional incentive for investors
who purchase unregistered, restricted common stock or Convertible Debentures.
The value of warrants issued for compensation is accounted for as a non-cash
expense to the Company at the fair value of the warrants issued. The value of
warrants issued in conjunction with financing events is either a reduction in
paid in capital for common stock issuances or as a discount for debt issuances.
The Company values the warrants at fair value as calculated by using the
Black-Scholes-Merton option-pricing model.





The
following table summarizes the Warrant activity for the six months ending March
31, 2009:




Number
                          of Warrants
                        
                        
                        Weighted-Average
                          ExercisePriceOutstanding,
      September 30, 2008
                        
                        
                        26,150,815
                        
                        
                        $
                        1.20Granted
                        
                        
                        150,000
                        
                        
                        $
                        0.96Exercised
                        
                        
                        —
                        
                        
                        $
                        —Cancelled
                        
                        
                        7,174,700
                        
                        
                        $
                        1.33OUTSTANDING,
      March 31, 2009
                        
                        
                        19,126,115
                        
                        
                        $
                        1.12EXERCISABLE,
      March 31, 2009
                        
                        
                        19,126,115
                        
                        
                        $
                        1.12


21


The
following table summarizes the warrants issued, outstanding, and exercisable as
of March 31, 2009:




Warrant Series
                              
                              Grant Date
                              
                              Strike
                                Price
                              
                              Expiration Date
                              
                              Warrants
                                remaining
                              
                              
                              Proceeds if
                                Exercised (in
                                $000s)
                              
                              Call
                                feature2006
      Series B
                              
                              Various 2006
                              
                              $
                              2.00
                              
                              May, 2009
                              
                              
                              191,466
                              
                              
                              
                              383
                              
                              
                              (A)2006
      Series C
                              
                              May, 2006
                              
                              $
                              0.75
                              (B)
                              December, 2010
                              
                              
                              200,000
                              
                              
                              
                              150
                              
                              None2006
      Series D
                              
                              May, 2006
                              
                              $
                              0.75
                              (C)
                              December, 2010
                              
                              
                              200,000
                              
                              
                              
                              150
                              
                              None2006
      Series E
                              
                              May, 2006
                              
                              $
                              0.75
                              (D)
                              December, 2010
                              
                              
                              200,000
                              
                              
                              
                              150
                              
                              None2007
      Series F
                              
                              Nov, 2006
                              
                              $
                              1.10
                              
                              November, 2009
                              
                              
                              220,000
                              
                              
                              
                              242
                              
                              None2007
      Convertible Debt
                              
                              Feb, 2007
                              
                              $
                              1.06
                              (E)
                              February, 2010
                              
                              
                              7,367,815
                              
                              
                              
                              7,810
                              
                              None2007
      Convertible Debt Fees
                              
                              Mar, 2007
                              
                              $
                              1.00
                              (E)
                              February, 2010
                              
                              
                              1,291,833
                              
                              
                              
                              1,292
                              
                              NoneJune
      PIPE Series 1
                              
                              Jun, 2007
                              
                              $
                              1.27
                              (E)
                              June, 2010
                              
                              
                              5,490,100
                              
                              
                              
                              6,972
                              
                              NoneJune
      PIPE Series 2
                              
                              Jun, 2007
                              
                              $
                              1.28
                              (E)
                              June, 2010
                              
                              
                              1,564,901
                              
                              
                              
                              2,003
                              
                              None2008
      Debt Series 1
                              
                              May, 2008
                              
                              $
                              0.96
                              (E)
                              May, 2011
                              
                              
                              1,125,000
                              
                              
                              
                              1,080
                              
                              None2008
      Debt Amendment
                              
                              May, 2008
                              
                              $
                              0.99
                              (E)
                              May, 2011
                              
                              
                              1,125,000
                              
                              
                              
                              1,114
                              
                              None2008
      Debt Services
                              
                              October, 2008
                              
                              $
                              0.99
                              (E)
                              May, 2011
                              
                              
                              150,000
                              
                              
                              
                              144
                              
                              NoneTotal
                              
                              
                              
                              
                              
                              
                              
                              
                              
                              19,126,115
                              
                              
                              $
                              21,490





(A)
            Callable
      if trading price is greater than $2.50 for 10 consecutive
    days





(B)
            Warrants
      were re-priced on December 23, 2008 from $1.25 to $0.75 per
      warrant.





(C)
            Warrants
      were re-priced on December 23, 2008 from $1.50 to $0.75 per
      warrant.





(D)
            Warrants
      were re-priced on December 23, 2008 from $1.75 to $0.75 per
      warrant.





(E)
            Subject
      to anti-dilution provisions. Certain future equity or equity equivalent
      issuances below the current exercise price per warrant may result in a
      weighted average price reset of the exercise
  price.


22





On
October 15, 2008 we issued 150,000 warrants with a strike price of $0.96 per
warrant in settlement of a disputed fee related to placement services for the
May, 2008 Archer debt issuance.  The expense for these warrants was
accrued for as of September 30, 2008.  On December 23, 2008 we agreed
to modify the exercise price of three series of warrants originally issued in
May, 2006.  A total of 600,000 warrants were re-priced to $0.75 per
warrant including 200,000 warrants previously priced at $1.75 per warrant;
200,000 warrants previously priced at $1.50 per warrant; and 200,000 warrant
previously priced at $1.25 per warrant. We valued the price changes and
additional warrants issued using the Black-Scholes-Merton option-pricing
model.  We recorded expense related to modification of warrants as the
difference between the fair value of the warrants prior to the exercise price
reset and after the exercise price reset.  The total expense related
to warrant modifications and issuances during the quarter was $22,000 recorded
to general and administrative expense. We used the following assumptions to
value the warrants modified and for the warrant expense accrued for as of
September 30, 2008:





Dividend
rate = 0%


Risk free
return between 1.61% and 1.89%


Volatility
of between 75% and 86%


Market
price for October 15, 2008 issuance:  $0.40


Market
price for December 23, 2008 modification: $0.30





Time to
maturity was the remaining life of the warrant series in question of
between 1.7 and 2.3 years.





Management
has reviewed and assessed the warrants issued during the three months ended
December 31, 2008 and determined that they do not qualify for treatment as
derivatives under SFAS 133.





LOSS
PER SHARE





The
Company utilizes SFAS No. 128, “Earnings per Share.” Basic loss per share is
computed by dividing loss available to common shareholders by the
weighted-average number of common shares outstanding. Diluted loss per share is
computed similar to basic loss per share except that the denominator is
increased to include the number of additional common shares that would have been
outstanding if the potential common shares had been issued and if the additional
common shares were dilutive. Common equivalent shares are excluded from the
computation if their effect is anti-dilutive.





The
following common stock equivalents were excluded from the calculation of diluted
loss per share for the three and six months ended March 31, 2009 and 2008 since
their effect would have been anti-dilutive:





March 31,2009
                                
                                
                                2008Options
      for common stock
                                
                                
                                27,311,020
                                
                                
                                
                                18,648,270Warrants
                                
                                
                                19,126,115
                                
                                
                                
                                29,287,684Convertible
      Debentures, if converted
                                
                                
                                9,037,280
                                
                                
                                
                                9,800,94855,474,415
                                
                                
                                
                                57,736,902





NOTE
10 – DEBT AND NOTES PAYABLE





The
following table summarizes the Company’s debt structure as of March 31, 2009 and
September 30, 2008:




(In Thousands)
                          March 31, 2009
                          
                          September 30, 2008(unaudited)
                          
                          (restated)Senior
      Convertible 8% Notes due January, 2010 net of discount of $749 and
      $1,199
                          
                          $
                          8,288
                          
                          
                          $
                          7,838Total
      Long Term Debt
                          
                          $
                          —
                          
                          
                          $
                          7,838




23





NOTE
11 – VARIABLE INTEREST ENTITY (VIE)





On
October 6, 2008 the Company’s wholly owned subsidiary, DeWind Inc. entered into
a joint venture development agreement with Higher Perpetual Energy to create
DeWind SWI Wind Farms, LLC to jointly develop up to 620 Megawatts of wind farm
properties using leases obtained by Higher Perpetual and DeWind wind turbines.
The terms of the development agreement provide for an initial profit sharing of
50% for each party with management control for the party that has provided the
greater amount of contributed capital into the joint venture. All contributed
capital has a priority repayment to the contributing party from cash flows
generated by the joint venture prior to any profit sharing payments. As of March
31, 2009, DeWind Inc. has contributed the majority of capital into entity and
has management control of the joint venture.





The
Company has accounted for the entity as a Variable Interest Entity and has
consolidated the assets of the joint venture into the balance sheet. To date,
the venture has recorded $408,000 in gross startup costs recorded to general and
administrative expenses for the six months ended March 31, 2009 in the DeWind
segment, of which $88,000 in costs were allocated to minority interest in
consolidated subsidiary, which represents Higher Perpetual Energy’s total
capital contribution to the joint venture as of December 31, 2008. The Company
has funded $1,035,000 into the venture as partial payments and accrued
$3,511,000 in development, which represents the unpaid balance of plant for the
first 10 megawatt wind farm that was completed as of December 31,
2008.  Since that date, no further construction has been completed and
no additional costs accrued as of the quarter ended March 31, 2009. A total of
$4,279,000 is included on the consolidated balance sheet within fixed assets and
further disclosed as wind farm construction in progress, and which reflects the
initial capitalized development and work in progress paid and accrued as of
March 31, 2009 as reduced by the expensed gross startup costs. See Note
6.





NOTE
12 – COMMITMENT AND CONTINGENCIES





Please
refer to the Commitment and Contingencies Note on page 94 of our Form 10-K filed
on December 23, 2008 as amended on Form 10-K/A filed on March 6, 2009 with the
Securities and Exchange Commission for a detailed listing of our commitments and
contingencies.  There were no material changes other than in the
ordinary course of business and as updated in the Off Balance Sheet disclosure
in Item 2 below.





PROFESSIONAL
SERVICES AGREEMENTS


The
Company and its DeWind, Inc and CTC Cable Corporation subsidiaries currently
have one consulting agreement and two legal services agreements for professional
services with entities affiliated with its director Michael McIntosh as
follows:





The
Company had contracts with two companies owned by its director, Michael
McIntosh: a legal services agreement with The McIntosh Group (TMG) for legal and
intellectual property services and a consulting agreement with Technology
Management Advisors, LLC (TMA) for strategic business advisory services related
to technology and international patent and intellectual property filings. The
initial agreements were executed on March 1, 2002 for a term of three years and
were renewed in March, 2005 for an additional three years expiring on February
29, 2008. Each contract provides for payment of service fees of $250,000 per
annum plus out of pocket expenses.





On July
3, 2006 these agreements were cancelled and replaced with three agreements as
follows:





·
            An
      agreement between TMG and CTC Cable, a wholly owned subsidiary operating
      as the “cable” segment of the Company to provide legal and intellectual
      property services for that segment.


·
            An
      agreement between TMG and EU Energy/DeWind, a wholly owned subsidiary
      operating as the “wind” segment of the Company to provide legal and
      intellectual property services for that
segment.


·
            An
      agreement between TMA and the Company to provide management services
      related to the Company’s technology protection and
    management.





Each of
these agreements is for $250,000 per year, payable in equal installments at the
beginning of each calendar month. Each Agreement will terminate on July 3, 2009,
provided that it may be terminated at the end of each anniversary of its
effective date upon 90 days prior written notice to the other
party.





NOTE
13 – LITIGATION





FKI Engineering Ltd., FKI plc, and
Brush Electrical Machines Ltd (collectively “FKI”) v. the Company and certain of
its wind segment subsidiaries (here referred to as “DeWind”); DeWind v.
FKI.





In
September, 2008, DeWind GmbH filed for insolvency proceedings in part due to the
impending costs of litigation against FKI and in part due to the negative
operational cash flows and cash position of the subsidiary.  Effective
in October, 2008 the appointed receiver for DeWind GmbH is now responsible for
pursuing the DeWind GmbH claim against FKI for its capital accounts
litigation.   In November, 2008 a winding up petition was filed
by FKI for DeWind Holdings, Ltd due to non-payment of a statutory demand for
1,540,000 Euros ($2,152,000 at September 30, 2008 exchange rates) filed in
January, 2008 and included in the amounts listed above that were adjudicated in
December, 2007.  On November, 21 2008 FKI filed for and received
approval to dismiss the DeWind GmbH capital accounts claim on December 10, 2008
unless a total of 110,000 Euros ($140,000 at November 30, 2008 exchange rates)
of court and legal costs are paid for by DeWind Holdings or guaranteed by
another entity.  Composite Technology Corporation is no longer
involved in the court proceedings between DeWind GmbH and the FKI
parties.  In December, 2008 the receiver filed a preliminary report
and set a date for a more comprehensive receiver report in June,
2009.  Upon filing for insolvency, the DeWind GmbH receiver, at their
sole direction, is responsible for the legal activity surrounding the capital
accounts claim.





24





FKI has
attempted to enforce collection of the funds due to FKI from two of the
Company’s subsidiaries for their adjudicated debts due from DeWind GmbH (now
insolvent) and its holding company, DeWind Holdings. DeWind Holdings’ only asset
is the share capital of DeWind GmbH.  DeWind Holdings is in turn a
wholly owned subsidiary of DeWind Turbines, Ltd. which is in turn a wholly owned
subsidiary of Composite Technology Corporation.  There are no parent
company guarantees provided by DeWind Turbines, Ltd. or Composite Technology
Corporation for either DeWind Holdings or DeWind GmbH.   Prior to
insolvency proceedings, DeWind GmbH operated substantially for the purpose of
servicing and managing the warranty liabilities related to wind turbines sold up
to June, 2005 while DeWind was under FKI control. We believe that the DeWind
GmbH insolvency will have a minimal impact on the expected future operations of
our wind segment.





