UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q
                                   (Mark One)
 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934

                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005

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


                       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 is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

YES [X] NO [ ]

Indicate the number of shares outstanding of the issuer's common stock as of
August 2, 2005

            CLASS                              NUMBER OF SHARES OUTSTANDING
            -----                              ----------------------------
   Common Stock, par value                          115,955,582 shares
       $0.001 per share
<PAGE>

================================================================================

                        COMPOSITE TECHNOLOGY CORPORATION
                  Form 10-Q for the Quarter ended June 30, 2005
                                Table of Contents

<TABLE>
<CAPTION>
                                                                                                     Page
                                                                                                     ----
<S>                                                                                                  <C>
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements                                                                            3
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations          20
Item 3 Quantitative and Qualitative Disclosures About Market Risk                                     46
Item 4 Controls and Procedures                                                                        46

PART II - OTHER INFORMATION
Item 1 Legal Proceedings                                                                              47
Item 2 Unregistered Sales of Equity Securities and the Use of Proceeds                                51
Item 3 Defaults Upon Senior Securities                                                                51
Item 4 Submission of Matters to a Vote of Security Holders                                            52
Item 5 Other Information                                                                              52
Item 6 Exhibits                                                                                       53
SIGNATURE                                                                                             55
INDEX TO EXHIBITS                                                                                     56
</TABLE>


                                        2
<PAGE>

ITEM 1

                          PART 1 - FINANCIAL STATEMENTS
                        COMPOSITE TECHNOLOGY CORPORATION
                                AND SUBSIDIARIES
                              DEBTOR IN POSSESSION
                          (DEVELOPMENT STAGE COMPANIES)
                      CONDENSED, CONSOLIDATED BALANCE SHEET
                                   (unaudited)
<TABLE>
<CAPTION>
                                                                         June 30, 2005         September 30,
                                                                         -------------         -------------
                                                                                                 2004
ASSETS                                                                                              restated
<S>                                                                                <C>                   <C>
CURRENT ASSETS
Cash and cash equivalents                                                $   2,408,824         $   2,930,615
Restricted Cash                                                                     --            10,010,060
Accounts receivable, net of reserve of $2,500,000 and $0                       566,145             2,501,994
Inventory                                                                    1,329,230               788,799
Prepaid expenses and other current assets                                      578,483               378,052
                                                                         -------------         -------------

Total current assets                                                         4,882,682            16,609,520

PROPERTY AND EQUIPMENT, net                                                  2,693,524             1,253,123
OTHER ASSETS                                                                   304,786               218,600
                                                                         -------------         -------------

TOTAL ASSETS                                                                $7,880,992           $18,081,243
                                                                         =============         =============

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable                                                              $764,672            $1,841,535
Accrued Interest                                                               135,714                    --
Accrued Payroll                                                                158,083               122,621
Liabilities subject to compromise                                            1,618,520                    --
Due to Affiliate                                                               100,000                    --
Deferred revenue                                                             1,128,364               564,750
Accrued officer compensation                                                        --               264,561
Deferred gain on sale of fixed assets                                           22,581                49,569
Lease obligation - current                                                     392,101               251,782
                                                                         -------------         -------------

Total current liabilities                                                    4,320,035             3,094,818
                                                                         -------------         -------------

LONG TERM LIABILITIES
Convertible notes, net of unamortized debt  discount                        15,000,000             8,901,106
Lease obligation - long-term                                                   550,627               482,600
                                                                         -------------         -------------

Total long-term liabilities                                                 15,550,627             9,383,706
                                                                         -------------         -------------

Total Liabilities                                                           19,870,662            12,478,524
                                                                         -------------         -------------

SHAREHOLDERS' EQUITY
Common stock, $.001 par value 200,000,000 shares authorized                    115,639               110,841
115,639,749 shares issued and outstanding
Deferred compensation - stock options                                        (137,100)             (362,925)
Additional paid-in capital                                                  36,461,229            32,294,159
Deficit accumulated during the development stage                          (48,429,438)          (26,439,356)
                                                                         -------------         -------------

Total shareholder's equity (Deficit)                                      (11,989,670)             5,602,719
                                                                         -------------         -------------

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                  $7,880,992           $18,081,243
                                                                         =============         =============
</TABLE>

The accompanying notes are an integral part of these financial statements


                                        3
<PAGE>

                        COMPOSITE TECHNOLOGY CORPORATION
                                AND SUBSIDIARIES
                              DEBTOR IN POSSESSION
                          (DEVELOPMENT STAGE COMPANIES)
                CONDENSED, CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE THREE MONTHS ENDED JUNE 30, 2005 AND 2004
                                   (UNAUDITED)
                FOR THE NINE MONTHS ENDED JUNE 30, 2005 AND 2004
                                   (UNAUDITED)
               AND FOR THE PERIOD FROM MARCH 28, 2001 (INCEPTION)
                                TO JUNE 30, 2005
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                                                   For the Period
                                                                                                                     from March
                                  Three Months         Three Months        Nine Months        Nine Months             28,2001
                                  ended June 30,       ended June 30,      ended June 30,     ended June 30,       (Inception) to
                                       2005                 2004                2005               2004             June 30, 2005
                                -------------------  -------------------  -----------------  -----------------    ------------------
                                   (unaudited)            Restated          (unaudited)          Restated
                                -------------------  -------------------  -----------------  -----------------    ------------------
                                                        (unaudited)                            (unaudited)           (unaudited)
<S>                             <C>                  <C>                  <C>                <C>                  <C>
Revenue:
     Product Sales              $               --   $               --   $         46,485   $             --     $          46,485
     Consulting Revenue                         --                   --                 --                 --             2,500,000
                                -------------------  -------------------  -----------------  -----------------    ------------------

Total Revenue                                   --                   --             46,485                 --             2,546,485

Cost of production sales sold                   --                   --             30,894                 --                30,894
Cost of consulting revenue                      --                   --                 --                 --               314,548
                                -------------------  -------------------  -----------------  -----------------    ------------------
Gross margin                                    --                   --             15,591                 --             2,201,043

OPERATING EXPENSES
Officer compensation                        60,000              116,923            186,838            302,258             1,626,738
General and administrative               3,191,177              739,501          4,574,014          2,308,137             9,611,300
Legal, professional, &                     857,514            1,778,528          5,021,930          2,600,781            16,382,152
consulting
Research and development                 1,806,087              644,983          4,025,487          2,623,968            11,485,960
Sales and Marketing                        287,974              185,585            793,216            751,423             3,414,508
Depreciation                               130,795               29,931            367,123             61,170               543,337
Reorganization Expense -                   272,830                   --            272,830                 --               272,830
Bankruptcy legal fees
                                -------------------  -------------------  -----------------  -----------------    ------------------

Total operating expenses                 6,606,377            3,495,451         15,241,438          8,647,737            43,336,825
                                -------------------  -------------------  -----------------  -----------------    ------------------

LOSS FROM OPERATIONS                   (6,606,377)          (3,495,451)       (15,225,847)        (8,647,737)          (41,135,782)
                                -------------------  -------------------  -----------------  -----------------    ------------------

OTHER INCOME /EXPENSE
Interest expense                         (459,150)             (14,728)        (1,993,939)           (14,875)           (2,408,503)
Interest income                             21,033                1,715             53,577              1,715                67,474
Gain on sale of assets                       3,841                3,280              8,097              3,280                17,573
Reorganization item - adjustment       (4,831,970)                   --        (4,831,970)                 --           (4,831,970)
to carrying value -
Convertible Debentures
Carrying value impairment
adjustment on investments in
other companies                                 --                   --                 --                 --             (138,230)
                                -------------------  -------------------  -----------------  -----------------    ------------------

Total other income/expense             (5,266,246)              (9,733)        (6,764,235)            (9,880)           (7,293,656)
                                -------------------  -------------------  -----------------  -----------------    ------------------

NET LOSS                             $(11,872,623)         $(3,505,184)      $(21,990,082)       $(8,657,764)         $(48,429,438)
                                ===================  ===================  =================  =================    ==================
BASIC AND DILUTED LOSS PER
SHARE                                      $(0.10)              $(0.03)            $(0.19)            $(0.09)
                                ===================  ===================  =================  =================

TOTAL BASIC AND DILUTED LOSS
PER SHARE AVAILABLE TO COMMON
SHAREHOLDERS                               $(0.10)              $(0.03)            $(0.19)            $(0.09)
                                ===================  ===================  =================  =================

WEIGHT-AVERAGE COMMON SHARES
OUTSTANDING                            114,555,791          102,948,012        113,532,412        101,499,604
                                ===================  ===================  =================  =================
</TABLE>