On
January 9, 2009 the Directors of DeWind Holdings, Ltd. filed for insolvency
proceedings in the Queen’s Bench Court.  On January 12, 2009, the
court dismissed the winding up petition filed by FKI as a result of DeWind
Holdings, Ltd. filing for insolvency proceedings.





Composite
Technology Corporation and CTC Cable Corporation v. Mercury Cable & Energy,
LLC, Ronald Morris, Edward Skonezny, Wang Chen, and “Doe” Defendants 1-100
(“Mercury”)





On August
15, 2008 the Company filed suit in the Superior Court of the State of
California, County of Orange, Central Justice Center (Case No. 30-2008 00110633)
against the Mercury parties including multiple unknown “Doe” defendants,
expected to be named in discovery proceedings, claiming Breach of Contract,
Unfair Competition, Fraud, Intentional Interference with Contract, and
Injunctive Relief.  Several of the Mercury parties had filed a claim
under the Company’s Chapter 11 bankruptcy proceedings which was settled during
the bankruptcy and which provided for certain payments for sales made to
China.  The settlement agreement included non-compete agreements and
stipulated the need to maintain confidentiality for the Company’s technology,
processes, and business practices.  The Company claims that the
Mercury parties have taken actions, which violate the Settlement Agreement and
the Bankruptcy Court Order, including the development of and attempting to
market similar conductor products and misusing confidential information and the
Company further claims that the Settlement Agreement was entered into with
fraudulent intent.  The Company claims that the Mercury parties
engaged in unlawful, unfair, and deceptive conduct and that these actions were
performed with malice and with intent to cause injury to the
Company.  The Company is asking for actual damages, punitive damages,
and attorney fees.  No estimate of such damages can be made at this
time and no accrual for such fees is included in the Company’s financial
statements at March 31, 2009.





On
December 5, 2008, Defendants filed a cross-complaint against CTC and some of the
company's officers. Defendants served the cross-complaint only on the company
(i.e., none of the individual cross-defendant have been served). On February 10,
2009 the Company’s motion to dismiss the cross-complaint was granted but the
Court allowed for an amended cross-complaint to be filed. On February 10, 2009
the Defendants filed an amended cross-complaint with the Court which appeared to
be in substance similar to the original cross-complaint. The Company has 30 days
to respond to the amended cross-complaint.   Discovery began
during the March 31, 2009 quarter.





On March
2, 2009, CTC Cable Corporation, a wholly owned subsidiary of the Company filed a
patent infringement case against Mercury Cable & Energy, LLC in the United
States District Court for the Central District of California.  The
defendant answered on April 29, 2009 and discovery will begin
shortly.  The Company is seeking monetary damages and seeks an
injunction against the defendant from further infringement.





Insolvency
of DeWind GmbH





On August
29, 2008 in Lubeck Local Court – Bankruptcy Court, Lubeck Germany, the Company’s
DeWind GmbH subsidiary filed for voluntary insolvency in lieu of a required
recapitalization under German law of approximately 5,000,000 Euros
($7,040,000 at September 30, 2008 exchange rates).  The DeWind GmbH
subsidiary had limited operational function for the DeWind segment, functioning
solely to provide services on wind turbines that remained under warranty and
which warranties were entered into prior to June, 2005 and in pursuit of the FKI
capital claim described above.  All wind turbines sold and installed
since July, 2005 are serviced under a separate and continuing DeWind
subsidiaries.  At the time of the insolvency, DeWind GmbH was saddled
with contracts which were negotiated while DeWind GmbH was owned by FKI and that
required DeWind GmbH to provide warranty services including “no limit” wind
power generation revenue guarantees (availability penalties) often without
requiring the wind farm customer to properly maintain or service the
turbines.  This subsidiary had incurred losses of $11.9 million and
$8.7 million for fiscal 2007 and 2008 respectively despite a significant
reduction in the number of turbines under warranty.   Concurrent
with the filing of the insolvency, DeWind effectively relinquished its right to
pursue the capital claim to the control of the insolvency
administrator.





On
September 18, 2008 an insolvency administrator was appointed and set an initial
reporting date of December 11, 2008.  On December 1, 2008 the initial
report of the liquidator was published which referred primarily to procedural
issues and did not address the assets or liabilities of DeWind GmbH in
detail.  The December 1, 2008 report set the date of the follow on
report to be in June 2009.




25





NOTE
14 – RELATED PARTIES





The
Company has contracts with two companies owned by its director, Michael
McIntosh: a legal services agreement with The McIntosh Group (TMG) for legal and
intellectual property services and a consulting agreement with Technology
Management Advisors, LLC (TMA) for strategic business advisory services related
to technology and international patent and intellectual property filings. The
initial agreements were executed on March 1, 2002 for a term of three years and
were renewed in 2005.





On July
3, 2006 these agreements were cancelled and replaced with three agreements as
follows:





·
            An
      agreement between TMG and CTC Cable, a wholly owned subsidiary operating
      as the “cable” division of the Company to provide patent and intellectual
      property services for that division.·
            An
      agreement between TMG and EU Energy, a wholly owned subsidiary operating
      as the “wind” division of the Company to provide patent and intellectual
      property services for that division.·
            An
      agreement between TMA and the Company to provide management services
      related to the Company’s technology protection and
    management.





Each of
these agreements is for $250,000 per year, payable in equal installments at the
beginning of each calendar month. Each Agreement will terminate on July 3, 2009,
provided that it may be terminated at the end of each anniversary of its
effective date upon 90 days prior written notice to the other
party.





For the
current quarter ended March 31, 2009, we recorded fees of $125,000 and patent
filing expenses of $21,262 for TMG, and fees of $62,500 and incidental expenses
of $15,546 for TMA. For the six months ended March 31, 2009, we recorded fees of
$250,000 and patent filing expenses of $29,265 for TMG, and fees of $125,000 and
incidental expenses of $26,580 for TMA. All of these expenses were recorded to
Research and Development expense.





As of
March 31, 2009, the Company had outstanding balances due to TMA and TMG of
$26,518 and $43,226 respectively, included in accounts payable.


26


ITEM
2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 
 You
should read the following discussion and analysis of our financial condition and
results of operations together with our interim financial statements and the
related notes appearing at the beginning of this report. The interim financial
statements and this Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the financial
statements and notes thereto for the year ended September 30, 2008 and the
related Management's Discussion and Analysis of Financial Condition and Results
of Operations, both of which are contained in our Annual Report on Form 10-K/A
filed with the Securities and Exchange Commission on March 9, 2009.
 
 The
following discussion and other parts of this Form 10-Q contain forward-looking
statements that involve risks and uncertainties. Forward-looking statements can
be identified by words such as “anticipates,” “expects,” “believes,” “plans,”
and similar terms. Our actual results could differ materially from any future
performance suggested in this report as a result of factors, including those
discussed in “Factors That May Affect Future Operating Results” and elsewhere in
this report and in our Annual Report on Form 10-K/A for the fiscal year ended
September 30, 2008. All forward-looking statements are based on information
currently available to Composite Technology Corporation and we assume no
obligation to update such forward-looking statements, except as required by law.
Service marks, trademarks and trade names referred to in this Form 10-Q are the
property of their respective owners.
 
 OVERVIEW
 
 CTC
conducts its operations in the following two business segments: the CTC Cable
division and the DeWind division. The segments have been organized on the basis
of products. All of each segment’s product revenues relate to external
customers.
 
 The three
and six months ended March 31, 2009 represented a period of significant shocks
to the world economies and worldwide financial markets including a collapse of
risk capital financing and the failure of multiple commercial and investment
banking institutions.   These shocks were countered by
legislation and other government economic stimulus packages and incentives
including significant incentives for investment in electrical infrastructure and
renewable energy in the U.S. under the American Recovery and Reinvestment Act of
2009 (ARRA). The combination of these factors has been seen in the press through
significantly lowered economic forecasts and expectations in the short term with
expectations of economic recovery after these incentive measures are
implemented.  The turmoil of these external forces has caused negative
impacts on both businesses of Composite Technology Corporation in the short term
but has improved the long-term outlook for both businesses, each of which is
well positioned to take advantage of the economic stimulus incentives of ARRA
and similar initiatives elsewhere in the world.
 
 The CTC
Cable business saw delays in several anticipated sales wins in new markets,
while it recovered from the negative impact of delays in sales orders caused by
a slowdown in China due to the Beijing Olympics in previous
quarters.   These delays affected revenues for the September,
2008 and December, 2008 quarters resulting in deliveries of only 562 km of ACCCTM
products in the December 2008 quarter. We saw a resurgence of orders from China
at the end of the December 2008 quarter, which resulted in the shipment of 1,153
kilometers of ACCCTM products including shipment to a new customer in the
U.S.
 
 A more
significant impact is occurring in the DeWind business segment through product
order delays and most importantly through a significant restriction in available
financing necessary to order and purchase wind turbines for wind farm
projects.  In addition, the delay until October of the extension of a
key renewable tax credit for wind turbines, suspended ordering and financing of
turbines at almost the time when the severity of the credit crisis was becoming
known.  Further, the decrease in the price of fossil fuels from their
historical peaks in July, 2009 to prices approximately 30% of the peak, has
created a perception that there is less willingness to pay the higher price for
renewable energy.  These factors combine to make the business
environment for wind turbines very difficult.  While none of our
existing customers have cancelled their orders, one customer with two orders
totaling 60 DeWind turbines has defaulted on key progress payments as a result
of losing their wind farm financings and other customers that were expected to
purchase turbines have delayed their purchase decisions.  DeWind is
continuing to work with these customers to help them re-establish project
funding.  Finally, and to date, our expected contingency plan to
finance our own wind farms for internal development projects has not come to
fruition due to the difficult investment marketplace.
 
 As the
Company realized during the December, 2008 quarter that the financing
environment for wind turbines had changed significantly as compared to the
environment only one quarter earlier, management began to develop plans to
ensure the maximum preservation of value for both businesses.  Central
among these plans was to invest to continue the viability and growth of the CTC
Cable business, while realizing that the DeWind business would need to seek a
strategic investor or partner, so that it could weather the storm until the
economic environment for the wind business improves. During the quarter and the
six months ended March 31, 2009, we continued to focus on cost reduction
initiatives that were begun in the September quarter.  Operating
expenses for the quarter ended March 31, 2009 were $10.2 million and included
$1.7 million of depreciation and amortization and $1.9 million in stock-based
compensation charges.  Excluding those non-cash charges, operating
expenses were $6.6 million for the quarter ended March 31, 2009.  For
the quarter ended December 31, 2008 operating expenses were $9.5 million
including $0.3 million in depreciation and amortization charges and $1.6 million
in stock-based compensation charges.  Excluding the non-cash charges,
the December 31, 2008 quarterly operating expenses were $7.6 million. We intend
to continue to focus on cost reductions for both business
segments.  Second, during the March quarter we successfully
negotiated  an acceleration for royalty payments for older DeWind
technology.  Royalty payments of 3 million Euros ($3,992,000 at March
31, 2009 exchange rates) were received in April and May, 2009.  Third,
we continued to execute on our DeWind capital strategy.  In December,
2008 the Company engaged the services of RBS Securities to identify qualified
companies interested in a partnership to better leverage and monetize the
leading edge technology of DeWind which will allow DeWind to take advantage of
the expected demand in the wind renewables market over the next few years. RBS
Securities identified and contacted a significant list of interested parties and
negotiations and diligence discussions with these parties are
underway.
  27
 
 In
January, 2009 the Company continued on its strategy to wind up non-operating and
non-performing  subsidiaries related to certain European based DeWind
subsidiaries by filing for and receiving approval for insolvency for its wholly
owned DeWind Holdings Ltd. subsidiary.  DeWind Holdings was the 100%
owner of Dewind GmbH which was placed into insolvency in September,
2008.  DeWind Holdings served as the holding company for DeWind
GmbH.
 
 Economic Stimulus
Initiatives:
 
 The
February, 2009 American Recovery and Reinvestment Act of 2009 (ARRA) had over
$61 billion designated for Energy related projects including:
 ●
                $11
      billion funding for an electric smart
grid
 ●
                $6.3
      billion for state and local governments to make investments in energy
      efficiency
 ●
                $6
      billion for renewable energy and electric transmission technologies loan
      guarantees
 ●
                $4.5
      billion for the Office of Electricity and Energy Reliability to modernize
      the nation's electrical grid and smart
grid.
 ●
                $3.25
      billion for the Western Area Power Administration for power transmission
      system upgrades
 ●
                $3.25
      billion for the Bonneville Power Authority for power transmission system
      upgrades
 ●
                $2.5
      billion for energy efficiency
research
 ●
                $3.2
      billion toward Energy Efficiency and Conservation Block
    Grants
 
 CTC Cable
has been working diligently with various Federal and State agencies and power
companies to include its ACCCTM products in the planning stages for projects set
to receive stimulus spending.
 
 The ARRA
also had significant incentives for wind power.  In addition to the
loan guarantees listed above, the ARRA extended the production tax credit,
formerly set to expire at the end of 2009, to expire at the end of
2012.  Further, to address the loss of a substantial wind farm finance
source called a “tax equity” partner, as a result of the global economic crisis,
wind farm developers can now opt to take the production tax credit as an
investment tax credit (ITC) with a further possible option to take the ITC as a
grant, representing 30% of the physical plant of a wind farm.  While
the net revenue impact to the Federal government is negligible since the total
tax credit is essentially the same, an acceleration of the ITC as a grant serves
as a significant acceleration to a wind project cash flow, resulting in a
material improvement in the rate of return due to acceleration of plant cost
return.
 
 Consolidated Revenues, Gross
Margins, and EBITDAS
 
 On a
consolidated basis, revenues from continuing operations for the three months
ended March 31 decreased by $5.1 million or 24.1% from $21.2 million in 2008 to
$16.1 million in 2009. The decrease was due to a $4.3 million decrease in CTC
Cable sales and a decrease of $0.7 million of turbine product sales and a $0.1
million decrease in turbine service related sales. Revenues from continuing
operations for the six months ending March 31, 2009 decreased by $12.3 million
or 31.6% from $38.8 million in 2008 to $26.5 million in 2009. The decrease was
due to a $10.9 million decrease in CTC Cable sales, a decrease of $0.8 million
of turbine product sales and a decrease of $0.5 million of turbine service
sales.
 
 The March
2009 quarter decrease for CTC Cable was due primarily to a change in product mix
as prior year deliveries in the March 2008 quarter were primarily higher sales
price ACCCTM conductor, while current quarter sales were lower priced ACCCTM core.
Deliveries in the current quarter consisted of 1,153 km of ACCCTM product (90 km
of ACCCTM conductor and 1,063 km of ACCCTM core) compared to prior year of 846 km
of ACCCTM product (334 km ACCCTM conductor and 512 km of ACCCTM core). The March
2009 quarter decrease for turbine product is the net effect of a reduction to
$7.2 million of turbine deliveries recorded into revenue, offset by an increase
in license fee revenues of $6.4 million for the March 2009 quarter. The decrease
in turbine service related sales is due to reductions of amortized prepaid
turbine maintenance and a reduction of turbine service revenues from the
European installation base.
 
 Consolidated
gross margins decreased by $3.4 million from $3.4 million or 16.0% of revenues
for the three months ended March 31, 2008 to $2,000 for the three months ended
March 31, 2009. The margin decrease is due to reduced CTC Cable margins of $0.6
million primarily due to lower revenue levels, and a $2.8 million decrease in
DeWind margins due to the combined effect of a $6.4 million inventory mark to
market reserve charge, offset by increased high margin license fee revenue
recorded from the royalty fee settlement.
 The Company has provided
non-GAAP measures such as
EBITDAS at the segment and consolidated level in the following management
discussion and analysis.The Company uses the non-GAAP
information internally as one of several measures used to evaluate its operating
performance and believesthese non-GAAP measures are useful to and have been requested by, investors as
they provide additional insight into the underlying operating results viewed in
conjunction with GAAP operating results.  For the non-GAAP EBITDAS
measure, a significant portion of non-cash expenses is excluded,
primarily for amortization of acquired DeWind related intangibles that occur
ratably over time and stock based compensation charges that are valued based on
the share price and volatility at the date of grant and then expensed as earned, typically upon vesting
of service over time.  Management believes that an alternate view of
operating results that exclude DeWind amortization and stock based charges is
useful in evaluating current period operations.  The material
limitation of non-GAAP EBITDAS compared with
Net Income is that significant non-cash expenses are
excluded.  Management compensates for such limitation by utilizing
EBITDAS only for particular purposes and that it evaluates EBITDAS in the
context of other metrics such as Net Income when evaluating the
Company’s performance andfinancial condition.Non-GAAP measures are not stated in
accordance with, should not be considered in isolation from, and are not a
substitute for, GAAP measures. A reconciliation of GAAP to non-GAAP results has been provided in
the relevant financial tables below.
  28
 
 The
following table is a reconciliation of the Company’s “non-GAAP” EBITDAS
discussed above for the three and six months ended March 31, 2009 and
2008.
  (Unaudited,
      In Thousands)
                                            
                                            Three months ended March
      31,Consolidated
                                            
                                            2009
                                            
                                            
                                            2008Net
      loss from continuing operations
                                            
                                            $
                                            (10,644
                                            )
                                            
                                            $
                                            (8,414
                                            )Interest,
      taxes, depreciation, amortization and stock-based compensation
      (ITDAS):Interest
                                            
                                            
                                            489
                                            
                                            
                                            
                                            609Taxes
                                            
                                            
                                            (13
                                            )
                                            
                                            
                                            3Depreciation
      and amortization
                                            
                                            
                                            1,982
                                            
                                            
                                            
                                            577Stock-based
      compensation
                                            
                                            
                                            1,919
                                            
                                            
                                            
                                            662Total
      ITDAS
                                            
                                            $
                                            4,377
                                            
                                            
                                            $
                                            1,851“Non-GAAP”
      EBITDAS
                                            
                                            $
                                            (6,267
                                            )
                                            
                                            $
                                            (6,563
                                            )
 (Unaudited,
      In Thousands)
                              
                              Six months ended March
      31,Consolidated
                              
                              2009
                              
                              
                              2008Net
      loss from continuing operations
                              
                              $
                              (18,977
                              )
                              
                              $
                              (13,263
                              )Interest,
      taxes, depreciation, amortization and stock-based compensation
      (ITDAS):Interest
                              
                              
                              948
                              
                              
                              
                              1,505Taxes
                              
                              
                              (4
                              )
                              
                              
                              10Depreciation
      and amortization
                              
                              
                              2,586
                              
                              
                              
                              1,443Stock-based
      compensation
                              
                              
                              3,472
                              
                              
                              
                              878Total
      ITDAS
                              
                              $
                              7,002
                              
                              
                              $
                              3,836“Non-GAAP”
      EBITDAS
                              
                              $
                              (11,975
                              )
                              
                              $
                              (9,427
                              )
 
 EBITDAS
loss decreased by $0.3 million for the current quarter and increased
by $2.6 million for the current six months as compared to the same periods
in prior year primarily due to the net effect of reduced margins related to
lower cable revenues and mark to market inventory reserves, offset by reduced
operating expenses.
  DeWind
Division
 The
DeWind segment operates under the brand name DeWind, which has designed and sold
wind turbines since 1995 from Lubeck, Germany. Currently, DeWind is operated
from the Company’s Irvine, California offices with sales operations in, Irvine,
California and Lubeck, Germany along with Engineering and R&D operations in
both Irvine, California and Lubeck, Germany. The DeWind segment designs,
produces, sells and services DeWind turbines in the 1.25 and 2.0 megawatt range
worldwide. We acquired DeWind during the EU Energy acquisition on July 3, 2006.
Accordingly, we have incorporated DeWind’s operations into our financial results
since that date.
  RECENT
DEVELOPMENTS
 
 The
revenues of the DeWind segment for the quarter ended March 31, 2009 consisted
primarily of one D8.2 turbine sold in the US and license fees and royalty
revenues associated with the acceleration of D6 licenses for one of DeWind’s
Chinese license partners of $6.1 million. DeWind also delivered 10 D8 units and
three D6 turbines during the six months ended March 31, 2009. While
delivered to the customer site, the 10 D8 units valued at approximately $19
million remained deferred at the end of March as were the three delivered D6
turbines booked and shipped during the six months ended March 31, 2009 but
awaiting commissioning. As of March 31, 2009, the total backlog of DeWind was
$300 million, of which $265 million represents orders where financing is
uncertain or pending.
 
 The
DeWind segment entered fiscal 2009 with caution and optimism. The credit market
downturn, which began in September was not fully known early in the quarter.
Between August, 2008 and early October, 2008 DeWind had received orders for 50
D9 turbines for a wind farm in Canada worth approximately $150 million, had
received an initial down payment for the first 10 turbines of this order and had
signed a development agreement to jointly develop 620 Megawatts of wind farms in
Texas with a total potential cost of approximately $1.5 billion. Based on these
developments, DeWind continued to commit resources towards the completion of the
D9 turbine as well as begin construction of the first 10 megawatts of the wind
farms in Texas. By November, 2008 after the Canadian order financing was
withheld from the developer, who then defaulted on scheduled payments, and it
became apparent that financing for wind farms had been significantly reduced,
DeWind quickly decided that additional strategies needed to be
pursued.
 
 In
December, 2008 management realized that additional funding would be necessary to
complete the development initiatives and to maintain a viable supply chain for
the D8.2 and D9 turbine products. DeWind has since engaged an international
investment banking firm to entertain alternative options including financing of
the 620 Megawatt wind farms and obtaining strategic investors into DeWind. At
present, the investment banking firm has introduced the Company to various
potential investors or partners with sufficient financial backing. The
Company is in discussions and negotiation with multiple parties for both
options. Since December, DeWind has significantly restricted its cash payments
by reducing operating expenses, reducing or temporarily halting development
initiatives, and limiting payments to suppliers, in particular for advance
payments on future deliveries of parts in an effort to conserve cash until
either the financing market allows for turbine financing or an investor is found
for the wind farms or as an investment into DeWind.
 GAAP measures such as EBITDAS
at the segment and consolidated level in the following management discussion and
analysis. The Company uses
the non-GAAP information internally as one of several measures used to evaluate
its operating performance and believes these non-GAAP measures are useful to
and have been requested by, investors as they provide additional insight into
the underlying operating results viewed in conjunction with GAAP operating
results.  For the non-GAAP EBITDAS measure, a significant
porti o n of non-cash expenses is excluded,
primarily for amortization of acquired DeWind related intangibles that occur
ratably over time and stock based compensation charges that are valued based on
the share price and volatility at the date of grant and then e x pensed as earned, typically upon vesting
of service over time.  Management believes that an alternate view of
operating results that exclude DeWind amortization and stock based charges is
useful in evaluating current period operations.  The material
limit a tion of non-GAAP EBITDAS compared with
Net Income is that significant non-cash expenses are
excluded.  Management compensates for such limitation by utilizing
EBITDAS only for particular purposes and that it evaluates EBITDAS in the
context of other metri c s such as Net Income when evaluating the
Company ’ s performance and financial condition . Non -GAAP measures are not stated in
accordance with, should not be considered in isolation from, and are not a
substitute for, GAAP measures. A reconciliation of GAAP t o non-GAAP results has been provided in
the relevant financial tables below.
  29
 
 The
following table is a reconciliation of DeWind only “non-GAAP” EBITDAS discussed
above for the three and six months ended March 31, 2009 and 2008.
  (Unaudited,
      In Thousands)
                                        
                                        Three months ended March
      31,DeWind
      Segment Only
                                        
                                        2009
                                        
                                        
                                        2008Net
      loss from continuing operations
                                        
                                        $
                                        (6,815
                                        )
                                        
                                        $
                                        (6,549
                                        )Interest,
      taxes, depreciation, amortization and stock-based compensation
      (ITDAS):Interest
                                        
                                        
                                        38
                                        
                                        
                                        
                                        94Taxes
                                        
                                        
                                        (13
                                        )
                                        
                                        
                                        2Depreciation
      and amortization
                                        
                                        
                                        1,757
                                        
                                        
                                        
                                        372Stock-based
      compensation
                                        
                                        
                                        248
                                        
                                        
                                        
                                        12Total
      ITDAS
                                        
                                        $
                                        2,030
                                        
                                        
                                        $
                                        480“Non-GAAP”
      EBITDAS
                                        
                                        $
                                        (4,785
                                        )
                                        
                                        $
                                        (6,069
                                        )
  (Unaudited,
      In Thousands)
                              
                              Six months ended March
      31,DeWind
      Segment Only
                              
                              2009
                              
                              
                              2008Net
      loss from continuing operations
                              
                              $
                              (10,944
                              )
                              
                              $
                              (11,412
                              )Interest,
      taxes, depreciation, amortization and stock-based compensation
      (ITDAS):Interest
                              
                              
                              50
                              
                              
                              
                              177Taxes
                              
                              
                              (7
                              )
                              
                              
                              9Depreciation
      and amortization
                              
                              
                              2,121
                              
                              
                              
                              1,032Stock-based
      compensation
                              
                              
                              672
                              
                              
                              
                              25Total
      ITDAS
                              
                              $
                              2,836
                              
                              
                              $
                              1,243“Non-GAAP”
      EBITDAS
                              
                              $
                              (8,108
                              )
                              
                              $
                              (10,169
                              )
 
 EBITDAS
loss decreased by $1.3 million for the current quarter and $2.1 million for the
current six months as compared to the same periods in prior year primarily due
to increased margins from license fee revenues, decreases in research and
development costs, offset by increased inventory reserve
charges.
  CTC Cable
Division
 Located
in Irvine, California with sales operations in Irvine, California, Shanghai,
China, Europe, the Middle East, and Brazil, the CTC Cable Division produces and
sells ACCCTM conductor products and related ACCCTM hardware products. ACCCTM
conductor production is a two step process. The Irvine operations produce the
high strength, light weight, composite ACCCTM core, which is then shipped to one
of four conductor stranding licensees in Canada, Belgium, China, or Bahrain
where the core is stranded with conductive aluminum to become ACCCTM conductor.
ACCCTM conductor and core are sold in Canada and the U.S. directly by CTC Cable
to utilities.  ACCCTM conductor and core are sold elsewhere in the
world directly to utilities as well as through license and distribution
agreements with Lamifil in Belgium, Jiangsu New Far East in China, and Midal in
Bahrain. ACCCTM conductor has been sold commercially since 2005 and is currently
marketed worldwide to electrical utilities, transmission companies and
transmission design and engineering firms.
 