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


                                        4
<PAGE>

                        COMPOSITE TECHNOLOGY CORPORATION
                                AND SUBSIDIARIES
                              DEBTOR IN POSSESSION
                          (DEVELOPMENT STAGE COMPANIES)
                CONDENSED, CONSOLIDATED STATEMENTS OF CASH FLOWS
          FOR THE NINE MONTHS ENDED JUNE 30, 2005 AND 2004 (UNAUDITED)
       AND FOR THE PERIOD FROM MARCH 28, 2001 (INCEPTION) TO June 30, 2005
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                     For the Nine  For the Period
                                                    For the Nine       Months        from March
                                                    Months ending    ending June       28,2001
                                                       June 30,          30,       (Inception) to
                                                         2005           2004        June 30, 2005
                                                     (unaudited)      Restated        Restated
                                                                     (unaudited)     (unaudited)
<S>                                                <C>              <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                           $(21,990,082)    $(8,657,764)   $(48,429,438)
Adjustments to reconcile net loss to net cash
used in operating activities:
Accretion of deferred gain on PP&E                      (26,988)         (3,280)        (36,464)
Loss on sale of fixed assets                              6,870            --             6,870
Depreciation                                            367,123          61,170         543,337
Amortization of prepaid expenses originally                             325,199         218,993
paid with common stock
Interest on fixed conversion features                 1,266,924            --         1,532,093
Reserve for Uncollectible Accounts                    2,500,000            --         2,500,000
Issuance of common stock for services                   286,724         744,044       8,872,279
Issuance of common stock for legal                         --              --           832,750
settlements
Issuance of warrants for services                     2,079,523            --         3,953,883
Issuance of warrants for legal settlement                  --            11,750
Expense related to issuance of common stock                --            64,005         603,500
at less than fair value
Compensation expense related to fair value of           225,825       1,789,226       1,527,175
stock options
Compensation expense related to modification               --           350,945         364,277
of stock options
Compensation expense related to modification               --              --         1,540,000
of stock warrants
Carrying Value Adjustment to Convertible Debentures   4,831,970                       4,831,970
Carrying value impairment adjustment on                   1,000            --           138,230
investments in other companies
(Increase) decrease in Assets:
Restricted Cash                                      10,010,060            --              --
Accounts Receivable                                    (564,151)           --        (3,066,145)
Inventory                                              (528,557)           --        (1,317,356)
Prepaid Expenses                                       (218,189)       (476,492)       (239,690)
Capitalized construction costs                          (98,508)           --          (304,787)
Other assets                                            (59,795)           --          (269,395)
Increase (Decrease) in Liabilities
Accounts payable - trade                                231,872         927,268       2,081,424
Accrued legal settlement                                   --           (74,019)           --
Accrued interest payable                                225,000            --           225,000
Accrued payroll and related expenses                     77,341          80,761         199,962
Accrued officer compensation                             (8,942)         37,334         255,619
Due to Affiliate                                        100,000            --           100,000
Deferred revenue                                        563,614         564,750       1,128,364
                                                   ------------     -----------    ------------
Net cash provided by (used in) operating               (721,366)     (4,266,853)    (22,195,799)
activities

CASH FLOW FROM INVESTING ACTIVITIES
Purchase of property and equipment                   (1,362,510)       (719,172)     (2,432,803)
Proceeds from sale of assets                               --           500,000         500,000
Investments in other companies                             --              --           (40,000)
                                                   ------------     -----------    ------------
Net cash provided by (used in) investing             (1,362,510)       (219,172)     (1,972,803)
activities

CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible debentures           --              --        15,000,000
Proceeds from notes payable                                --            81,000         253,000
Payments on capital lease assets                       (243,537)         (6,212)       (309,155)
Proceeds from sale of preferred stock                      --              --           132,000

<CAPTION>
<S>                                                <C>              <C>            <C>
Proceeds from exercise of options                       295,000            --           855,000
Proceeds from exercise of warrants                    1,510,622         695,911       4,407,400
Common Stock Subscription Receivable                       --           (98,522)           --
Proceeds from sale of common stock                         --         3,392,468       6,476,211
Payment for costs associated with the sale of              --          (220,030)       (237,030)
                                                   ------------     -----------    ------------
common stock
Net cash provided by financing activities             1,562,085       3,844,615      26,577,426

Net increase/(decrease) in cash and cash               (521,791)       (641,410)      2,408,824
equivalents
CASH AND CASH EQUIVALENTS, BEGINNING OF  PERIOD       2,930,615       1,130,498            --
                                                   ------------     -----------    ------------

CASH AND CASH EQUIVALENTS, END OF  PERIOD          $  2,408,824     $   489,088    $  2,408,824
                                                   ============     ===========    ============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
INTEREST PAID                                      $    529,655            --      $    912,451
INCOME TAX PAID                                    $      1,600            --      $      1,600
</TABLE>

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


                                        5
<PAGE>

Supplemental Schedule for Non Cash Financing Activities

During the first quarter of fiscal 2005, the Company approved for issuance
82,417 Series U warrants to two entities in connection with obtaining equipment
lease financing for the Company. Each Series U warrant entitles the holder to
purchase one share of unregistered, restricted common stock at $1.83 per share
and expires on August 18, 2008. The Company may, subject to a 20 day notice,
call the warrants if the common stock price is equal to or exceeds 200% of the
exercise price. The Company valued the warrants using the modified
Black-Scholes-Merton option pricing model with a risk free rate of 3.66%, a life
of four years, a volatility of 73%, a 0% dividend rate, and a market price per
share of $1.83. The Company recognized $85,714 of compensation expense for
services rendered recorded in Legal, Consulting, and Professional Fees expense.
The warrants have not been issued as of June 30, 2005.

During the first quarter of fiscal 2005, the Company issued 1,083,592 warrants
in connection with obtaining an amendment to the Debenture held by Midsummer
Investment, Ltd, Bristol Investment Fund, Ltd, Islandia L.P. and Omicron Master
Trust. Each warrant entitles the holder to purchase one share of unregistered,
restricted common stock at $3.23 per share and expires on November 19, 2008. The
Company recognized $1,993,809 of compensation expense as a result of these
transactions recorded in Legal, Consulting, and Professional Fees expense. The
warrants were valued using the Modified Black Scholes Merton option pricing
model with a risk free rate of 3.66%, a life of four years, a volatility of 73%,
a 0% dividend rate and a market price of $3.23 per share.

During the second quarter of fiscal 2005, the Company issued 150,000 Common
Shares valued at $2.77 per share and registered under the Company's Form S-8 to
one consultant in payment of services related to intellectual property rights.

During the Nine Months ended June 30, 2005, 33,332 Series K warrants exercisable
at $0.46 per warrant were exercised on a cashless exercise basis. The Company
issued 28,352 Common Shares as a result of these transactions.

During the Nine Months ended June 30, 2005, 250,000 Series L warrants
exercisable at $0.42 per warrant were exercised on a cashless exercise basis.
The Company issued 229,000 Common Shares as a result of this transaction.

During the Nine Months ended June 30, 2005, the Company acquired fixed assets
under a capital lease agreement in the amount of $451,883.


                                        6
<PAGE>

NOTE 1 - ORGANIZATION AND LINE OF BUSINESS,
Composite Technology Corporation, incorporated in Florida and reincorporated in
Nevada, is an Irvine, CA based company providing advanced composite core
conductor ("ACCC") cables for electric transmission and distribution lines. The
Company operates under four wholly owned subsidiaries incorporated in the State
of Nevada: CTC Wind Systems Corporation, CTC Cable Corporation, CTC Towers &
Poles Corporation, and Transmission Technology Corporation. The Company's first
product is high performance ACCC cable for electric transmission and
distribution lines.

ACCC cable is commercially available in the United States and Canada through
distribution and purchase agreements between General Cable Industries, Inc. and
the Company's wholly owned subsidiary, CTC Cable Corporation and elsewhere
worldwide directly from the Company.

On May 5, 2005, (Petition Date) Composite Technology Corporation filed a
voluntary reorganization plan and disclosure statement under the provisions of
Title 11 of the Federal Bankruptcy Code in the United States Bankruptcy Court
for the Central District of California under case number SA 05-13107 JR. Its
subsidiaries, including CTC Cable Corporation, CTC Wind Systems Corporation and
CTC Towers and Poles Corporation, are not party to the Title 11 case. As of the
Petition Date, multiple lawsuits were taxing the Company's managerial,
operational and financial resources and threatened to divert management from
their duties of running the business. One of these lawsuits also resulted in an
attachment of more than $2.5 million of the Company's funds. The Company
believes the bankruptcy filing was necessary to release cash for the operation
of its business, to give it a reprieve from burdensome litigation so that
management could focus on marketing and sales, and to establish a plan for
treating the claims of various parties in interest fairly. The Company believes
that having these lawsuits heard by the Bankruptcy Court as part of the
reorganization will provide a fair and reasonable means of addressing each claim
and affording the same treatment to each claim. If the lawsuits proceed in
different jurisdictions there is a possibility of inconsistent judgments.
Moreover, as a result of the Title 11 filing, attempts to collect, secure or
enforce remedies with respect to most prepetition claims against the Company are
subject to the automatic stay provisions of Section 362(a) of Title 11. Our
disclosure statement was approved by the bankruptcy court on July 6, 2005 and a
hearing for confirmation of our bankruptcy plan has been scheduled for September
8, 2005.

As a Debtor in Possession, CTC is authorized to continue to operate as an
ongoing business but may not engage in transactions outside the ordinary course
of business without the approval of the Court, after notice and an opportunity
for a hearing. Under the Bankruptcy Code, actions to collect pre-petition
indebtedness, as well as the pending litigation, are stayed and other
contractual obligations against the Company may not be enforced. In addition,
under the Bankruptcy Code, the Company may assume or reject executor contracts,
including lease obligations. Parties affected by these rejections may file
claims with the Bankruptcy Court, in accordance with the reorganization process.
Absent an order of the Court, substantially all pre-petition liabilities are
subject to settlement under a plan of reorganization to be voted upon by
creditors and equity holders and approved by the Court.

Upon emergence from bankruptcy, the amounts reported in subsequent financial
statements may materially change due to the restructuring of the Company's
assets and liabilities as a result of the Plan of Reorganization and the
application of the provisions of Statement of Position 90-7, Financial Reporting
by Entities in Reorganization under the Bankruptcy Code (SOP 90-7), with respect
to reporting upon emergence from Chapter 11 (Fresh Start accounting). Changes in
accounting principles required under generally accepted accounting principles
within 12 months of emerging from bankruptcy are required to be adopted at the
date of emergence. Additionally, the Company may choose to make changes in
accounting policies and practices at that time. For all of these reasons,
financial statements subsequent to emergence from Chapter 11 may not be
comparable with those of prior periods.

The accompanying Consolidated; Condensed Financial Statements have been prepared
on a going concern basis, which assumes continuity of operations and realization
of assets and satisfaction of liabilities in the ordinary course of business and
in accordance with SOP 90-7. Accordingly, all pre-petition liabilities subject
to compromise have been segregated in the Consolidated Balance Sheets and
classified as Liabilities Subject to Compromise, at the estimated amount of
allowable claims. Liabilities not subject to compromise are separately
classified as current and non-current.