 RECENT
DEVELOPMENTS
 
 The CTC
Cable business saw continued expansion into new markets and greater traction on
our new efficiency message in our U.S. market but CTC Cable also saw delays in
several anticipated sales wins in new markets and was still negatively impacted
from the delay in sales orders in previous quarters caused by a slowdown in
China due to the Beijing Olympics. These delays affected revenues for the
September, 2008 and December, 2008 quarters resulting in deliveries of only 562
km of ACCCTM products in the December 2008 quarter. Order levels improved during
the March, 2009 quarter and CTC Cable shipped 1,153 km of ACCCTM products during
the March quarter. Production during the quarter increased to its highest level
to date, in excess of 1,500 km.
 
 The Cable
division’s focus during the quarter and six months ending March 31, 2009 was
sales, marketing, and operations with a goal to position CTC Cable for rapid
revenue growth. Our goals include the expansion of our customer base outside of
the Chinese market by penetrating other markets including the U.S. Our sales
pipeline continues to improve and we currently are working on nearly $400
million of sales opportunities, most of which are outside of China. We are also
optimistic that the proposed infrastructure and grid efficiency directives
included in the ARRA stimulus package will result in an increased focus by
utilities in the U.S. to acknowledge the efficiency benefits of our ACCCTM
products.
 
 To this
extent, the order to Sierra Pacific Power Company, an electric utility servicing
portions of Nevada, is our largest order to a U.S. customer to date and is
important since the decision to purchase ACCCTM conductor by this customer was
primarily due to the cost savings associated with using ACCCTM including the
improved efficiency of ACCCTM conductor over existing transmission conductor
products. Prior U.S. sales were demonstration lines for the reduced sag or high
temperature applications of ACCCTM conductor. We believe this win is significant
because it represents a significant change in the perception of the use of ACCCTM
conductor with U.S. utilities away from a “niche” product chosen when there was
no other alternative available to a product that could be rolled out to replace
a substantial amount of the transmission conductor within a given utility’s grid
under management. We are hopeful that this is the first of many such efficiency
related wins for U.S. utility sales opportunities.
 
 Within
our China market, we reached an important milestone by obtaining approval to
have ACCCTM conductor installed in a 500kV installation on a 1,500 km
installation and we are working with our distributor and the local grid to
develop a trial line at 1,000kV. The significance for this approval is that a
substantial portion of the electrical transmission infrastructure spending in
China is at 500kV or higher, including much of the projected Chinese stimulus
bill spending.
  30
 
 Outside
of China, our international efforts continue to expand.  We have
certified the stranding capabilities for Midal for one size of conductor and we
will review several additional sizes prior to certification.  We
expect that the certification will allow for closing near term sales which were
delayed and pending the certification. We are also in the process of certifying
two stranding sources in Indonesia, which is expected by the end of
2009.  Progress also continues in identifying local stranding sources
in South and Latin America.
 
 The sales
and marketing initiatives begun in the latter half of fiscal 2008 were continued
with multiple areas of the sales and marketing infrastructure
completed.  These initiatives focused on developing a sales
organization necessary to penetrate and support order solicitations, bid
tenders, and to evangelize the efficiency message of the ACCCTM conductor product
line.  CTC Cable filled out complete coverage of the U.S. and Canadian
markets through its consortium of 16 sales agent representatives.  The
sales organization also completed new sales collateral and sales tools to help
automate bid and information requests including a new CTC Cable website which is
in beta testing currently and expected to be fully implemented in May,
2009.
 
 The focus
of our cable operations during the six-month period ending March 31, 2009 has
been to increase production to manage the large influx of orders from our new
markets as well as produce ACCCTM core for deliveries under our China agreement.
During the quarter we installed and began operating new machines in our new
production floor. We now have fourteen pultrusion machines in operation with
each of the new production machines able to produce up to 3.5 km per day per
machine and with order demand we would easily expect to have eighteen machines
in operation with a projected annual capacity in excess of 18,000 km per year,
sufficient capacity to provide in excess of $100 million in ACCCTM core revenue
per year.
 
 We
believe that we have lined up sufficient raw materials supplies for our ACCCTM
core to produce our expected ACCCTM product sales worldwide for the next twelve
months.  The recent economic downturn has resulted in a decreased
demand for aerospace grade carbon fiber that we use to produce our composite
core resulting in increased availability of materials for ACCCTM
core.   We will continue to work to expand our ACCCTM conductor
production capacity through stranding and manufacturing agreements with targeted
manufacturers worldwide. As we open new markets and we begin to sell ACCCTM
conductor locally, we will look to sign additional agreements with local
stranding sources.  Discussions with new stranding partners are
underway at multiple locations worldwide.
 
 The
Company has provided non-GAAP
measures such as EBITDAS at the segment and consolidated level in the following
management discussion and analysis.The Company uses the non-GAAP
information internally as one of several measures used to evaluate its operating
performance and believesthese non-GAAP measures are useful to and have been requested by, investors as
they provide additional insight into the underlying operating results viewed in
conjunction with GAAP operating results.  For the non-GAAP EBITDAS
measure, a significant portion of non-cash expenses is excluded,
primarily for amortization of acquired DeWind related intangibles that occur
ratably over time and stock based compensation charges that are valued based on
the share price and volatility at the date of grant and then expensed as earned, typically upon vesting
of service over time.  Management believes that an alternate view of
operating results that exclude DeWind amortization and stock based charges is
useful in evaluating current period operations.  The material
limitation of non-GAAP EBITDAS compared with
Net Income is that significant non-cash expenses are
excluded.  Management compensates for such limitation by utilizing
EBITDAS only for particular purposes and that it evaluates EBITDAS in the
context of other metrics such as Net Income when evaluating the
Company’s performance andfinancial condition.Non-GAAP measures are not stated in
accordance with, should not be considered in isolation from, and are not a
substitute for, GAAP measures. A reconciliation of GAAP to non-GAAP results has been provided in
the relevant financial tables below.
 
 The
following table is a reconciliation of CTC Cable only “non-GAAP” EBITDAS
discussed above for the three and six months ended March 31, 2009 and
2008.
  (Unaudited)
                                            (In Thousands)
                                          
                                          Three months ended March 31,Cable Segment Only
                                          
                                          2009
                                          
                                          
                                          2008Net
      income/(loss) from continuing operations
                                          
                                          $
                                          (737
                                          )
                                          
                                          $
                                          132Interest,
      taxes, depreciation, amortization and stock-based compensation
      (ITDAS):Interest
                                          
                                          
                                          1
                                          
                                          
                                          
                                          —Taxes
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —Depreciation
      and amortization
                                          
                                          
                                          224
                                          
                                          
                                          
                                          205Stock-based
      compensation
                                          
                                          
                                          595
                                          
                                          
                                          
                                          408Total
      ITDAS
                                          
                                          $
                                          820
                                          
                                          
                                          $
                                          613“Non-GAAP”
      EBITDAS
                                          
                                          $
                                          83
                                          
                                          
                                          $
                                          745
  (Unaudited)
                                (In
      Thousands)
                              
                              Six months ended March
      31,Cable
      Segment Only
                              
                              2009
                              
                              
                              2008Net
      income/(loss) from continuing operations
                              
                              $
                              (2,249
                              )
                              
                              $
                              2,305Interest,
      taxes, depreciation, amortization and stock-based compensation
      (ITDAS):Interest
                              
                              
                              --
                              
                              
                              
                              --Taxes
                              
                              
                              --
                              
                              
                              
                              --Depreciation
      and amortization
                              
                              
                              465
                              
                              
                              
                              411Stock-based
      compensation
                              
                              
                              1,028
                              
                              
                              
                              553Total
      ITDAS
                              
                              $
                              1,493
                              
                              
                              $
                              964“Non-GAAP”
      EBITDAS
                              
                              $
                              (756
                              )
                              
                              $
                              3,269
 
 EBITDAS
decreased from $0.7 million in the current quarter and $4.0 million in the
current six months as compared to the same periods in prior year due primarily
to the lower revenues out of China, along with corresponding margin
reduction.
  RESULTS
OF OPERATIONS
 
 Revenues,
Cost of Revenues, and Gross Margins:
 
 During
the quarter ended March 31, 2009, the geographical allocation of consolidated
revenues was:
  31
 
 China/Asia
                        
                        
                        79.3
                        %Europe
                        
                        
                        1.4
                        %North
      America
                        
                        
                        19.3
                        %
  During
the quarter, three customers in China represented 79.2% of revenues (two
customers from our DeWind segment and one customer from our Cable segment at
47.0% and 32.2%, respectively) and two customers in North America represented
19.1% of revenues (one customer from our Cable segment at 6.8% and one customer
from our DeWind segment at 12.4%). No other customer represented greater than 5%
of consolidated revenues.
 
 Our
revenues and gross margin analysis are listed in the table below.
 
 Three Months Ended March 31,(In Thousands)
                                                  
                                                  2009
                                                  
                                                  
                                                  2008(unaudited)
                                                  
                                                  Cable Segment
                                                  
                                                  
                                                  Wind Segment
                                                  
                                                  
                                                  Total
                                                  
                                                  
                                                  Cable Segment
                                                  
                                                  
                                                  Wind Segment
                                                  
                                                  
                                                  TotalProduct Sales –Cable
                                                  
                                                  $
                                                  6,202
                                                  
                                                  
                                                  $
                                                  —
                                                  
                                                  
                                                  $
                                                  6,202
                                                  
                                                  
                                                  $
                                                  10,492
                                                  
                                                  
                                                  $
                                                  —
                                                  
                                                  
                                                  $
                                                  10,492Product
      Sales – Turbines
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  9,552
                                                  
                                                  
                                                  
                                                  9,552
                                                  
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  10,234
                                                  
                                                  
                                                  
                                                  10,234Other
      Turbine Related Revenue
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  321
                                                  
                                                  
                                                  
                                                  321
                                                  
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  440
                                                  
                                                  
                                                  
                                                  440Total
      Revenues
                                                  
                                                  $
                                                  6,202
                                                  
                                                  
                                                  $
                                                  9,873
                                                  
                                                  
                                                  $
                                                  16,075
                                                  
                                                  
                                                  $
                                                  10,492
                                                  
                                                  
                                                  $
                                                  10,674
                                                  
                                                  
                                                  $
                                                  21,166Cost
      of Sales - Cable
                                                  
                                                  $
                                                  4,050
                                                  
                                                  
                                                  $
                                                  —
                                                  
                                                  
                                                  $
                                                  4,050
                                                  
                                                  
                                                  $
                                                  7,786
                                                  
                                                  
                                                  $
                                                  —
                                                  
                                                  
                                                  $
                                                  7,786Cost
      of Sales – Turbines
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  11,000
                                                  
                                                  
                                                  
                                                  11,000
                                                  
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  9,579
                                                  
                                                  
                                                  
                                                  9,579Cost
      of Sales – Turbine Service
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  1,023
                                                  
                                                  
                                                  
                                                  1,023
                                                  
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  410
                                                  
                                                  
                                                  
                                                  410Total
      Cost of Sales
                                                  
                                                  $
                                                  4,050
                                                  
                                                  
                                                  $
                                                  12,023
                                                  
                                                  
                                                  $
                                                  16,073
                                                  
                                                  
                                                  $
                                                  7,786
                                                  
                                                  
                                                  $
                                                  9,989
                                                  
                                                  
                                                  $
                                                  17,775Gross
      Margin - Cable
                                                  
                                                  $
                                                  2,152
                                                  
                                                  
                                                  $
                                                  —
                                                  
                                                  
                                                  $
                                                  2,152
                                                  
                                                  
                                                  $
                                                  2,706
                                                  
                                                  
                                                  $
                                                  —
                                                  
                                                  
                                                  $
                                                  2,706Gross
      Margin % - Cable
                                                  
                                                  
                                                  34.7
                                                  %
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  34.7
                                                  %
                                                  
                                                  
                                                  25.8
                                                  %
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  25.8
                                                  %Gross
      Margin – Turbines
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  (1,448
                                                  )
                                                  
                                                  
                                                  (1,448
                                                  )
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  655
                                                  
                                                  
                                                  
                                                  655Gross
      Margin % - Turbines
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  -15.2
                                                  %
                                                  
                                                  
                                                  -15.2
                                                  %
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  6.4
                                                  %
                                                  
                                                  
                                                  6.4
                                                  %Gross
      Margin – Turbine Service
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  (702
                                                  )
                                                  
                                                  
                                                  (702
                                                  )
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  30
                                                  
                                                  
                                                  
                                                  30Gross
      Margin % - Turbine Service
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  -218.7
                                                  %
                                                  
                                                  
                                                  -218.7
                                                  %
                                                  
                                                  
                                                  —
                                                  
                                                  
                                                  
                                                  6.8
                                                  %
                                                  
                                                  
                                                  6.8
                                                  %Total
      Gross Margin
                                                  
                                                  $
                                                  2,152
                                                  
                                                  
                                                  $
                                                  (2,150
                                                  )
                                                  
                                                  $
                                                  2
                                                  
                                                  
                                                  $
                                                  2,706
                                                  
                                                  
                                                  $
                                                  685
                                                  
                                                  
                                                  $
                                                  3,391Total
      Gross Margin %
                                                  
                                                  
                                                  34.7
                                                  %
                                                  
                                                  
                                                  -21.8
                                                  %
                                                  
                                                  
                                                  0.0
                                                  %
                                                  
                                                  
                                                  25.8
                                                  %
                                                  
                                                  
                                                  6.4
                                                  %
                                                  
                                                  
                                                  16.0
                                                  %
 
 Six Months Ended March 31,(In Thousands)
                                                    
                                                    2009
                                                    
                                                    
                                                    2008(unaudited)
                                                    
                                                    Cable Segment
                                                    
                                                    
                                                    Wind Segment
                                                    
                                                    
                                                    Total
                                                    
                                                    
                                                    Cable Segment
                                                    
                                                    
                                                    Wind Segment
                                                    
                                                    
                                                    TotalProduct Sales –Cable
                                                    
                                                    $
                                                    10,562
                                                    
                                                    
                                                    $
                                                    —
                                                    
                                                    
                                                    $
                                                    10,562
                                                    
                                                    
                                                    $
                                                    21,486
                                                    
                                                    
                                                    $
                                                    —
                                                    
                                                    
                                                    $
                                                    21,486Product
      Sales – Turbines
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    15,500
                                                    
                                                    
                                                    
                                                    15,500
                                                    
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    16,311
                                                    
                                                    
                                                    
                                                    16,311Other
      Turbine Related Revenue
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    431
                                                    
                                                    
                                                    
                                                    431
                                                    
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    955
                                                    
                                                    
                                                    
                                                    955Total
      Revenues
                                                    
                                                    $
                                                    10,562
                                                    
                                                    
                                                    $
                                                    15,931
                                                    
                                                    
                                                    $
                                                    26,493
                                                    
                                                    
                                                    $
                                                    21,486
                                                    
                                                    
                                                    $
                                                    17,266
                                                    
                                                    
                                                    $
                                                    38,752Cost
      of Sales - Cable
                                                    
                                                    $
                                                    7,132
                                                    
                                                    
                                                    $
                                                    —
                                                    
                                                    
                                                    $
                                                    7,132
                                                    
                                                    
                                                    $
                                                    14,607
                                                    
                                                    
                                                    $
                                                    —
                                                    
                                                    
                                                    $
                                                    14,607Cost
      of Sales – Turbines
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    16,000
                                                    
                                                    
                                                    
                                                    16,000
                                                    
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    15,664
                                                    
                                                    
                                                    
                                                    15,664Cost
      of Sales – Turbine Service
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    1,835
                                                    
                                                    
                                                    
                                                    1,835
                                                    
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    1,050
                                                    
                                                    
                                                    
                                                    1,050Total
      Cost of Sales
                                                    
                                                    $
                                                    7,132
                                                    
                                                    
                                                    $
                                                    17,835
                                                    
                                                    
                                                    $
                                                    24,967
                                                    
                                                    
                                                    $
                                                    14,607
                                                    
                                                    
                                                    $
                                                    16,714
                                                    
                                                    
                                                    $
                                                    31,321Gross
      Margin - Cable
                                                    
                                                    $
                                                    3,430
                                                    
                                                    
                                                    $
                                                    —
                                                    
                                                    
                                                    $
                                                    3,430
                                                    
                                                    
                                                    $
                                                    6,879
                                                    
                                                    
                                                    $
                                                    —
                                                    
                                                    
                                                    $
                                                    6,879Gross
      Margin % - Cable
                                                    
                                                    
                                                    32.5
                                                    %
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    32.5
                                                    %
                                                    
                                                    
                                                    32.0
                                                    %
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    32.0
                                                    %Gross
      Margin – Turbines
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    (500
                                                    )
                                                    
                                                    
                                                    (500
                                                    )
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    647
                                                    
                                                    
                                                    
                                                    647Gross
      Margin % - Turbines
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    -3.2
                                                    %
                                                    
                                                    
                                                    -3.2
                                                    %
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    4.0
                                                    %
                                                    
                                                    
                                                    4.0
                                                    %Gross
      Margin – Turbine Service
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    (1,404
                                                    )
                                                    
                                                    
                                                    (1,404
                                                    )
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    (95
                                                    )
                                                    
                                                    
                                                    (95
                                                    )Gross
      Margin % - Turbine Service
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    -326.1
                                                    %
                                                    
                                                    
                                                    -326.1
                                                    %
                                                    
                                                    
                                                    —
                                                    
                                                    
                                                    
                                                    -9.9
                                                    %
                                                    
                                                    
                                                    -9.9
                                                    %Total
      Gross Margin
                                                    
                                                    $
                                                    3,430
                                                    
                                                    
                                                    $
                                                    (1,904
                                                    )
                                                    
                                                    $
                                                    1,526
                                                    
                                                    
                                                    $
                                                    6,879
                                                    
                                                    
                                                    $
                                                    552
                                                    
                                                    
                                                    $
                                                    7,431Total
      Gross Margin %
                                                    
                                                    
                                                    32.5
                                                    %
                                                    
                                                    
                                                    -12.0
                                                    %
                                                    
                                                    
                                                    5.8
                                                    %
                                                    
                                                    
                                                    32.0
                                                    %
                                                    
                                                    
                                                    3.2
                                                    %
                                                    
                                                    
                                                    19.2
                                                    %
  CABLE
REVENUES. Product revenues for the quarter ended March 31, 2009 of
$6.2  million consisted of 1,153 kilometers of ACCCTM core, ACCCTM
conductor, and related ACCCTM hardware products sold primarily to Jiangsu New Far
East Cable Company in China (over 1,062 km), and a new U.S. customer in Reno,
Nevada, Sierra Pacific (over 90 km).  Cable revenues decreased $10.9
million or 51% for the six months ended March 31, 2009, compared to the same
period in prior year. While there was an increase of over 307 km of ACCCTM
products sold in the March 2009 quarter compared to the March 2008 quarter, the
decrease in revenue for the current quarter was due to a change in product mix,
since product deliveries in 2008 were primarily higher sales price ACCCTM
conductor sold to a customer in Poland, Zircon Poland, while 2009 sales were
primarily lower priced ACCCTM core to China.
  32
  Cost of
Sales and resultant Gross Margin on cable revenues for the three and six months
ended March 31, 2009 represent materials, labor, freight, and allocated overhead
costs to produce ACCCTM conductor, ACCCTM  core, and related
hardware.  Cable gross margin decreased by $3.4 million or 50% for the
six months ended March 31, 2009. Margin percentages for the current quarter
increased to 34.7 %, compared to the same period in prior year of 25.8% that
included lower margin ACCCTM conductor sales to a customer in Poland, Zircon
Poland. The current quarter gross margin increase is due to combination of lower
sales of ACCCTM products and a much lower utilization of ACCCTM core production
related labor overhead as in prior quarters per revenue dollar.
 
 TURBINE
REVENUES. Turbine revenues for the quarter ended March 31, 2009 of $9.6 million
consisted of the sales of parts, license fees ($7.2 million), one D8.2 turbine
sold to a U.S. customer in Minnetonka, Minnesota, Hilltop Power ($2.0
million).  The March, 2008 quarter included revenues for one D8.2
turbine and one D6 turbine.
 
 Cost of
sales for the quarter ended March 31, 2009 increased $1.4 million to $11.0
million and are reflective of the cost for the parts, one D8.2 turbine sold,
$1.7 million in additional loss provisions for contracts in progress, and $6.4
million in additional inventory reserves recorded as a result of a lower of cost
or market analysis.  The March 2008 quarter included the costs for the
one D8.2 and one D6 turbine.
 
 TURBINE
SERVICE REVENUES. Turbine service revenues for the quarter ended March 31, 2009
of $0.3 million consisted of amortized deferred service and maintenance revenues
and service billings related to turbines that were not transferred to the now
discontinued E Services entity, typically for turbines recently ending their
warranty periods. Turbine service revenues for the quarter ended March 31, 2008
of $0.4 million represents primarily amortization of deferred maintenance
revenues for those turbines remaining under warranty which were not transferred
to E Service. The decrease in revenues is due to decreased service billings for
customers rolling off their warranty period who purchased maintenance services
subsequent to their warranty termination.
  Cost of
revenues for turbine service represents the labor, parts, supplies, and overhead
related to the servicing of turbines and the net effect of changes in our
turbine availability and warranty provisions. Cost of revenues for the quarter
ending March 31, 2009 increased by $0.6 million due to higher charges related to
warranty and availability provisions, primarily from a full service packet
option exercise on a contract for seven D8 turbines installed in
Europe.
 
 OPERATING
EXPENSES
 
 Operating
expenses that are specifically identifiable for a given segment are included in
that segment and are described in further detail below. Operating expenses that
are related to corporate governance are included in the Corporate
classification. Corporate expenses are generally expenses related to our
corporate officers and related compensation, corporate finance and expenses
related to our public company status including securities related legal expenses
and settlements, audit fees, and also for general corporate business development
expenses and strategic intellectual property consulting fees.
 
 Consolidated
operating expenses decreased $1.1 million or 9.8% from $11.3 million in the
quarter ended March 31, 2008 to $10.2 million in the current quarter but
increased $0.4 million or 2.0% from $19.2 million in the six months ended March
31, 2008 to $19.6 million in the current six month period. The current quarter
decrease of $1.1 million is due to stock compensation increases of $1.3 million,
a $4.1 million decrease from prior year research and development expenses
related to development of our D8.2 60 hertz US prototype, our D8.2 cold weather
package, and D9 blade, a $1.4 million increase in depreciation and amortization,
and a $0.3 million increase in additional Corporate expenses.
 
 On a
standalone basis, for quarter ending March 31, 2009, Corporate expenses
increased $1.1 million or 78.4% compared to the same period in prior year, from
$1.5 million to $2.6 million including an increase of $0.8 million in stock
compensation charges, $0.1 million in non-recurring legal related expenses, and
$0.2 million in various other general and administrative expenses.
 
 For the
quarter ended March 31, 2009, CTC Cable expenses increased by $0.2 million or
9.1% compared to the same period in prior year, due to $0.2 million higher stock
compensation charges, $0.3 million in cash basis sales and marketing expenses
resulting from an increase in our sales and marketing department, a $0.1 million
increase in legal fees, offset by $0.4 million in research and development cost
reductions.
 
 For the
quarter ended March 31, 2009, DeWind expenses decreased by $2.5 million or 35.0%
compared to the same period in prior year, due primarily to a $3.9 million
decrease from prior year research and development expenses, $3.7 million of
which relate to prior year development costs of our D8.2 60 hertz US prototype,
our D8.2 cold weather package, and D9 blade; and offset by an increase in
intangible amortization of $1.4 million.
  33
 
 The
following table provides a comparative analysis of operating
expenses.
 
 Three Months Ended March 31,(In Thousands)
                                      
                                      2009
                                      
                                      
                                      2008(unaudited)
                                      
                                      Corporate
                                      
                                      
                                      Cable
                                      
                                      
                                      DeWind
                                      
                                      
                                      Total
                                      
                                      
                                      Corporate
                                      
                                      
                                      Cable
                                      
                                      
                                      DeWind
                                      
                                      
                                      TotalOfficer
      Compensation
                                      
                                      $
                                      1,013
                                      
                                      
                                      $
                                      —
                                      
                                      
                                      $
                                      —
                                      
                                      
                                      $
                                      1,013
                                      
                                      
                                      $
                                      351
                                      
                                      
                                      $
                                      —
                                      
                                      
                                      $
                                      —
                                      
                                      
                                      $
                                      351General
      and Administrative
                                      
                                      
                                      1,628
                                      
                                      
                                      
                                      602
                                      
                                      
                                      
                                      1,423
                                      
                                      
                                      
                                      3,653
                                      
                                      
                                      
                                      1,129
                                      
                                      
                                      
                                      458
                                      
                                      
                                      
                                      1,443
                                      
                                      
                                      
                                      3,030Research
      and Development
                                      
                                      
                                      —
                                      
                                      
                                      
                                      737
                                      
                                      
                                      
                                      1,281
                                      
                                      
                                      
                                      2,018
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      1,148
                                      
                                      
                                      
                                      5,148
                                      
                                      
                                      
                                      6,296Sales
      and Marketing
                                      
                                      
                                      —
                                      
                                      
                                      
                                      1,458
                                      
                                      
                                      
                                      342
                                      
                                      
                                      
                                      1,800
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      957
                                      
                                      
                                      
                                      355
                                      
                                      
                                      
                                      1,312Depreciation
      and Amortization
                                      
                                      
                                      —
                                      
                                      
                                      
                                      92
                                      
                                      
                                      
                                      1,593
                                      
                                      
                                      
                                      1,685
                                      
                                      
                                      
                                      —
                                      
                                      
                                      
                                      87
                                      
                                      
                                      
                                      193
                                      
                                      
                                      
                                      280Total
      Operating Expenses
                                      
                                      $
                                      2,641
                                      
                                      
                                      $
                                      2,889
                                      
                                      
                                      $
                                      4,639
                                      
                                      
                                      $
                                      10,169
                                      
                                      
                                      $
                                      1,480
                                      
                                      
                                      $
                                      2,650
                                      
                                      
                                      $
                                      7,139
                                      
                                      
                                      $
                                      11,269
 
 Six Months Ended March
      31,(In
      Thousands)
                                    
                                    2009
                                    
                                    
                                    2008(unaudited)
                                    