NOTE 2 - RESTATEMENT AND RECLASSIFICATIONS

In May 2005, the Company determined that certain fiscal 2004 transactions with
employee and settlements of former employee non-qualifying stock options that
were exercised on a "cashless" basis were improperly recorded. For these
transactions, both the exercise price and any payroll taxes owed by the employee
or former employees were allowed to be paid for in shares of the stock
exercised. Under FIN 44, such changes are considered to be modifications of the
option grant and the transactions are required to be accounted for at the fair
value of the stock issued on the date of the cashless exercise.

In May, 2005, the Company also reclassified certain consulting related expenses
in the Statement of Operations for the three and Nine Months ended June 30,
2005.

Below is the effect to the Statements of Operations for the three and Nine
Months ended June 30, 2004:

Statement of Operations for Three months ended June 30, 2004

<TABLE>
<CAPTION>
                                             As Originally       Restatement                       As
                                                 Reported        Adjustment                  Restated
<S>                                       <C>               <C>                 <C> <C>
Operating Expenses
Officer Compensation                      $         86,923  $         30,000     2  $          116,923
                                          ----------------- -----------------       -------------------
General and administrative                       1,116,493         (376,992)     2             739,501
                                          ----------------- -----------------       -------------------
Legal, Professional, and consulting                321,179         1,457,349     2           1,778,528
                                          ----------------- -----------------       -------------------
Research and Development                           305,760           271,223     2
                                                                      68,000     1             644,983
                                          ----------------- -----------------       -------------------
Sales and Marketing                                                  185,585     2             185,585
                                          ----------------- -----------------       -------------------
Depreciation                                        29,931                --                    29,931
                                          ----------------- -----------------       -------------------
Compensation expense related to
modification of warrants                         1,540,000       (1,540,000)     2                  --
                                          ----------------- -----------------       -------------------
Compensation expense related to fair                40,325          (40,325)     2                  --
value of stock options research and
development
                                          ----------------- -----------------       -------------------
Total Operating Expenses                         3,440,611            54,840                 3,495,451
                                          ----------------- -----------------       -------------------

Gain/Loss on Asset sales                             3,280                --                     3,280
                                          ----------------- -----------------       -------------------
Interest Expense                                        --          (14,728)     2            (14,728)
                                          ----------------- -----------------       -------------------
Interest Income                                        147             1,568     2               1,715
                                          ----------------- -----------------       -------------------
                                Net loss  $    (3,437,184)  $       (68,000)        $      (3,505,184)
                                          ================= =================       ===================
</TABLE>


                                        7
<PAGE>

Statement of Operations for Nine Months ended June 30, 2004

<TABLE>
<CAPTION>
                                             As Originally       Restatement                        As
                                                 Reported        Adjustment                  Restated
                                                 --------        ----------                  --------
<S>                                       <C>               <C>                 <C> <C>
Operating Expenses
Officer compensation                      $        272,258  $         30,000     2  $          302,258
                                          ----------------- -----------------       -------------------
General and administrative                       2,670,772           266,529     1
                                                                   (629,164)     2           2,308,137
                                          ----------------- -----------------       -------------------
Legal, Professional, and consulting              2,005,104            13,750     1
                                                                     581,927     2           2,600,781
                                          ----------------- -----------------       -------------------
Research and Development                         1,511,570            68,000     1
                                                                   1,044,398     2           2,623,968
                                          ----------------- -----------------       -------------------
Sales and Marketing                                     --             2,666     1
                                                                     748,757     2             751,423
                                          ----------------- -----------------       -------------------
Depreciation                                        61,170                --                    61,170
                                          ----------------- -----------------       -------------------
Compensation expense related to
modification of warrants                         1,540,000       (1,540,000)     2                  --
                                          ----------------- -----------------       -------------------
Compensation expense related to fair
value of stock options legal                       128,250         (128,250)     2                  --
                                          ----------------- -----------------       -------------------
Compensation expense related to fair               120,975         (120,975)     2                  --
value of stock options research and
development
                                          ----------------- -----------------       -------------------
Total Operating Expenses                         8,310,099           337,638                 8,647,737
                                          ----------------- -----------------       -------------------
Gain/Loss on Asset sales                             3,280                --                     3,280
                                          ----------------- -----------------       -------------------
Interest Expense                                        --          (14,875)     2            (14,875)
                                          ----------------- -----------------       -------------------
Interest Income                                         --             1,715     2               1,715
                                          ----------------- -----------------       -------------------
 Net loss                                 $    (8,306,819)  $      (350,798)        $      (8,657,617)
                                          ================= =================       ===================
</TABLE>

1) During fiscal 2004, the Company allowed for the cashless exercise of non
qualifying employee stock options to four former employees as part of the
settlement of their option vesting and to one employee. A total of 280,265
shares were exercised between $0.25 per share and $1.00 per share. As a result
of these transactions, the Company had initially recorded $64,005 in
compensation expense. Under FIN 44, a cashless exercise where the exercise price
is paid for by the stock being exercised is considered to be a modification of
the option grant and the fair value of the transaction must be recorded as
expense. For the 280,265 shares exercised, 237,220 shares of Common Stock of the
Company were issued and additional compensation expense was recorded as follows:
the fair value was determined using the difference between the closing market
value of the Company's common stock on the date of each underlying transaction
and the exercise price per share of the options exercised. For fiscal 2004, the
total additional expense of $364,277 represents the fair value of the 280,265
shares, valued at $496,217 less the exercise cost of $65,935 and less the
previously recorded expense of $64,005. For the three months ended June 30, 2004
one individual exercised 75,000 shares at an exercise price of between $0.25 and
$0.53 per share resulting in additional compensation expense of $68,000. For the
nine months ended June 30, 2004, four individuals exercised 260,265 options at
an exercise price of between $0.25 and $0.53 per share resulting in additional
compensation expense of $350,945. The impact per share due to the additional
expense was less than $0.01 per share for both the three and nine months ended
June 30, 2004 although due to rounding, this increased the loss per share from
$0.08 to $0.09 for the nine months ended June 30, 2004. The Company does not
intend to allow for the cashless exercise of additional stock options in the
future.


                                        8
<PAGE>

2) During the preparation of the quarterly filing for the period ending June 30,
2005, the Company changed classification of certain consulting expenses related
to general and administrative, product development, and sales and marketing
activities. To be consistent with the current period presentation, certain
operating expense balances for the three and Nine Month periods ending June 30,
2005 were reclassified. No additional expense was recorded as a result of this
reclassification and there was no impact on earnings per share.

NOTE 3 - GOING CONCERN
The Company has received a report from its independent auditors for the year
ended September 30, 2004 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.

Our principal sources of working capital have been private debt 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: We announced our initial commercial order of our ACCC cable
under the General Cable agreement in May, 2005. From this initial commercial
order through June, 2005 we have received cumulative confirmed orders for
approximately $1.6 million of our ACCC cable and related ACCC hardware. During
the next 12 months, we anticipate that our sales will increase and that our ACCC
products will gain acceptance in the marketplace resulting in additional sales
orders and positive cash flows from operations.

We believe our cash position as of June 30, 2005 of $2.4 million, in addition to
approximately $500,000 of "in the money" warrants expiring in fiscal 2005,
approximately $1,400,000 of "in the money" callable warrants, savings from the
reduction in legal fees due to the bankruptcy filing, and expected cash flows
from revenue orders may not be sufficient to fund operations for the next four
calendar quarters. We anticipate that additional cash is needed to fund
operations beyond October, 2005 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 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
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-KSB/A for the year ended September 30, 2004 filed with
the Securities and Exchange Commission on August 8, 2005.


                                        9
<PAGE>

The results of operations for the interim period ended June 30, 2005 are not
necessarily indicative of the operating results that may be reported for the
fiscal year ending September 30, 2005 or for any other future period.

Certain amounts in the prior year financial statements have been reclassified to
conform to the current year presentation.

The Company filed a voluntary petition for Chapter 11 bankruptcy with the United
States Bankruptcy Court for the Central District of California.

As discussed in Note 1, for financial reporting purposes, the consolidated
financial statements have been prepared on a going concern basis. In addition,
the debtor has applied the provisions of the AICPA SOP 90-7. Accordingly, all
pre-petition liabilities subject to compromise have been segregated in the
Balance Sheet and classified as Liabilities Subject to Compromise, at the
estimated amount of allowable claims. Liabilities not subject to settlement are
classified as current or non-current. See also Note 8.

Restricted Cash
Restricted cash equivalents at September 30, 2004 consisted of $10,010,060 held
in escrow pursuant to the conditions of the $15,000,000 Debenture offering
issued in August, 2004. The restriction condition was released in November, 2004
by the Debenture holders as a result of a renegotiation and issuance of
additional warrants to purchase shares of our Common Stock and the cash was
released to the Company.

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 two
sources:

(1)   Product revenue which includes revenue from the sale of composite core,
      wrapped composite core, and other electric utility related products.
(2)   Consulting revenue, which includes engineering, product design, and
      service fees that we receive under customer agreements related to the
      installation and design of our product sale solutions.

In addition to the above general revenue recognition principles prescribed by
SAB 104, our specific revenue recognition policies for each revenue source are
more fully described below.

PRODUCT SALES. Product revenues are generally 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) wrapped composite core to
utilities either sold directly by the Company or through our distributor, ii)
composite core sold to a cable wrapping partner not subject to a distributor
agreement and where title passes to the partner, or iii) cable core hardware
sold to utility companies. For most product sales, we expect that the terms of
sales generally will not contain provisions that will obligate us to provide
additional products or services after installation to end users. We recognize
revenue: (i) upon shipment when products are shipped FOB shipping point or (ii)
upon delivery at the customer's location when products are shipped FOB
destination. Billings related to products shipped but not recognized as revenues
are carried in deferred revenues on the balance sheet. Product costs associated
with these deferred revenues are carried in inventory.

CONSULTING REVENUE Consulting revenues are generally recognized as the
consulting services are provided. We have entered into service contract
agreements with electric utility and utility services companies that generally
require us to provide engineering or design services, often in conjunction with
current or future product sales. In return, we receive engineering service fees
payable in cash. For multiple element contracts where there is no vendor
specific objective evidence (VSOE) that would allow the allocation of an
arrangement fee amongst various pieces of a multi-element contract, fees
received in advance of services provided are recorded as deferred revenues until
additional operational experience or other vendor specific objective evidence
becomes available, or until the contract is completed.


                                       10
<PAGE>

During its history, the Company has entered into revenue bearing contracts of
long term (greater than one year) duration. Due to a lack of operational history
resulting in low reliability of estimates on interim rates of completion of such
contracts, revenues associated with long term contracts are recognized on the
completed-contract method of accounting. Under this method, billings and costs
are accumulated during the period of installation, but no revenues are recorded
before the completion of the work. Costs of revenues are capitalized and are
recorded in other assets. Provisions for estimated losses on uncompleted
contracts are made at the time such losses are determined. Operating expenses,
including indirect costs and administrative expenses, are charged as incurred to
periodic income and not allocated to contract costs.

Development Stage Enterprise
The Company is a development stage company as defined in Statement of Financial
Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by Development
Stage Enterprises." The Company is devoting substantially all of its present
efforts to establish a new business, and its planned principal operations have
not yet commenced. All losses accumulated since inception, have been considered
as part of the Company's development stage activities.

Stock-Based Compensation
The Company accounts for Stock Based Compensation according to the guidelines of
Staff Accounting Bulletin No. 107 which incorporates the interaction between
Statement of Financial Accounting Standards Statement 123 and certain SEC rules
and regulations. SFAS No. 123, "Accounting for Stock Compensation," as amended
by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure," defines a fair value based method of accounting for stock-based
compensation. However, SFAS No. 123 allows an entity to continue to measure
compensation cost related to stock and stock options issued to employees using
the intrinsic method of accounting prescribed by Accounting Principles Board
("APB") Opinion No. 25,"Accounting for Stock Issued to Employees." Entities
electing to remain with the accounting method of APB No. 25 must make pro forma
disclosures of net income and earnings per share as if the fair value method of
accounting defined in SFAS No. 123 had been applied. The Company has elected to
account for its stock-based compensation to employees using the intrinsic value
method under APB No. 25. In December 2004, SFAS No. 123 was revised and
eliminated the ability to account for share-based compensation transactions
using the intrinsic value method under APB Opinion No. 25, effective the first
interim or annual period beginning after June 15, 2005 for public companies. The
effective date for the Company will be beginning fourth quarter of fiscal 2005.

The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost other than that required to be recognized by
APB No. 25, the difference between the fair value of the Company's common stock
at the grant date and the exercise price of the options has been recognized. Had
compensation cost for the Company's Stock Plan been determined based on the fair
value at the grant date for awards consistent with the provisions of SFAS No.
123, the Company's net loss and loss per share for the Nine Months ended June
30, 2005 and 2004 would have been increased to the pro forma amounts indicated
below:


                                       11
<PAGE>

<TABLE>
<CAPTION>

                                     Three months end     Three months end        Nine Months end        Nine Months end
                                       June 30, 2005        June 30, 2004          June 30, 2005          June 30, 2004
                                     -----------------    ------------------    -------------------    -------------------
                                                               Restated                                      Restated
                                     -----------------    ------------------    -------------------    -------------------
<S>                                  <C>                  <C>                   <C>                    <C>
Net loss, as reported                $     (11,872,623)   $       (3,505,184)   $       (21,990,082)   $        (8,647,884)
Deduct total stock based employee
compensation expense determined
under fair value method for all
awards, net of tax                   $        (376,026)   $         (161,978)   $        (1,112,657)   $          (323,957)
                                     -----------------    ------------------    -------------------    -------------------

Net loss, pro forma                  $      12,248,649    $       (3,667,162)   $       (23,102,739)   $        (8,971,841)
                                     -----------------    ------------------    -------------------    -------------------

Earnings per common share
Basic, as reported                   $           (0.10)   $            (0.04)   $             (0.19)   $             (0.09)
Basic, pro forma                     $           (0.11)   $            (0.04)   $             (0.20)   $             (0.09)
Diluted, as reported                 $           (0.10)   $            (0.04)   $             (0.19)   $             (0.09)
Diluted, pro forma                   $           (0.11)   $            (0.04)   $             (0.20)   $             (0.09)
</TABLE>

Options granted to employees and warrants issued for services were valued at
fair value using the Modified Black-Scholes Merton Option Pricing Model.
Assumptions used were as follows:

<TABLE>
<CAPTION>
                              Q1                          Q2                       Q3
----------------------------- --------------------------- ------------------------ -----------------------
<S>                           <C>                         <C>                      <C>
Risk Free Rate                3.66%                       4.13%                    3.72%
----------------------------- --------------------------- ------------------------ -----------------------
Dividend Yield                0%                          0%                       0%
----------------------------- --------------------------- ------------------------ -----------------------
Volatility                    73%                         84%                      106%
----------------------------- --------------------------- ------------------------ -----------------------
Time to Maturity              Expected life of the        Expected life of the     Expected life of the
                              option or warrant           option or warrant        option or warrant
----------------------------- --------------------------- ------------------------ -----------------------
</TABLE>

Principles of Consolidation
The consolidated financial statements include the accounts of CTC and its wholly
owned subsidiaries (collectively, the "Company"). All inter-company accounts and
transactions are eliminated in consolidation.

Research and Development Expenses
Research and development expenses are charged to operations as incurred.


                                       12
<PAGE>

Accounts Receivable

The Company extends credit to its customers. Collateral is generally not
required. Credit losses are provided for in the financial statements based on
management's evaluation of historical and current industry trends as well as
history with individual customers. Although the Company expects to collect
amounts due, actual collections may differ from estimated amounts. As of June
30, 2005 the Company had receivables totaling $3,066,145 from four companies. Of
this amount, $566,145 are for product sales shipped during the quarter ending
June 30, 2005. One receivable totaling $2,500,000 has been outstanding since
September 30, 2004 and represents amounts due on a consulting contract that was
completed on September 30, 2004. During the quarter ended March 31, 2005, the
Company negotiated payment terms on the $2.5million receivable consisting of
$250,000 due on April 30, 2005, $250,000 due on May 31, $250,000 due on June 30,
2005 and with the remaining $1,750,000 due by July 31, 2005. The Company
received a check for $250,000 in April, 2005 and deposited this check on April
29, 2005 as a progress payment on the payment schedule. The check was returned
for insufficient funds and subsequent attempts to collect on the initial payment
have failed. The customer has also neglected to pay any additional funds on the
repayment schedule and has not responded to a demand letter for payment. As a
result, the Company now believes that the receivable is impaired and has
recorded a reserve of $2,500,000 into General and Administrative expense during
the quarter ending June 30, 2005. The Company intends to aggressively pursue
collection of this receivable and any subsequent collections of funds will be
recorded as an expense reduction in future quarters.

Inventory
Inventories consist of our wrapped and unwrapped manufactured composite core and
related hardware products and raw materials used in the production of those
products. Inventories are valued at the lower of cost or market under the FIFO
method. Products manufactured internally are valued at standard cost which
approximates replacement cost. Inventory consists primarily of the following:

                                    -------------      -------------
                                    June 30, 2005      September 31,
                                                            2004
                                    -------------      -------------

Raw Materials                       $     181,874      $      55,718
Finished Goods Available for Sale         786,099            733,081
FG Inventory allocated for sale           361,257                 --
                                    -------------      -------------
Total Inventory                     $   1,329,230      $     788,799
                                    =============      =============

Inventory allocated for sale has been shipped to third parties and is either
held for distribution to end-user customers or is awaiting additional processing
by our cable wrapping affiliate.

Related party transactions

During the quarter ended June 30, 2005, the Company received $100,000 in cash
from one of its Directors as an advance payment for sublease rents on
approximately 2,100 square feet of the Company's headquarters facility. The
sublease agreement is for three years and terminates in 2008. The balance is
shown as "due to affiliate" on the balance sheet. The Company recorded no income
or expense related to this transaction during the quarter ended June 30, 2005.

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.


                                       13
<PAGE>

The following common stock equivalents were excluded from the calculation of
diluted loss per share for the Nine Months ended June 30, 2005 and 2004 since
their effect would have been anti-dilutive:

                                                           June 30
                                                 -----------------------------
                                                     2005            2004
                                                 -------------    ------------

    Convertible Debentures, if converted             8,982,036              --
    Options for common stock                         6,167,936       6,765,398
    Warrants                                        11,024,864      11,779,569
                                                 -------------    ------------
    Total                                           26,174,836      18,544,967
                                                 =============    ============

Concentration of Credit Risk:

As of June 30, 2005, the Company has receivables totaling $3,066,145 of which
one customer accounts for $2,500,000 or 81.5% of the total and one customer
accounts for $450,016 or 14.7% of the total. The $2,500,000 receivable has been
determined to be impaired as of June 30, 2005 and a reserve for the entire
receivable was recorded as of June 30, 2005. As of September 30, 2004, the
company had a receivable from one customer for $2,500,000.

Business Segments

The Company organizes itself as one segment and conducts its operations in the
United States.

The Company sells its products and technology to domestic and international
customers. All revenues recognized to date have occurred in the United States.

Recently Issued Accounting Pronouncements

SFAS No. 151
In November 2004, the FASB issued SFAS No. 151,"Inventory Costs". SFAS No. 151
amends the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage) under the guidance in ARB No. 43,
Chapter 4,"Inventory Pricing". Paragraph 5 of ARB No. 43, Chapter 4, previously
stated that ". . . under some circumstances, items such as idle facility
expense, excessive spoilage, double freight, and rehandling costs may be so
abnormal as to require treatment as current period charges. . . ." This
Statement requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of "so abnormal." In addition,
this Statement requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. This statement is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. Management does not expect adoption
of SFAS No. 151 to have a material impact on the Company's financial statements.