                                    Corporate
                                    
                                    
                                    Cable
                                    
                                    
                                    DeWind
                                    
                                    
                                    Total
                                    
                                    
                                    Corporate
                                    
                                    
                                    Cable
                                    
                                    
                                    DeWind
                                    
                                    
                                    TotalOfficer
      Compensation
                                    
                                    $
                                    1,756
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    1,756
                                    
                                    
                                    $
                                    605
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    —
                                    
                                    
                                    $
                                    605General
      and Administrative
                                    
                                    
                                    3,127
                                    
                                    
                                    
                                    1,340
                                    
                                    
                                    
                                    3,209
                                    
                                    
                                    
                                    7,676
                                    
                                    
                                    
                                    2,222
                                    
                                    
                                    
                                    861
                                    
                                    
                                    
                                    2,912
                                    
                                    
                                    
                                    5,995Research
      and Development
                                    
                                    
                                    —
                                    
                                    
                                    
                                    1,411
                                    
                                    
                                    
                                    3,221
                                    
                                    
                                    
                                    4,632
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    1,959
                                    
                                    
                                    
                                    7,495
                                    
                                    
                                    
                                    9,454Sales
      and Marketing
                                    
                                    
                                    —
                                    
                                    
                                    
                                    2,747
                                    
                                    
                                    
                                    881
                                    
                                    
                                    
                                    3,628
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    1,668
                                    
                                    
                                    
                                    699
                                    
                                    
                                    
                                    2,367Depreciation
      and Amortization
                                    
                                    
                                    —
                                    
                                    
                                    
                                    181
                                    
                                    
                                    
                                    1,773
                                    
                                    
                                    
                                    1,954
                                    
                                    
                                    
                                    —
                                    
                                    
                                    
                                    160
                                    
                                    
                                    
                                    673
                                    
                                    
                                    
                                    833Total
      Operating Expenses
                                    
                                    $
                                    4,883
                                    
                                    
                                    $
                                    5,679
                                    
                                    
                                    $
                                    9,084
                                    
                                    
                                    $
                                    19,646
                                    
                                    
                                    $
                                    2,827
                                    
                                    
                                    $
                                    4,648
                                    
                                    
                                    $
                                    11,779
                                    
                                    
                                    $
                                    19,254
 
 OFFICER
COMPENSATION. Officer compensation represents CTC corporate expenses and
consists primarily of salaries, consulting fees, and the stock-based
compensation for options issued to officers of the Company. Officer compensation
increased $0.7 million or 188.6% in the current quarter from $0.3 million for
the quarter ended March 31, 2008, and increased $1.1 or 192.5% in the current
six months from $0.6 million for the six months ended March 31,
2008.  The increase for the three and six months is due to increased
stock-compensation as compared to prior year.
 
 GENERAL
AND ADMINISTRATIVE EXPENSES. General and administrative expenses consisted
primarily of salaries and employee benefits for administrative personnel,
facilities costs, stock listing fees, insurance expenses, legal, professional
and consulting expenses, and expenses related to reserves for uncollectible
receivables. G&A expense increased $0.6 million or 20.6% in the current
quarter from $3.0 million for the quarter ended March 31, 2008, and increased
$1.7 million or 28.0% in the current six months from $6.0 million for the six
months ended March 31, 2008. The increase in G&A expenses for the quarter is
due to a $0.2 million increase in stock compensation, $0.3 million in additional
corporate costs, and a net increase of $0.1 million for the Cable and DeWind
segments.  The increase in G&A expenses for the six months is due
primarily to a $0.4 million increase in stock compensation, $0.6 million in
additional corporate costs primarily from increased professional and public
relations fees, $0.5 million increase in Cable G&A expenses due to
litigation costs,  and $0.2 million in additional DeWind G&A
expenses.
  RESEARCH
AND DEVELOPMENT EXPENSES. Research and development expenses consisted primarily
of salaries for engineers, and expenses for consultants, recruiting, supplies,
equipment, and facilities related to engineering projects to enhance and extend
our composite materials intellectual property offerings, to complete our DeWind
D8.2 development and prototypes, and our composite materials product technology
and production processes.
 
 Research
and development expenses decreased $4.3 million or 67.9% in the current quarter
from $6.3 million for the quarter ended March 31, 2008 and decreased $4.8
million or 51.0% in the current six months from $9.4 million for the six months
ended ended March 31, 2008. The current quarter decrease is due primarily to
lower US prototype costs, blade development and cold weather package costs of
$4.0 million compared to prior year, and lower Cable research and development
costs of $0.4 million due primarily to reduced material testing and
corresponding outside professional service costs.  The six month
decrease is due to primarily to the same reasons above, with an additional six
month reduction of $0.5 million over the current quarter.
 
 SALES AND
MARKETING EXPENSE. Sales and marketing expense consisted primarily of salaries
and commissions for sales and marketing personnel, expenses for consultants,
equipment, travel, and printed marketing literature and sales materials. Sales
and Marketing expenses increased $0.5 million or 37.2% in the current quarter
from $1.3 million in the quarter ended March 31, 2008, and
increased  $1.3 million or 53.3% in the current six months from $2.4
million in the six months ended March 31, 2008. The current quarter increase of
$0.5 million included $0.3 million increase in stock compensation charges and
$0.3 million due to increases in Cable sales and marketing expenses caused by
additional US and International headcount related expenses and expenses related
to increased marketing efforts for our website enhancement and sales collateral
changes, offset by a decrease in DeWind sales and marketing expenses of $0.1
million.  The six month increase of $1.3 million included $0.8 million
increase in stock compensation charges and $0.8 million due to increases in
Cable sales and marketing expenses due to additional US and International
headcount related expenses and expenses related to increased marketing efforts
for our website enhancement and sales collateral changes, offset by a decrease
in DeWind sales and marketing expenses of $0.2 million.
  34
 
 DEPRECIATION
& AMORTIZATION EXPENSE. Depreciation expense consisted of depreciation on
capitalized equipment, leasehold improvements, and other capital assets and
amortization of acquired intangibles. The depreciation and amortization expense
increased by $1.4 million or 500.9% for the current quarter from $0.3 million
for the quarter ended March 31, 2008 and increased by $1.1 million or 134.6% for
the current six months from $0.8 million for the six months ended March 31,
2008.  The increase for the quarter and six months was due primarily
to amortization of intangibles from our DeWind segment of $1.5 million related
to our technology transfer agreements.
 
 INTEREST
EXPENSE. Interest expense consists of interest paid and payable on the Company's
capital lease obligations, the cash interest payable on Company’s Debentures and
Notes and the amortization of the Convertible Note discount recorded for the
value of the warrants and conversion features issued in conjunction with the
Convertible Notes. Total interest expense decreased slightly by $0.1 million or
19.7% in the current quarter from $0.6 million in the quarter ended March 31,
2008 and decreased $0.5 million or 37.0% in the current six months from $1.5
million in the six months ended March 31, 2008. The decrease in the current
quarter and six months is primarily due to lower interest on lower debt balances
of the remaining $9.0 million in principal on our February, 2007 Convertible
Notes and a reduction to zero of interest on capital lease obligations that were
repaid in May, 2008.
  35
  INCOME
TAXES. We made no provision for income taxes in the three and six months ending
March 31, 2009 due to net losses incurred except for minimum tax
liabilities.  We have determined that due to our continuing operating
losses as well as the uncertainty of the timing of profitability in future
periods, we should fully reserve our deferred tax assets. As of March 31, 2009,
our deferred tax assets continued to be fully reserved. We will continue to
evaluate, on a quarterly basis, the positive and negative evidence affecting the
realization of our deferred tax assets.
 
 Net
Loss
 
 Our net
income (losses) may be summarized as follows:
  Three Months Ended March
      31,
                                
                                
                                Six Months Ended March
      31,(In
      Thousands)
                                  (unaudited)
                                
                                2009
                                
                                
                                2008
                                
                                
                                2009
                                
                                
                                2008Corporate
                                
                                $
                                (3,091
                                )
                                
                                $
                                (1,996
                                )
                                
                                $
                                (5,784
                                )
                                
                                $
                                (4,156
                                )Cable
                                
                                
                                (737
                                )
                                
                                
                                131
                                
                                
                                
                                (2,249
                                )
                                
                                
                                2,305Dewind
                                
                                
                                (6,825
                                )
                                
                                
                                (9,478
                                )
                                
                                
                                (10,956
                                )
                                
                                
                                (16,852
                                )Total
                                
                                $
                                (10,653
                                )
                                
                                $
                                (11,343
                                )
                                
                                $
                                (18,989
                                )
                                
                                $
                                (18,703
                                )
 Our net
loss decreased $0.7 million or 6.1% in the current quarter from $11.3 million
for the quarter ended March 31, 2008, and increased $0.3 million or 1.5% in the
current six months from $18.7 million for the six months ended March 31, 2008.
The increase for the quarter was due primarily to $3.4 million gross margin
decreases, primarily in the DeWind operations due to inventory reserves and
additional provisions for contract losses, offset by operating expense decreases
of $1.1 million, primarily caused by $1.3 million in increased stock
compensation charges, $1.4 million in increased depreciation and amortization
expense, offset by a $4.0 million decrease in research and development expense
related to decreased US prototype, blade development and cold weather package
costs, a $0.1 million decrease in interest expense, and a reduction of $2.9
million in losses related to discontinued operations of DeWind related
businesses.  The increase for the six months was due primarily to $5.9
million gross margin decreases, primarily in the DeWind operations due to
inventory reserves and additional provisions for contract losses, operating
expense increases of $0.4 million, primarily caused by $2.6 million in increased
stock compensation charges, $1.1 million in increased depreciation and
amortization expense, offset by a $4.0 million decrease in research and
development expense related to decreased US prototype, blade development and
cold weather package costs, a $0.6 million decrease in interest expense, and a
reduction of $5.4 million in losses related to discontinued operations of DeWind
related businesses.
  36
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 Since
inception, our principal sources of working capital have been private debt
issuances and equity financings.
 
 For the
six months ended March 31, 2009, we had a net loss from continuing operations of
$19.0 million. At March 31, 2009 we had $3.5 million of cash and cash
equivalents, which represented a decrease of $19.1 million from September 30,
2008. The increase was due to cash used in operations of $18.9 million,
cash used in investing activities for the purchase of property, plant and
equipment of $1.4 million, offset by a favorable Euro exchange rate providing
$1.3 million.
 
 Cash
used in operations during the six months ended March 31, 2009 of $18.9
million was the result of operating losses, offset by depreciation,
amortization, and non-cash compensation expenses and working capital
requirements, most significantly related to the purchase of turbine inventory
parts and payments on accounts payable related to those parts, offset by
additional cash receipts for deferred revenue.
 
 We
anticipate that sales of our ACCC conductor will not be sufficient to sustain
our newly combined operations including the DeWind segment without sufficient
wind turbine orders with sizable customer advance payments of cash and further
anticipate that we will continue to incur consolidated net losses due to our
costs exceeding our revenues for an indefinite period of time. Further, our cash
flows are reliant upon the payment of several large invoices from international
customers and the payment of cash advances from turbine customers. If existing
cash and cash generated from operations are insufficient to satisfy our
liquidity requirements, we may seek to raise additional capital through
issuances of equity or debt securities.
 
 As
described above, we have also engaged the services of RBS Securities to obtain
additional cash funding into our DeWind business as well as financing for
DeWind’s joint venture wind farm projects.
  CAPITAL
EXPENDITURES
 
 The
Company does not have any material commitments for capital
expenditures.
 
 EFFECTS
OF INFLATION
 
 We are
subject to inflation and other price risks arising from price fluctuations in
the market prices of the various raw materials that we use to produce our
products including the price of aluminum and steel.
 
 Whenever
possible, we manage price risks through cost containment measures. For our CTC
Cable business, we anticipate passing through the risk of market fluctuations of
the price of aluminum to our customers, as is the practice in the cable
industry, and we do not believe that inflation risk or other price risks will be
material to our CTC Cable business or Corporate overhead results of operations,
financial position, or cash flows.
 
 For our
DeWind business, during the year ended September 30, 2008 and the six months
ended March 31, 2009, there were substantial fluctuations in the turbine
component costs driven in part by increased demand and in part due to raw
materials increases that we were unable to pass through to our customers and
which resulted in losses on several turbine supply contracts. These losses
primarily related to fixed price contracts that were signed in 2007. Our current
turbine supply contracts incorporate price escalators that allow a full or
partial pass-through of additional materials price increases to our
customers.
 
 OFF
BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS
 
 There are
no off balance sheet arrangements. The following table summarizes our
contractual obligations (including interest expense) and commitments as of March
31, 2009:
 
 Contractual Obligations
                          
                          Total
                          
                          
                          Less than 1
                            year
                          
                          
                          1-3 years
                          
                          
                          More than 3
                            YearsDebt
      Obligations
                          
                          $
                          8,288
                          
                          
                          $
                          8,288
                          
                          
                          $
                          —
                          
                          
                          $
                          —Operating
      Lease Obligations
                          
                          $
                          2,726
                          
                          
                          $
                          1,734
                          
                          
                          $
                          992
                          
                          
                          
                          —Purchase
      Commitments
                          
                          $
                          15,500
                          
                          
                          $
                          15,500
                          
                          
                          $
                          —
                          
                          
                          $
                          —
 
 Included
in purchase commitments are approximately $3.5 million of additional accrued and
unpaid commitments to a vendor to complete a sizable portion of the balance of
the plant for the first 10 megawatt wind farm for the wind farm joint
venture.
 
 Not
included in the table above are amounts included on our balance sheet under
warranty liabilities. Our turbine warranty generally provides for payment of
services for turbine related repairs as well as provides for compensation for
availability penalties. Availability penalties are wind generating revenue
guarantees payable in cash to wind farm operators if their turbine under
warranty fails to meet minimum wind generation levels. As of March 31, 2009, we
had accrued availability penalties relating to incurred and measured wind
generating guarantees totaling $1,039,207 which are payable upon the resolution
of the underlying claims. We currently classify all such payments as less than
one year.
  37
 
 ITEM
3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 Our
exposure to market risk relates primarily to our cash balances and the effect
that changes in interest rates have on the interest earned on that portfolio.
Our convertible notes and debentures bear a fixed rate of interest.
 
 As of
March 31, 2009, we did not hold any derivative financial instruments for
speculative or trading purposes. The primary objective of our investment
activities is the preservation of principal while maximizing investment income
and minimizing risk. As of March 31, 2009, we had $3.5 million in cash, cash
equivalents and short-term investments that mature in three months or less. Due
to the short duration of these financial instruments, we do not expect that a
change in interest rates would result in any material loss to our investment
portfolio.
 
 We are
subject to price risks arising from exchange rate fluctuations in the functional
currency of our European subsidiaries, primarily the Euro and the UK Sterling.
We currently do not hedge the exchange rate risk related to our assets and
liabilities and do not hedge the exchange rate risk related to expected future
operating expenses. For our future sales, we do inherently hedge against the
exchange rate risk for that portion of our turbine supply chain purchased in
Euros through a banding process in our turbine supply agreements (TSAs). In our
TSAs with prices denominated in US Dollars, we typically set an exchange rate
for the Euro. For exchange rate changes greater than approximately a 5% trading
range, price adjustments are made for the final turbine purchase price when the
closing exchange rate falls outside of the trading band.
 
 ITEM
4: CONTROLS AND PROCEDURES
 
 Based on
an evaluation under the supervision and with the participation of the Company's
management, including the Chief Executive Officer, the Chief Financial Officer
and the Chief Operating Officer, the Company's principal executive officer and
principal financial officer have concluded that the Company's disclosure
controls and procedures (as defined under the Securities Exchange Act of 1934,
as amended (Exchange Act)) were not effective as of March 31, 2009 to ensure
that information required to be disclosed by the Company in reports that it
files or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms.
 
 During
management's review of our internal control structure under Sarbanes-Oxley
section 404, for the fiscal year ending September 30, 2008, we determined the
following to be material weaknesses:
 
 Entity
level Processes and weaknesses. As of September 30, 2008, the following material
weaknesses existed related to general processes and weaknesses for the entity
taken as a whole:
 
 ·
              Proper
      segregation of duties and inadequate training did not exist as well as an
      inadequate number of accounting and finance personnel staff at fiscal year
      end.
 
 ·
              The
      Company had a two member Audit Committee, a two member Compensation
      Committee, and has had a designated financial expert on the Board of
      Directors since January of 2006. Until December, 2005 we only had a two
      person non-independent Board of Directors and from January, 2006 through
      November, 2006 we had one independent director and two non-independent
      directors comprising our Board of Directors. In October, 2007 we added one
      additional independent director who also serves on the Audit and
      Compensation committees.
 
 ·
              The
      Company did not have an independent internal audit function due to the
      small size of the organization.
 
 These
material weaknesses related to the entity as a whole affect all of our
significant accounts and could result in a material misstatement to our annual
or interim consolidated financial statements that would not be prevented or
detected.
 
 Information
Technology Controls (ITCs). ITCs are policies and procedures that relate to many
applications and support the effective functioning of application controls by
helping to ensure the continued proper operation of information
systems.
 
 Information
Technology General Controls (ITGC'S). ITGC'S include four basic information
technology (IT) areas relevant to internal control over financial reporting:
program development, program changes, computer operations, and access to
programs and data. As of September 30, 2008, a material weakness existed
relating to our information technology general controls, including ineffective
controls relating to access to programs and data including (1) user
administration, (2) application and system configurations, and (3) periodic user
access validation
 
 Inventory
Processes. The following material weaknesses existed related to ineffective
controls over our inventory processes:
  38
 
 ·
              Perpetual
      Inventory records: Ineffective controls to (a) accurately record the raw
      materials inventory moved out of inventory stores and into manufacturing
      production and later into finished goods, (b) accurately record
      manufacturing variances, (c) properly reconcile in sufficient detail all
      inventories for turbine parts owned by the Company but held at third
      parties.
 
 Procure
to Pay process. During our fiscal 2008 assessment of the Company’s procure to
pay (cash payments and disbursements) cycle, we determined that there were
numerous significant control deficiencies relating primarily to inventory
purchasing and related purchasing and payable system control deficiencies. If
assessed on an individual basis, none of these deficiencies were determined to
be material weaknesses. However, taken in the aggregate we believe the following
constitute a material weakness:
 
 i) There
were inadequate system driven matching controls over the receiving function for
inventory parts and supplies. Receiving tolerances for inventory
related pricing and quantities received are not established
systematically.
 
 ii) There
were inadequate vendor management duties and responsibilities during the
year
 
 iii)
There was a lack of sufficient purchasing reports for management
review.
 
 Equity
Administration Process. During our 2008 assessment, we noted a lack of
segregation of duties over tracking and recording stock related
activity.
 
 Accounting
personnel. During our 2008 assessment, we determined that we do not have a
sufficient number of accounting personnel trained in Generally Accepted
Accounting Principles working in our DeWind subsidiary.
 
 Project
review process. We determined that we had an inadequate review process over
turbine supply contract review and the turbine project accounting system was
inadequate.
 
 During
the six months ended March 31, 2009 and through the date of this report, the
Company improved the internal control structure and addressed the identified
material weaknesses as follows:
 
 ·
              In
      January, 2009 the Company appointed a third independent Director who will
      serve on the Audit and Compensation Committees as well as to provide a
      majority of independent directors on our five person Board of
      Directors.
 
 ·
              In
      October, 2008, the Company completed an important phase of the upgrade to
      its accounting and manufacturing IT systems to more adequately track and
      maintain inventory and to automate manufacturing and inventory
      costing.
 
 ·
              The
      Company improved its IT processes surrounding security of information and
      user administration and access validation
  procedures.
 
 ·
              Additional
      accounting and finance personnel were added in late fiscal 2008 to address
      proper segregation of duties and inadequate
  training.
 
 ·
              The
      Company implemented a complete and thorough project accounting review on a
      quarterly basis which is reviewed by senior management and the principal
      accounting officer.
 
 The
Company's management has identified the steps necessary to address the material
weaknesses existing in 2008 described above and that remain as a March 31, 2009,
as follows:
 
 (1)
Hiring additional accounting and operations personnel and engaging outside
contractors with technical accounting expertise, as needed, and reorganizing the
accounting and finance department to ensure that accounting personnel with
adequate experience, skills and knowledge relating to complex, non-routine
transactions are directly involved in the review and accounting evaluation of
our complex, non-routine transactions;
 
 (2)
Involving both internal accounting and operations personnel and outside
contractors with technical accounting expertise, as needed, early in the
evaluation of a complex, non-routine transaction to obtain additional guidance
as to the application of generally accepted accounting principles to such a
proposed transaction;
 
 (3)
Documenting to standards established by senior accounting personnel and the
principal accounting officer the review, analysis and related conclusions with
respect to complex, non-routine transactions;
 
 (4)
Requiring senior accounting personnel and the principal accounting officer to
review complex, non-routine transactions to evaluate and approve the accounting
treatment for such transactions;
  39
 
 (5)
Evaluating the internal audit function in relation to the Company's financial
resources and requirements. We expect to pursue a strategy of outsourcing our
internal audit function in fiscal 2009;
 
 (6)
Develop and maintain an effective inventory reconciliation process between
DeWind’s accounting records and TECO Westinghouse records.
 
 (7)
Invest in additional enhancements to our IT systems including enhancements to
processing manufacturing and inventory transactions, equity administration
processes, and security over user access and administration.
 
 The
Company began to execute the remediation plans identified above in the first
fiscal quarter of 2009. These remediation efforts are expected to continue
through fiscal 2009.
 
 Except
for the beginning of the transition of control of our DeWind inventory to
TECO/Westinghouse in the fourth fiscal quarter of 2008 and which continued into
the first fiscal quarter of 2009 as as noted above, there were no changes in our
internal control over financial reporting during the year ended September 30,
2008 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting, other than the remediation
measures which are described above.
 
 SingerLewak
LLP, our independent registered public accounting firm, has audited management's
assessment of the effectiveness of the Company's internal control over financial
reporting as of September 30, 2008 as stated in their report which appears in
the Annual Report on Form 10-K/A filed with Securities and Exchange Commission
on March 9, 2009.
 
 Evaluation
of Effectiveness of Disclosure Controls and Procedures
 
 Under the
supervision and with the participation of our management, including our Chief
Executive Officer/ and our Chief Financial Officer, we evaluated the
effectiveness of our disclosure controls and procedures, as such term is defined
under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended. Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and procedures were
ineffective as of March 31, 2009 because of the material weaknesses identified
above.
 
 PART
II - OTHER INFORMATION
  ITEM
1 - LEGAL PROCEEDINGS
 
 There
have been no material changes to the Legal Proceedings described in Form 10-K/A
to be filed with the Securities and Exchange Commission on March 9, 2009, except
as noted in Footnote 13.
  ITEM
1A. RISK FACTORS
 
 The
following risk factors have changed or have been updated for recent information
as compared to the Risk Factors listed in Form 10-K/A filed with the Securities
and Exchange Commission on March 9, 2009. Such risk factors should be read in
conjunction with the risk factors listed in such Form 10-K/A.
 
 WE EXPECT
FUTURE LOSSES AND OUR FUTURE PROFITABILITY IS UNCERTAIN.
 Prior to
acquiring Transmission Technology Corporation, or TTC, in November 2001, we were
a shell corporation having no operating history, revenues from operations, or
assets since December 31, 1989. We have recorded approximately $56 million in
ACCC product sales since inception and we have $56 million in Turbine and
related services revenues since the acquisition of DeWind on July 3, 2006.
Historically, we have incurred substantial losses and we may experience
significant quarterly and annual losses for the foreseeable future. We may never
become profitable. If we do achieve profitability, we may not be able to sustain
or increase profitability on a quarterly or annual basis. We expect the need to
significantly increase our product development and product prototype and
equipment prototype production expenses, as necessary. As a result, we will need
to generate significant revenues and earnings to achieve and maintain
profitability.
 
 WE HAVE A
SIGNIFICANT PORTION OF OUR CURRENT REVENUES AND ORDER BOOKINGS CONCENTRATED WITH
A SMALL NUMBER OF CUSTOMERS.
 For both
our cable and turbine business units, revenues recognized over the past two
fiscal quarters and order bookings received to date are concentrated with a very
small number of customers, primarily our Cable customer in China, a Cable
customer in Poland, and for turbine related contracts, orders to our Chinese
licensees, Czech customer, and a customer in Argentina. The loss of one or more
of our customers or material changes to the contracts with or payment terms of
these customers may result in a significant business interruption through
reduced revenues, reduced cash flows, delays in revenues or cash flows and such
delays or reductions could have a material impact on the future revenue growth
and profitability of the Company.
  40
 
 OUR
INDEPENDENT AUDITORS HAVE ISSUED A QUALIFIED REPORT AS OF AND FOR THE YEAR ENDED
SEPTEMBER 30, 2008 WITH RESPECT TO OUR ABILITY TO CONTINUE AS A GOING CONCERN,
AND WE MAY NEVER ACHIEVE PROFITABILITY.
 Since
inception, our accountants have issued a report relating to our audited
financial statements which contains a qualification with respect to our ability
to continue as a going concern because, among other things, our ability to
continue as a going concern is dependent upon our ability to generate profitable
operations in the future or to obtain the necessary financing to meet our
obligations and repay our liabilities from normal business operations when they
come due. There is no guarantee that the products will be accepted or provide a
marketable advantage, and therefore, no guarantee that the commercialization
will ever be profitable. For the six months ended March 31, 2009, we had a net
loss from continuing operations of $19.0 million and negative cash flows from
operations of $18.9 million. For the fiscal year ended September 30, 2008, we
had a net loss from continuing operations of $43.3 million and negative cash
flows from operations of $51.4 million. For the fiscal year ended September 30,
2007, we had a net loss from continuing operations of $30.6 million and negative
cash flows from operations of $22.2 million. For the fiscal year ended September
30, 2006, we had a net loss from continuing operations of $26.6 million and
negative cash flows from operations of $6.5 million.
 