SFAS No. 152
In December 2004, the FASB issued SFAS No. 152,"Accounting for Real Estate
Time-Sharing Transactions". The FASB issued this Statement as a result of the
guidance provided in AICPA Statement of Position (SOP) 04-2,"Accounting for Real
Estate Time-Sharing Transactions". SOP 04-2 applies to all real estate
time-sharing transactions. Among other items, the SOP provides guidance on the
recording of credit losses and the treatment of selling costs, but does not
change the revenue recognition guidance in SFAS No. 66,"Accounting for Sales of
Real Estate", for real estate time-sharing transactions. SFAS No. 152 amends
Statement No. 66 to reference the guidance provided in SOP 04-2. SFAS No. 152
also amends SFAS No. 67, "Accounting for Costs and Initial Rental Operations of
Real Estate Projects", to state that SOP 04-2 provides the relevant guidance on
accounting for incidental operations and costs related to the sale of real
estate time-sharing transactions. SFAS No. 152 is effective for years beginning
after June 15, 2005, with restatements of previously issued financial statements
prohibited. This statement is not applicable to the Company.

SFAS No. 153
In December 2004, the FASB issued SFAS No. 153,"Exchanges of Nonmonetary
Assets," an amendment to Opinion No. 29,"Accounting for Nonmonetary
Transactions". Statement No. 153 eliminates certain differences in the guidance
in Opinion No. 29 as compared to the guidance contained in standards issued by
the International Accounting Standards Board. The amendment to Opinion No. 29
eliminates the fair value exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. Such an exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. SFAS No. 153 is effective for
nonmonetary asset exchanges occurring in periods beginning after June 15, 2005.
Earlier application is permitted for nonmonetary asset exchanges occurring in
periods beginning after December 16, 2004. Management does not expect adoption
of SFAS No. 153 to have a material impact on the Company's financial statements.


                                       14
<PAGE>

SFAS No. 123(R)
In December 2004, the FASB issued SFAS No. 123(R),"Share-Based Payment". SFAS
123(R) amends SFAS No. 123,"Accounting for Stock-Based Compensation", and APB
Opinion 25,"Accounting for Stock Issued to Employees." SFAS No.123(R) requires
that the cost of share-based payment transactions (including those with
employees and non-employees) be recognized in the financial statements. SFAS No.
123(R) applies to all share-based payment transactions in which an entity
acquires goods or services by issuing (or offering to issue) its shares, share
options, or other equity instruments (except for those held by an ESOP) or by
incurring liabilities (1) in amounts based (even in part) on the price of the
entity's shares or other equity instruments, or (2) that require (or may
require) settlement by the issuance of an entity's shares or other equity
instruments. This statement is effective for the Company as of the first interim
period or fiscal year beginning after June 15, 2005, or beginning its fourth
quarter of fiscal 2005. Management is currently assessing the effect of SFAS No.
123(R) on the Company's financial statement.

SFAS No. 154
In May 2005, the FASB issued SFAS No. 154,"Accounting Changes and Error
Corrections" SFAS 154 replaces APB Opinion No. 20, " Accounting Changes" and
FASB Statement No. 3 , "Reporting Accounting Changes in Interim Financial
Statements" and changes the requirements for the accounting for and reporting of
a change in accounting principle. SFAS 154 requires retrospective application to
prior periods' financial statements of changes in accounting principles unless
it is impractical to do so and limits the application of a change in accounting
principle to the direct effects of the change. The Statement also requires that
a change in depreciation, amortization, or depletion methods for long-lived
nonfinancial assets be accounted for as a change in accounting estimate effected
by a change in accounting principle. SFAS 154 carries forward without change the
guidance contained in APB 20 for reporting the correction of an error in
previously issued financial statements and for changes in accounting estimates.
This statement is effective for accounting changes and corrections of errors
made in fiscal years beginning after December 15, 2005. Management does not
expect adoption of SFAS No. 153 to have a material impact on the Company's
financial statements.


                                       15
<PAGE>

NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment at June 30, 2005 consisted of the following:

         Manufacturing equipment                 $     2,487,275
         Office furniture equipment                      304,417
         Leasehold improvements                          392,297
                                                 ---------------
                                                       3,183,989
            Less accumulated depreciation               (490,465)
                                                 ---------------
                 TOTAL                           $     2,693,524
                                                 ---------------

Depreciation expense was $367,123, $61,170, and $543,337 for the Nine Months
ended June 30, 2005 and 2004 and the period from March 28, 2001 (inception) to
June 30, 2005, respectively.

NOTE 6 - COMMITMENT AND CONTINGENCIES

In November 2004, the Company committed to a $451,883 capital lease with a IFC
Leasing. The lease was funded during the Nine Months ended June 30, 2005. The
Company is obligated to pay total monthly lease payments of $14,197 for a total
of 42 months and will have the option to purchase the equipment for fair market
value, subject to a minimum of 10% and maximum of 20% of equipment cost. The
Company allocated 12,362 Series U warrants as part of the lease terms which have
not been issued as of June 30, 2005. (See Note 7- Common Stock).

As part of this capital lease, the Company entered into a $93,015 sale leaseback
of one piece of manufacturing equipment. Under the terms of the Master Lease
Agreement, the Company received $83,714, which was net of a 10% security
deposit, and is to make payments of $2,896 per month for 42 months. At the end
of the lease term, the Company has the right to renew the lease for an
additional 12 months, terminate the lease and return the equipment or purchase
the equipment at fair value, subject to a minimum of 10% and a maximum of 20% of
the original capitalized cost. The Company recognized a loss in the amount of
$15,656 from this transaction which will be applied against the deferred gain on
sale of fixed assets that were leased back by the Company.

The Company has a $3 million commitment for equipment lease financing, subject
to completing due diligence, from a financial institution. As of the date of the
Company's bankruptcy filing on May 5, 2005, the Company had not provided the
potential lender the due diligence materials requested and as such has not
satisfied the due diligence requirement to date. Accordingly, the Company has
not received a written agreement from the potential lender regarding the $3
million commitment. The Company anticipates that this $3 million equipment lease
financing commitment will be rescinded by the lender. We anticipate that in the
fiscal quarter ended September 30, 2005, we will cancel the 70,055 Series U
Warrants to purchase 70,055 shares of common stock, exercisable at a per share
price of $1.83, that were previously approved for issuance in the first fiscal
quarter of 2005 but were not issued.

NOTE 7 - SHAREHOLDERS' EQUITY

A.  COMMON STOCK

During the second quarter of fiscal 2005, the Company issued 150,000 Common
Shares valued at $2.77 per share and registered under the Company's Form S-8 to
one consultant in payment of services related to intellectual property
strategies.

During the Nine Month period ending June 30, 2005 the Company issued a total of
257,352 shares of Common Stock pursuant to cashless warrant exercises and
2,921,077 shares of Common Stock pursuant to warrant exercises at prices between
$0.25 and $2.04 per warrant for total cash proceeds of $1,510,622.


                                       16
<PAGE>

During the Nine Month period ending June 30, 2005, the Company issued a total of
1,480,000 shares of Common Stock pursuant to option exercises for cash at prices
between $0.10 and $1.75 per share for total cash proceeds of $295,000.

B.  STOCK OPTIONS
Stock Plan
During the Nine Month period ending June 30, 2005 the Company granted to one
employee 100,000 options to purchase an equivalent number of shares registered
under the Company's 2002 Option Plan, at an exercise price of $1.68. These
options were cancelled in February, 2005. During the Nine Month period ending
June 30, 2005, the Company granted to two employees 175,000 options to purchase
an equivalent number of shares registered under the Company's 2002 Option Plan,
at an exercise price of $4.02. 100,000 of these options were cancelled in
February, 2005. During the nine month period ending June 30, 2005 the Company
granted to one employee 500,000 options to purchase an equivalent number of
shares registered under the Company's 2002 Option Plan, at an exercise price of
$0.90 per share.

During the Nine Months ended June 30, 2005, 1,000,000 options were exercised to
purchase common stock for total cash consideration of $100,000, at $0.10 per
share, 430,000 options were exercised to purchase common stock for total cash
consideration of $107,500, at $0.25 per share, and 50,000 options were exercised
to purchase common stock for total cash consideration of $87,500, at $1.75 per
share.

The following table summarizes all Stock Plan activity through June 30, 2005.

                                                                  Average
                                                     Number      Exercise
                                                    of Shares      Price
         Outstanding, March 18, 2001 (inception)         --      $    --
              Granted                               1,357,740    $   0.35

         Outstanding, September 30, 2001            1,357,740    $   0.35
              Granted                               5,950,000    $   0.35
              Exercised                            (2,000,000)   $   0.24

         Outstanding, September 30, 2002            5,307,740    $   0.39
              Granted                               3,950,000    $   0.46
              Exercised                              (110,000)   $   0.25
              Cancelled                            (1,000,000)   $   0.69

         Outstanding, September 30, 2003            8,147,740    $   0.36
              Granted                                 969,904    $   1.00
              Exercised                              (497,220)   $   0.11
              Cancelled                            (1,425,088)   $   0.30

         Outstanding, September 30, 2004            7,195,336    $   0.37
              Granted                                 775,000    $   1.71
              Exercised                            (1,480,000)   $   0.22
              Cancelled                              (322,400)   $   2.15
         OUTSTANDING, June 30, 2005                 6,167,936    $   0.59
                                                   ==========

         EXERCISABLE, June 30, 2005                 3,353,125    $   0.47
                                                   ==========


                                       17
<PAGE>

C.  WARRANTS
During the first quarter of fiscal 2005, the Company approved for issuance
82,417 Series U warrants to two entities in connection with obtaining equipment
lease financing for the Company. Each Series U warrant entitles the holder to
purchase one share of unregistered, restricted common stock at $1.83 per share
and expires on August 18, 2008. The Company may, subject to a 20 day notice,
call the warrants if the common stock price is equal to or exceeds 200% of the
exercise price. The Company recognized $85,714 of compensation expense for
services rendered. As of June 30, 2005, the warrants had not been issued. The
compensation expense is recorded as other current liabilities in the June 30,
2005 balance sheet.

In addition, during the first quarter of fiscal 2005, the Company issued
1,083,592 warrants in connection with obtaining an amendment to the Convertible
Debentures held by Midsummer Investment, Ltd, Bristol Investment Fund, Ltd,
Islandia L.P. and Omicron Master Trust. Each warrant entitles the holder to
purchase one share of unregistered, restricted common stock at $3.23 per share
and expires on November 19, 2008. The Company recognized $1,993,809 of
compensation expense as a result of this amendment transaction.

We relied upon the exemption from registration as set forth in Section 4(2) of
the Securities Act of 1933 for the issuance of these securities. All of the
recipients took their securities for investment purposes without a view to
distribution and had access to information concerning the Company and our
business prospects, as required by the Securities Act. In addition, there was no
general solicitation or advertising for the acquisition of these securities.

The warrants were valued using the Modified Black-Scholes Merton Option pricing
model with a risk free rate of 3.66%, a life of 4 years, a volatility of 73%,
and a 0% dividend rate, and a market price equal to the exercise price per
share.

Cashless Exercises
During the Nine Months ended June 30, 2005, a total of 283,332 warrants were
exercised on a cashless basis as follows. 33,332 Series K warrants exercisable
at $0.46 per warrant were exercised by two individuals on a cashless exercise
basis. The Company issued 28,352 Common Shares as a result of these
transactions. During the Nine Months ended June 30, 2005, 250,000 Series L
warrants exercisable at $0.42 per warrant were exercised on a cashless exercise
basis by one individual. The Company issued 229,000 Common Shares as a result of
this transaction.

Cash exercises:

The following table summarizes the warrant exercises for cash for the nine
months ended June 30, 2005. Each warrant was exercised for cash for a like
number of shares of common stock of the Company:

Warrant Series                 # of    Warrants       Cash        Exercise Price
                            exercises  exercised  consideration      per share

2002 Numbered warrants            2      572,242     $  286,121      $     0.50

Series E warrants                19    1,338,000     $  334,500      $     0.25

Series N warrants                 5      500,000     $  250,000      $     0.50

Series O warrants                 1       83,335     $   50,001      $     0.60

Series P warrants                12      227,500     $  182,000      $     0.80

2003 December Offering            1      200,000     $  408,000      $     2.04
                         ----------   ----------     ----------      ----------
Total                            40    2,921,077     $1,510,622      $     0.52


                                       18
<PAGE>

The following table summarizes all Warrant activity through June 30, 2005:

                                                      Number    Weighted-Average
                                                    of Shares    Exercise Price

        Outstanding, March 18, 2001 (inception)          --            $    --
             Granted                                1,905,600          $   1.26

        Outstanding, September 30, 2001             1,905,600          $   1.26
             Granted                                  848,630          $   0.50
             Exercised                                 (7,940)         $   1.26
                                                   ----------

        Outstanding, September 30, 2002             2,746,290          $   1.03
             Granted                               14,568,834          $   0.46
             Exercised                               (267,500)         $   0.29
                                                   ----------

        Outstanding, September 30, 2003            17,398,457          $   0.55
             Granted                                7,359,446          $   1.58
             Exercised                             (6,785,222)         $   0.42
             Cancelled                             (4,821,000)         $   0.49
                                                   ----------

        Outstanding, September 30, 2004            13,151,681          $   0.81
             Granted                                1,083,592          $   3.23
             Exercised                             (3,204,409)         $   0.51
             Cancelled                                 (6,000)         $   0.25
                                                   ----------

        OUTSTANDING, June 30, 2005                 11,024,864          $   1.47
                                                   ==========

        EXERCISABLE, June 30, 2005                 11,024,864          $   1.47
                                                   ==========

NOTE 8 - BANKRUPTCY CLASSIFICATIONS AND ACTIVITIES.

As discussed in Note 1, for financial reporting purposes, the consolidated
financial statements have been prepared on a going concern basis. In addition,
the debtor has applied the provisions of the AICPA SOP 90-7. Accordingly, all
pre-petition liabilities subject to compromise have been segregated in the
Balance Sheet and classified as Liabilities Subject to Compromise, at the
estimated amount of allowable claims. Liabilities not subject to settlement are
classified as current or non-current.

Liabilities classified on the balance sheet as Liabilities Subject to Compromise
consist of the following amounts:

<TABLE>
                      <S>                                                                  <C>
                      Pre-petition Accounts Payable                                        $     1,050,735
                      Accrued Officer Compensation                                                 255,619
                      Accrued disputed balances                                                    181,000
                      Accrued pre-petition interest payable                                         89,286
                      Accrued pre-petition employee benefits                                        41,880
                                                                                           ---------------
                              TOTAL                                                        $     1,618,520
</TABLE>

Under the provisions of our Plan of Reorganization, we anticipate payment of all
non-disputed pre-petition liabilities at 100% after our Plan is confirmed. The
initial plan confirmation hearing is September 8, 2005. We anticipate payment of
disputed balances at the direction of the Bankruptcy Court after the Plan is
confirmed and a dispute judgment is entered. Disputed balances represent the
estimated probable and reasonably estimable balances due under the guidelines of
SFAS 5.

During the quarter ending June 30, 2005, coinciding with the filing of our plan
of reorganization, we determined that the allowed amount of liability relating
to our $15MM Debenture offering of August, 2004 was $15,000,000. Prior to the
filing of the plan, the carrying value of the Debentures was determined to be
$10,168,030, representing a debt discount due to conversion features of the
Convertible Debentures. Prior to the filing of the plan, we had been amortizing
this discount to interest expense at approximately $176,780 per month. Under SOP
90-7, when the carrying value of a liability is not equal to the allowed value
of the liability due to a debt discount or premium, the liability must be
adjusted to the expected allowed value. As a result, we recorded an additional
$4,831,970 in other expense in the quarter ending June 30, 2005, to adjust the
carrying value of the Debentures to $15,000,000.

During the quarter ending June 30, 2005, we incurred $272,830 in bankruptcy
related legal and professional fees. Under SOP 90-7, we are required to
segregate these expenses in our income statement.

NOTE 9 - SUBSEQUENT EVENTS

On July 6, 2005 our disclosure statement related to our Chapter 11 Bankruptcy
reorganization was approved by the bankruptcy court and a hearing for
confirmation of our bankruptcy plan has been scheduled for September 8, 2005.
This action means that the court has reviewed our disclosure statement and
attached exhibits including a summary of the plan of reorganization and has
determined that the disclosure statement contains adequate information for the
parties in interest to make an informed vote on whether to accept the Chapter 11
plan. Approval of the disclosure statement does not mean that the Court is
recommending approval of the plan of reorganization.

On July 20, 2005 , we completed shipment of our initial commercial product sale
of our composite core product. Our core product was shipped to General Cable,
our cable wrapping partner, for wrapping with aluminum for expected delivery of
the ACCC cable to American Electric Power in August, 2005. The terms of the sale
were under General Cable's standard purchase order terms with payment terms of
net 30 days.

On July 5, 2005 the Company entered into an exclusive brokerage and risk
management agreement with Brakke Schafritz Insurance Brokers to secure an
insured original equipment (OEM) warranty and an insured extended warranty
program for utility purchasers of the Company's ACCC product. The initial terms
of this agreement is three years on the OEM warranty program and five years on
the optional extended warranty program. The agreement automatically renews for
one-year terms unless terminated by either party upon 90 day prior notice. The
OEM premium rates vary by cable size but are approximately 4% of the selling
price of ACCC conductor cable.


                                       19
<PAGE>

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, 2004 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-KSB/A
filed with the Securities and Exchange Commission on August 8, 2005.

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-KSB/A
for the fiscal year ended September 30, 2004. All forward-looking statements are
based on information currently available to Composite Technologies 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

We develop and market composite related products for the electrical utility
industry and provide engineering, product design, and other services related to
the design and installation of our products to the global electrical utility
industry that are designed to improve the performance and capacity of
transmission and distribution electrical grids. Our principal product is our
proprietary patent pending composite reinforced conductor known as Aluminum
Conductor Composite Core, or ACCC cable. Our ACCC cable is designed to transmit
more power than conventional cables of the same diameter, create energy savings
through less line losses under comparable operating conditions, and
significantly reduce sag caused by overheating due to power overloads. We
believe that ACCC cable enables utility companies, power producers and
transmission or distribution owners to easily replace transmission lines using
standard installation techniques and equipment without modification to existing
towers and in many cases avoid the deployment of new towers and the
establishment of easements, all of which may be costly, time consuming,
controversial and harmful to the environment.

ACCC cable is now commercially available for sale in the U.S. and Canadian
markets through a strategic partnership with an existing cable manufacturer,
General Cable Industries, Inc., and worldwide, on a limited basis, directly from
the Company.

Our marketing strategy for ACCC is to penetrate the domestic U.S. and Canadian
markets through our strategic partnership with General Cable and to negotiate
similar partnerships globally to market the product internationally. Our product
and production development strategy is to develop and market follow-on products
serving the utility industry using our proprietary composite materials
technologies by taking initial concepts to commercially promising prototype,
then moving to small scale production, making relevant product modifications to
optimize the combination of manufacturability and performance. Following
optimization, pilot production is organized to mimic factory conditions under
close monitoring. During this process, the optimal commercial production
parameters and product design are documented so that the technology will be
available for licensing or transfer to third parties or subsidiaries in a full
scale factory launch.


                                       20
<PAGE>

At the beginning of the first quarter of Fiscal 2005, on October, 2, 2004, our
wholly owned subsidiary, CTC Cable Corporation, entered into two separate
agreements for the manufacture and distribution of our proprietary ACCC cable
with General Cable Industries, Inc., the principal U.S. operating subsidiary of
General Cable Corporation.