 IF WE
CANNOT RAISE CAPITAL WHEN IT IS NEEDED, WE MAY BE REQUIRED TO REDUCE OR SUSPEND
OPERATIONS OR GO OUT OF BUSINESS ALTOGETHER FOR ONE OR MORE OF OUR OPERATING
SEGMENTS.
 We
anticipate that for the foreseeable future, the sales of our ACCC cable or
DeWind turbine businesses may not be sufficient enough to sustain our current
level of operations on a consolidated basis and that we will continue to incur
net losses due to our costs exceeding our revenues for our DeWind business. For
these reasons, we believe that we will need to either raise additional capital,
to take on a strategic investment partner, or a full or partial sale of DeWind
to fund the operations of the business or until such time, if ever, as we become
cash-flow positive. It is highly likely that we will continue to seek to raise
money through public or private sales of our securities, debt financing or
short-term loans, corporate collaborations, asset sales, or a combination of the
foregoing. Our ability to raise additional funds in the public or private
markets will be adversely affected if the results of our business operations are
not favorable, if any products developed are not well-received or if our stock
price or trading volume is low. Additional funding may not be available on
favorable terms to us, or at all. To the extent that money is raised through the
sale of our securities, the issuance of those securities could result in
dilution to our existing stockholders. If we raise money through debt financing,
we may be required to secure the financing with all of our business assets,
which could be sold or retained by the creditor should we default in our payment
obligations. If we cannot sustain our working capital needs with financings or
if available financing is prohibitively expensive, we may not be able to
complete the commercialization of our products. As a result, we may be required
to discontinue our operations without obtaining any value for our products,
which could eliminate stockholder equity, or we could be forced to relinquish
rights to some or all of our products in return for an amount substantially less
than we expended.
 
 WE HAVE
SUBSTANTIAL EXPOSURE TO EXCHANGE RATE RISK AS WE PURCHASE A SUBSTANTIAL QUANTITY
AND VALUE OF TURBINE PARTS FROM EUROPEAN BASED SUPPLIERS AND WE HAVE SIGNIFICANT
LIABILITIES DENOMINATED IN FOREIGN CURRENCIES.
 
 Over the
past 24 months, the US Dollar has fluctuated against foreign currencies, notably
the Euro. When the Company purchased the DeWind subsidiary in July, 2006, the
Dollar to Euro exchange rate was approximately $1.29 to the Euro. As of June 30,
2008 the exchange rate was $1.58 to the Euro for a 22.5% decline in the dollar
from July 3, 2006 to June 30, 2008. The Euro subsequently devalued to $1.33 as
of March 31, 2009 and to $1.33 as of May 6, 2009. We currently do not hedge our
foreign currency risk.  We currently purchase significantly all of our
turbine components and parts from overseas suppliers, primarily in Europe and a
significant percentage of our parts are payable in Euros. We have contractual
commitments with certain key suppliers that call for payment denominated in the
Euro. We also have contractual commitments under past warranties that call for
payments in Euros and we conduct a substantial portion of our DeWind development
efforts in Germany. To the extent that the Dollar to Euro exchange rates change
significantly, any such change could have a material impact on the operations
and financial results of the company.
 
 THE
COMPANY HAS HAD A HISTORY OF MATERIAL WEAKNESSES IN THE ACCOUNTING, FINANCIAL,
AND BUSINESS CONTROL STRUCTURE AND THE ACQUISITION OF EU ENERGY/DEWIND HAS
RESULTED IN ADDITIONAL SARBANES-OXLEY ISSUES AND MATERIAL WEAKNESSES IN THE
CONTROL STRUCTURE.
 
 The
Company has determined that the disclosure and internal control structure of the
consolidated entity has material weaknesses that will require the investment of
additional resources to mitigate and resolve. EU Energy was a UK company that
was not previously subject to the requirements of the Sarbanes- Oxley Act of
2002. The operations of EU Energy are material to the results of the
post-acquisition combined entity and management’s initial assessment of the EU
Energy control structure has identified several additional key material control
weaknesses that may require the investment of additional resources. The Company
may be required to hire additional employees, consult with expert advisors,
invest in Informational Technology, and provide for additional Board oversight
including additional independent directors, and audit committee, and an internal
audit function. These remediation efforts may consume additional financial
resources resulting in additional expense to the company.  These
weaknesses may also lead to errors with our financial results. For instance, in
February 2009, the Company concluded that errors were made in its wind turbine
contract review procedures and that contract losses of $7,960,000 should have
been recorded for expected costs in excess of expected proceeds for turbines
that were shipped during the quarter ended December 31, 2008. Both the expected
costs and the expected proceeds were determinable and estimable as of the year
ended September 30, 2008, and a contract loss should have been
recorded.
  41
 
 Risks
Related To Our Securities
 
 THE PRICE
OF OUR COMMON STOCK IS VOLATILE. VOLATILITY MAY INCREASE IN THE FUTURE, WHICH
COULD AFFECT OUR ABILITY TO RAISE CAPITAL IN THE FUTURE OR MAKE IT DIFFICULT FOR
INVESTORS TO SELL THEIR SHARES.
 The
market price of our common stock may be subject to significant fluctuations in
response to our operating results, announcements of new products or market
expansions by us or our competitors, changes in general conditions in the
economy, the financial markets, the electrical power transmission and
distribution industry, or other developments and activities affecting us, our
customers, or our competitors, some of which may be unrelated to our
performance. The sale or attempted sale of a large amount of common stock into
the market may also have a significant impact on the trading price of our common
stock. During the last 12 months, the closing bid prices for our common stock
have fluctuated from a high of $1.36 to a low of $0.16. Fluctuations in the
trading price or liquidity of our common stock may adversely affect our ability
to raise capital through future equity financings.
 
 AS OF MAY
6, 2009, 728,000 COMMON SHARES ARE ISSUABLE UPON EXERCISE OF ALL OUTSTANDING
OPTIONS, WARRANTS AND CONVERSION OF CONVERTIBLE NOTES FOR LESS THAN THE MARKET
PRICE OF $0.27 PER SHARE. CASH PROCEEDS RESULTING FROM THE FULL EXERCISE AND
CONVERSION OF THESE SECURITIES WOULD BE APPROXIMATELY $182,000. WHILE CURRENT
MARKET PRICES ARE BELOW SUBSTANTIALLY ALL OF OUR CONVERTIBLE EQUITY SECURITIES,
INCLUDING OPTIONS AND WARRANTS, A SUBSTANTIAL NUMBER OF OPTIONS WERE RECENTLY
RE-PRICED TO $0.35 PER SHARE.  A PRICE INCREASE ABOVE THAT STRIKE
PRICE WOULD RESULT IN APPROXIMATELY 22,000,000 OPTIONS EXERCISABLE AT $0.35 PER
OPTION OF WHICH FULL EXERCISE WOULD INCREASE THE OUTSTANDING COMMON SHARES BY
9.5% TO APPROXIMATELY 309,988,000 SHARES.
 
 The
exercise price or conversion price of outstanding options, warrants and
convertible notes may be less than the current market price for our common
shares. In the event of the exercise of these securities, a shareholder could
suffer substantial dilution of his, her or its investment in terms of the
percentage ownership in us as well as the book value of the common shares held.
At the May 6, 2009 market price of $0.27 per share, 728,000 shares would be
exercisable or convertible for less than the market prices. Full exercise and
conversion of these below market shares would result in us receiving cash
proceeds of $182,000 and would increase the outstanding common shares to
approximately 288,716,000 shares.  While current market prices are
below substantially all of our convertible equity securities, during the quarter
ended March 31, 2009 most employee and contractor options were repriced to $0.35
per option.  As of March 31, 2009 approximately 22,000,000 options
were vested and exercisable at $0.35 or less.  Full exercise of these
options would increase the outstanding common shares by 9.5% to approximately
309,988,000 shares with proceeds of approximately $7.6 million if fully
exercised for cash.
 
 ITEM
2—UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
 None
 
 ITEM
3 - DEFAULTS ON SENIOR SECURITIES
 
 None
 
 ITEM
4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  None
  ITEM
5 - OTHER INFORMATION
  Departure
of Directors or Certain Officers; Election of Directors; Appointment of Certain
Officers; Compensatory Arrangements of Certain Officers and
Directors
 
 On
January 20, 2009, the Board of Directors of the Registrant elected Michael K.
Lee (“Lee”) as a new member of the Board of Directors. Lee was appointed for a
1-year term subject to reelection by the Shareholders for 2 further terms of
1-year on the same terms and conditions. Lee was also appointed to the Audit
Committee and the Compensation Committee with immediate effect. In remuneration
for his services, Lee will receive $4,000 per month during his term as a
Director. He was also granted 500,000 options to purchase shares of common stock
of the Registrant at a price of $0.35 per option. These options will vest over
36 months with the first portion of 41,667 vesting 3 months after the grant date
and thereafter an additional portion of 41,667 will vest at 3-monthly intervals
until finally the last portion of 41,663 will vest on the 3-year anniversary of
the grant.
 
 There are
no family relationships among the directors or executive
officers.
  42
 
 There are
no transactions, since the beginning of the Company’s last fiscal year, or any
currently proposed transaction, in which the Company was or is to be a
participant and the amount involved exceeds the lesser of $120,000 or one
percent of the average of the Company’s total assets at year-end for the last
three completed fiscal years, and in which any related person had or will have a
direct or indirect material interest.
 
 Other
than the director agreement described above and ancillary arrangements mentioned
there under, there is no material plan, contract or arrangement (whether or not
written) to which Mr. Lee is a party or in which he participates that is entered
into or material amendment in connection with the triggering event or any grant
or award to Mr. Lee or modification thereto, under any such plan, contract or
arrangement in connection with any such event.
 
 On
January 20, 2009 the Board of Directors of the Registrant elected to modify the
strike price for all employee, director, and management stock options to $0.35
per option.  On February 4, 2009 the respective directors and
executive officers of the Company ratified the revised option
agreements.  No changes were made to any vesting schedules for any of
the Directors and Officers.
 
 Options
outstanding as of re-pricing date subject to price adjustment to $0.35 per
option:
 
 Name
                        
                        Weighted
                          Average strike
                          price prior to re-
                          pricing
                        
                        
                        Total
                          Options
                          re-priced
                        
                        
                        Vested
                          Options
                          re-priced
                        
                        
                        Unvested
                          Options
                          re-pricedDirectors and OfficersBenton
      Wilcoxon
                        
                        $
                        1.13
                        
                        
                        
                        4,200,000
                        
                        
                        
                        1,333,333
                        
                        
                        
                        2,866,667Marvin
      Sepe
                        
                        $
                        1.18
                        
                        
                        
                        2,750,000
                        
                        
                        
                        833,333
                        
                        
                        
                        1,916,667Domonic
      Carney
                        
                        $
                        1.16
                        
                        
                        
                        2,250,000
                        
                        
                        
                        833,333
                        
                        
                        
                        1,416,667Robert
      Rugh
                        
                        $
                        1.45
                        
                        
                        
                        1,250,000
                        
                        
                        
                        166,667
                        
                        
                        
                        1,083,333Michael
      McIntosh
                        
                        $
                        1.10
                        
                        
                        
                        2,125,000
                        
                        
                        
                        1,047,568
                        
                        
                        
                        1,077,432Dean
      McCormick III
                        
                        $
                        1.09
                        
                        
                        
                        681,000
                        
                        
                        
                        428,586
                        
                        
                        
                        252,414John
      Mitola
                        
                        $
                        2.09
                        
                        
                        
                        500,000
                        
                        
                        
                        166,150
                        
                        
                        
                        333,850Total
      Directors & Officers
                        
                        $
                        1.20
                        
                        
                        
                        13,756,000
                        
                        
                        
                        4,808,970
                        
                        
                        
                        8,947,030
  43
 
 ITEM
6 - EXHIBITS
 
 EXHIBIT
INDEX
  Number
                    
                    Description3.1(1)
                    
                    Articles
      of Incorporation of the Company3.2(2)
                    
                    Certificate
      of Amendment to Articles of Incorporation3.2(3)
                    
                    Bylaws
      of Composite Technology Corporation, as modified January 6,
      200610.1(4)
                    
                    Letter
      and Option agreement by and between Composite Technology Corporation and
      Michael Lee10.2(5)
                    
                    Form
      of 2002 Non-Qualified Stock Compensation Plan Master Option
      Agreement10.3(5)
                    
                    Form
      of 2002 Non-Qualified Stock Compensation Plan Stock Option Notice of
      Modification and Reissuance10.4(5)
                    
                    Form
      of 2008 Stock Option Plan Stock Option Grant
  Notice10.5(5)
                    
                    Form
      of 2008 Stock Option Plan Master Option Agreement31.1(6)
                    
                    Rule
      13a-14(a) / 15d-14(a)(4) Certification of Chief Executive
      Officer31.2(6)
                    
                    Rule
      13a-14(a) / 15d-14(a)(4) Certification of Chief Financial
      Officer32.1(6)
                    
                    Section
      1350 Certification of Chief Executive Officer32.2(6)
                    
                    Section
      1350 Certification of Chief Financial
Officer
  (1)
Incorporated herein by reference to Form 10-KSB filed as a Form 10-KT with the
U. S. Securities and Exchange Commission on February 14, 2002.
 
 (2)
Incorporated herein by reference to Form 8-K filed with the U.S. Securities and
Exchange Commission on December 18, 2007.
 
 (3)
Incorporated herein by reference to Form 8-K filed with the U.S. Securities and
Exchange Commission on January 12, 2006.
 
 (4)
Incorporated herein by reference to Form 8-K filed with the U.S. Securities and
Exchange Commission on January 26, 2009.
  (5)
Incorporated herein by reference to Form 8-K filed with the U.S. Securities and
Exchange Commission on February 10, 2009.
  (6) Filed
herewith.
 44
  SIGNATURE
 
 Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant has
duly caused this Form 10-Q to be signed on its behalf by the undersigned,
thereunto duly authorized.
 
 COMPOSITE
TECHNOLOGY CORPORATION
 (Registrant)
 
 By: /s/ Benton H
      WilcoxonBenton
      H WilcoxonChief
      Executive
Officer
 
 May
11, 2009
  45