Under the Purchase Agreement, General Cable has been granted exclusive
manufacturing rights to wrap, or apply aluminum strand around our ACCC composite
core, providing a finished ACCC conductor cable in Canada and the U.S. to be
installed and operated in the U.S. and Canada. Pursuant to the terms of this
agreement, we have agreed to purchase articles, materials, services or equipment
from General Cable for the manufacture of ACCC conductor cable at prices no
higher than prices that General Cable would provide to its best commercial
customer, subject to General Cable's right to modify prices upon material
increases in any of General Cable's raw material costs. General Cable has agreed
to certify that its materials, equipment and services covered by the purchase
orders comply with the utility cable industry standard specifications and
manufacturing processes as well as our specifications. It also warrants for a
time period of 12 months after installation, excluding all other warrants, that
the wrapped products sold under the purchase orders will meet government
approved specifications in the U.S. or Canada and will comply with all
specifications and standards agreed upon with CTC in writing. This warranty is
not effective more than 20 months from the date of our invoice covering the
products. Under the terms of this agreement, General Cable's liability is
limited to replacement of any wire or cable that does not substantially meet the
manufacturing specifications or fails during normal use within one year from the
date of installation and such failure was caused by defects in material or
workmanship at time of shipment. Our liability is limited to replacement of
products within the warranty period that are defective due to failure of the
core to meet applicable specifications or failure to perform as part of a
finished product. The agreement terminates on December 31, 2007, unless
terminated earlier in the event General Cable is unable to supply products or we
are unable to accept delivery of products due to causes beyond our or General
Cable's control.

Under the Distribution Agreement, General Cable is appointed a non-exclusive
distributor for the marketing and sale of all ACCC cable wrapped by General
Cable that conform with applicable industry standards for the U.S. and Canadian
markets only. Pursuant to the terms of the agreement, General Cable has agreed,
at its expense, to assist CTC in promotional and marketing activities in the
U.S. and Canada, coordinate its sales efforts with CTC and establish and
maintain a place of business as necessary to provide customer support and
marketing coverage in the U.S. and Canada. The agreement grants General Cable a
license to use trademarks and trade names used by CTC for the term of the
agreement. This agreement terminates on December 31, 2007 and automatically
renews from year to year, unless either party gives prior written notice of
non-renewal or earlier termination pursuant to the terms of the agreement.
General Cable has the right to terminate the agreement at any time without cause
upon 90-day prior written notice. General Cable or CTC may terminate the
agreement upon uncured breach by the other party or in the event General Cable
is unable to supply products or we are unable to accept delivery of products due
to causes beyond our or General Cable's control. The agreement automatically
terminates in the event of either party's bankruptcy or insolvency, or if
performance is impossible or commercially impracticable.

These agreements represent the conclusion of the initial phase of the
introduction of our bare overhead conductor ACCC product range in that they
provide the framework for the products to be made available in commercial
quantities produced by General Cable. We believe the General Cable relationship
provides an important level of comfort to customers regarding the stability of
supply and consistency and viability of production since they are an established
manufacturer and distributor with long standing market relationships. The
agreements also mark the beginning of a new phase of our operations in which the
focus will be on production of the core for supply to cable manufacturers
worldwide and sales of the ACCC products to end users.


                                       21
<PAGE>

Throughout the first quarter of 2005, we have concentrated on improving the
operational mechanics of our relationship with General Cable, culminating,
subsequent to the quarter end, on January 18, 2005, with the announcement of the
introduction of the TransPowr ACCC/TW bare overhead conductor. The TransPowr
ACCC/TW bare overhead conductor integrates General Cable's ACSS/TW technology
and our carbon and glass fiber core technology that is at the center of our ACCC
product range.

TransPowr ACCC/TW bare overhead conductor is the product with which we intend to
begin full scale commercial introduction of the ACCC product into the
transmission and distribution conductor market.

In addition, we provide consulting services relating to the planning of overhead
electrical transmission power lines and utility services, including undertaking
preliminary feasibility analysis and strategic advice regarding location and for
scope as well as advice regarding the establishment of production facilities for
the production of products used in the Electrical Transmission Industry. We
currently, however, are not concentrating our efforts to increase our consulting
business and instead are focused on the commercialization of the ACCC Cable.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations
is based upon the condensed consolidated financial statements, which have been
prepared in accordance with U.S. generally accepted accounting principles. The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities as of the date
of the financial statements, and the reported amounts of revenue and expense
during the periods. These estimates are based on historical experience and
various other assumptions that we believe to be reasonable under the
circumstances. We have identified those critical accounting policies used in
reporting our financial position and results of operations based upon a
consideration of those accounting policies that involve the most complex or
subjective decisions or assessment. We consider the following to be our critical
policies.

TITLE 11 BANKRUPTCY

The accompanying Consolidated; Condensed Financial Statements have been prepared
on a going concern basis, which assumes continuity of operations and realization
of assets and satisfaction of liabilities in the ordinary course of business and
in accordance with SOP 90-7. Accordingly, all pre-petition liabilities subject
to compromise have been segregated in the Consolidated Balance Sheets and
classified as Liabilities Subject to Compromise, at the estimated amount of
allowable claims. Liabilities not subject to compromise are separately
classified as current and non-current.

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 two
sources: (1) Product revenue which includes revenue from the sale of composite
core, wrapped composite core, and other electric utility related products. (2)
Consulting revenue, which includes engineering, product design, and service fees
that we receive under customer agreements related to the installation and design
of our product sale solutions. In addition to the above general revenue
recognition principles prescribed by SAB 104, our specific revenue recognition
policies for each revenue source are more fully described below.

PRODUCT SALES. Product revenues are generally 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) wrapped composite core to
utilities either sold directly by the Company or through our distributor, ii)
composite core sold to a cable wrapping partner not subject to a distributor
agreement and where title passes to the partner, or iii) cable core hardware
sold to utility companies. For most product sales, we expect that the terms of
sales generally will not contain provisions that will obligate us to provide
additional products or services after installation to end users.. We recognize
revenue: (i) upon shipment when products are shipped FOB shipping point or (ii)
upon delivery at the customer's location when products are shipped FOB
destination. Billings related to products shipped but not recognized as revenues
are carried in deferred revenues on the balance sheet. Product costs associated
with these deferred revenues are carried in inventory.


                                       22
<PAGE>


CONSULTING REVENUE Consulting revenues are generally recognized as the
consulting services are provided. We have entered into service contract
agreements with electric utility and utility services companies that generally
require us to provide engineering or design services, often in conjunction with
current or future product sales. In return, we receive engineering service fees
payable in cash. For multiple element contracts where there is no vendor
specific objective evidence (VSOE) that would allow the allocation of an
arrangement fee amongst various pieces of a multi-element contract, fees
received in advance of services provided are recorded as deferred revenues until
additional operational experience or other vendor specific objective evidence
becomes available, or until the contract is completed.

During its history, the Company has entered into revenue bearing contracts of a
long term (greater than one year) duration. Due to a lack of operational history
resulting in low reliability of estimates on interim rates of completion of such
contracts, revenues associated with long term contracts are recognized on the
completed-contract method of accounting. Under this method, billings and costs
are accumulated during the period of installation, but no revenues are recorded
before the completion of the work. Costs of revenues are capitalized and are
recorded in other current assets. Provisions for estimated losses on uncompleted
contracts are made at the time such losses are determined. Operating expenses,
including indirect costs and administrative expenses, are charged as incurred to
periodic income and not allocated to contract costs.

Development Stage Enterprise

The Company is a development stage company as defined in Statement of Financial
Accounting Standards ("SFAS") No. 7, "Accounting and Reporting by Development
Stage Enterprises." The Company is devoting substantially all of its present
efforts to establish a new business, and its planned principal operations have
not yet commenced. All losses accumulated since inception, have been considered
as part of the Company's development stage activities.

Stock-Based Compensation

The Company accounts for Stock Based Compensation according to the guidelines of
Staff Accounting Bulletin No. 107 which incorporates the interaction between
Statement of Financial Accounting Standards Statement 123 and certain SEC rules
and regulations. SFAS No. 123, "Accounting for Stock Compensation," as amended
by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and
Disclosure," defines a fair value based method of accounting for stock-based
compensation. However, SFAS No. 123 allows an entity to continue to measure
compensation cost related to stock and stock options issued to employees using
the intrinsic method of accounting prescribed by Accounting Principles Board
("APB") Opinion No. 25,"Accounting for Stock Issued to Employees." Entities
electing to remain with the accounting method of APB No. 25 must make pro forma
disclosures of net income and earnings per share as if the fair value method of
accounting defined in SFAS No. 123 had been applied. The Company has elected to
account for its stock-based compensation to employees using the intrinsic value
method under APB No. 25. In December 2004, SFAS No. 123 was revised and
eliminated the ability to account for share based compensation transactions
using the intrinsic value method under APB Opinion No. 25, effective the first
interim or annual period beginning after June 15, 2005 for public companies. The
effective date for the Company will be beginning fourth quarter of fiscal 2005.

Principles of Consolidation

The consolidated financial statements include the accounts of CTC and its wholly
owned subsidiaries (collectively, the "Company"). All significant inter-company
accounts and transactions are eliminated in consolidation.


                                       23
<PAGE>

Research and Development Expenses

Research and development expenses are charged to operations as incurred.

Accounts Receivable

The Company extends credit to its customers. Collateral is generally not
required. Credit losses are provided for in the financial statements based on
management's evaluation of historical and current industry trends as well as
history with individual customers. Although the Company expects to collect
amounts due, actual collections may differ from estimated amounts. Inventory

Inventories consist of our wrapped and unwrapped manufactured composite core and
related hardware products and raw materials used in the production of those
products. Inventories are valued at the lower of cost or market under the FIFO
method. Products manufactured internally are valued at standard cost which
approximates replacement cost.

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.

RESULTS OF OPERATIONS

PRODUCT REVENUES Product revenues consist of revenue from the sale of ACCC cable
products to utility companies and composite core to General Cable. To date, all
recognized product revenues consist of sales made on a non-returnable "trial"
basis so these customers can verify our claims that the ACCC Cable is
technologically superior to existing cable technology.

We recognized no revenues for either the three months ending June 30, 2004 or
2005. During the quarter ending June, 2005 we received cancelable orders for
ACCC through our agreement with General Cable from American Electric Power and
Pacificorp, one order from FCI for ACCC hardware, and two cancelable orders from
Jiangsu Far East (China) for ACCC cable sold directly by CTC for approximately
$1,600,000. During the three months ending June 30, 2005 we billed approximately
$566,000 on these orders and deferred all revenues associated with those
billings until all revenue recognition criteria are met in accordance with SAB
104.

Product revenues increased from $0 for the Nine Months ending June 30, 2004 to
$46,485 for the Nine Months ending June 30, 2005. The dollar increase was due to
increased ACCC cable trials by utility companies. Due to the uncertainty
surrounding new revenue orders, potential delays in delivery, and the lack of
product sales history for our conductor core, ACCC product sales or related
hardware sales, we can not determine at this time with any reasonable certainty
when we expect to recognize our current billings, additional billings on
existing sales orders, or future sales orders as revenues. Although we
anticipate closing additional sales orders as our ACCC product is accepted into
the market, the sales cycle in the utility industry is lengthy and may result in
substantial delays to the acquisition of new customers or additional sales to
existing customers.


                                       24
<PAGE>

CONSULTING REVENUES Consulting revenues since inception consisted of $2,500,000
for a single consulting contract that was completed during the three months
ending September 30, 2004. No consulting contracts were completed during either
the Nine Months ended June 30, 2004 or 2005. While this contract provided us
with significant revenues, we currently are not concentrating our efforts to
increase our consulting business and instead are focused on increasing our
product revenues through commercialization of the ACCC Cable. As a result, we do
not believe that consulting revenues will be maintained or grow.

COST OF PRODUCT REVENUES Cost of product revenues for the Nine Months ending
June 30, 2005 represented materials costs to produce ACCC cable sold and
recognized as revenues. Cost of product revenues increased from $0 for the Nine
Months ending June 30, 2004 to $30,894 for the Nine Months ending June, 2005.
The dollar increase was due to increased ACCC cable trials by utility companies.
There were no product revenues or costs associated with product revenues for the
three months ending June 30, 2004 or 2005. Costs related to revenues deferred
during the quarter ended June 30, 2005 total approximately $375,000 and are
carried in the inventory balance as of June 30, 2005.

For the quarter ended June 30, 2005, the inventory capitalized related to the
deferred revenues billed in the June, 2005 quarter was 66% of the deferred
revenues for a pro forma gross margin of 34%. As our product gains acceptance
and our production increases, we anticipate that we will gain additional
operational efficiencies that will result in manufacturing cost savings.
However, since a large component of our cost is in composite grade carbon which
is in short global supply and for which we have not established a redundant
supply, our gross margins may be negatively impacted by price increases. In
addition, since we have just begun commercial sales, we do not have any history
of our sales mix of higher margin composite core, or lower margin wrapped core
(ACCC) or ACCC hardware products both in North America and outside of North
America that would allow for greater visibility as to costs of product revenues
and gross margins.

COST OF CONTRACT REVENUE Cost of contract revenue consists primarily of salaries
for engineers and expenses for consultants, supplies, equipment, depreciation
and facilities associated with contract projects. Our total engineering costs
are allocated between cost of contract revenue and research and development
expense. In a given period, the allocation of engineering costs between cost of
contract revenue and research and development is a function of the level of
effort expended on each.

Cost of contract revenue since inception consisted of costs related to the
single consulting contract that was completed during the three months ending
September 30, 2004. No consulting contracts were completed during either the
three or Nine Months ended June 30, 2004 or 2005 and accordingly, no costs of
contract revenue were recorded for the respective quarters.


OFFICER COMPENSATION Officer Compensation expense consisted of salaries,
consulting costs, and employee benefits for our Chief Executive, Chief
Operating, and Chief Financial Officers and the Corporate Secretary. Officer
Compensation decreased 49% from $116,923 in the third fiscal quarter of 2004 to
$60,000 in the third fiscal quarter of 2005. For the Nine Months ended June 30,
officer compensation decreased 38% from $302,258 in 2004 to $186,838 in 2005.
The dollar decrease was due to fewer officers in 2005.


                                       25
<PAGE>

GENERAL AND ADMINISTRATIVE EXPENSE General and administrative expense consisted
primarily of salaries and employee benefits for administrative personnel,
facilities costs, stock listing fees, insurance expenses, and expenses related
to reserves for uncollectible receivables. During the quarter and nine months
ended June 30, 2005 an Accounts Receivable reserve of $2,500,000 was expensed
into General and Administrative expenses resulting in an increase of 331% or
$2,451,576 from $739,501 in the third fiscal quarter of 2004 to $3,191,177 in
the similar 2005 quarter. For the nine months ended June 30, general and
administrative expenses increased $2,265,876 or 98% from $2,308,138 in 2004 to
$4,574,014 for 2005.

Excluding the increase due to the $2,500,000 receivable reserve, General and
Administrative expense decreased 7% from $739,501 in the third fiscal quarter of
2004 to $691,177 in the third fiscal quarter of 2005. For the nine months ended
June 30, general and administrative expenses decreased 10% from $2,308,138 in
2004 to $2,074,014 in 2005.

Excluding the increase due to the $2,500,000 receivable reserve,, for the three
month period, the dollar decrease of $48,000 is primarily due to overhead costs
decrease of $69,000 and travel expenses decrease of $63,000 offset by increases
in salaries costs of $36,000 and consulting costs of $29,000.

Excluding the increase due to the $2,500,000 receivable reserve, for the nine
month period, the dollar decrease of $234,000 is primarily due to a decrease of
$266,000 for compensation expense recorded in 2004 for the modification of
employee stock options exercised on a cashless basis, a decrease in travel
expenses of $168,000, a decrease in overhead of $79,000, a decrease in employee
salaries of $170,000 offset by increased consulting costs of $363,000 and
increased shareholder related costs of $85,000. Except for any future changes
related to bad debt expense or other one-off items, we anticipate that general
and administrative expenses will increase nominally in step with expected
company sales growth due to additional employee headcount addition to support
the back office infrastructure.

LEGAL, PROFESSIONAL, AND CONSULTING EXPENSE Legal, professional, and consulting
expense consisted primarily of legal, professional, and financing fees and
consultants performing legal and professional services. Legal, Professional, and
Consulting expense decreased 52% from $1,778,528 in the third fiscal quarter of
2004 to $857,514 in the third fiscal quarter of 2005. For the nine months ended
June 30, legal, professional, and consulting expense increased 93% from
$2,600,781 in 2004 to $5,021,930 in 2005.

For the three month period, the dollar decrease of $921,000 was due to a
decrease of $1,540,000 charge in 2004 related to modification of warrant
exercise price offset by increases in litigation related legal fees of $570,000
for legal fees and other professional fees.

For the nine month period, the dollar increase of $2,421,000 was due to an
increase of $2,000,000 in expense related to warrants issued to obtain the
release of $10MM in restricted cash from the debenture holders, $1,252,000
increase in legal fees incurred to defend our litigation cases, $450,000 in
legal fees related to SEC and the Debenture registration, $116,000 in expense
for a legal settlement, and $80,000 for warrants issued for services rendered
related to capital lease financings offset by a $1,540,000 reduction in expense
related to the 2004 warrant modification. We anticipate the continued spending
in legal, professional and consulting expense relating to defense of our
litigation, legal fees related to our bankruptcy filing, and additional
professional accounting fees relating to our annual audit and our Sarbanes Oxley
compliance requirements.

REORGANIZATION EXPENSE - BANKRUPTCY LEGAL FEES. During the quarter ending June
30, 2005, we incurred $272,830 in bankruptcy related legal and professional
fees. Under SOP 90-7, we are required to segregate these expenses in our income
statement. There were no such expenses in any prior periods.


                                       26
<PAGE>

RESEARCH AND DEVELOPMENT EXPENSE Research and development expense consisted
primarily of salaries for engineers and product development personnel, expenses
for consultants, recruiting, supplies, equipment, and facilities related to
engineering projects to enhance and extend our composite materials intellectual
property offerings, and our composite materials product technology and processes
and charged off inventory provided to utility companies on a non-paying test or
trial basis. Research and Development expense increased 180% from $644,983 in
the third fiscal quarter of 2004 to $1,806,087 in the third fiscal quarter of
2005. For the nine months ended June 30, research and development expense
increased 53% from $2,623,968 in 2004 to $4,025,487 in 2005.

For the three month period, the dollar increase of $1,161,000 was the result of
increased efforts in refining our manufacturing processes and testing of our
composite cable core products and was due primarily to a $508,000 increase in
consulting costs for strategic management, testing, intellectual property, and
design, $395,000 increase in salaries and employee benefits due to increased
headcounts in design, testing, and manufacturing, additional overhead of
$65,000, and a charge off of $262,000 for inventory shipped to utilities and
other entities for non-paying testing and trials.

For the nine month period, the dollar increase of $1,406,000 was the result of
increased spending on manufacturing processes and testing and was due primarily
to a $1,036,000 increase in salaries, $97,000 increase in consulting costs,
$79,000 increase in overhead, and the $262,000 inventory charge off offset by a
decrease of $68,000 related to the modification of employee stock options
exercised on a cashless basis in 2004. We anticipate that our research and
development expenses will decrease in the short term as more production and
production process optimization expenses that are currently expensed to research
and development are expensed to inventory and costs of sales - as future
activities result in a reallocation of these costs. We anticipate the continued
and increased spending on research and development activities thereafter as
additional research staff are hired and new products are developed.

SALES AND MARKETING EXPENSE Sales and marketing expense consisted primarily of
salaries for sales and marketing personnel, expenses for sales and marketing
consultants, equipment, travel, and printed marketing literature and sales
materials. Sales and marketing expense increased 55% from $185,585 in the third
fiscal quarter of 2004 to $287,974 in the third fiscal quarter of 2005. For the
Nine Months ended June 30, sales and marketing expense increased 6% from
$751,423 in 2004 to $793,216 in 2005.

For the three month period, the dollar increase of $102,000 was due primarily to
a $158,000 increase in sales related consulting, offset by a $45,000 decrease in
employee salary costs.

For the nine month period, the dollar increase of $42,000 was due primarily to a
$200,000 increase in sales related consulting, an increase of $79,000 in
employee salaries and benefits, and an increase of $47,000 in overhead costs
offset by a decrease of $271,000 for marketing materials purchased in 2004. We
anticipate that our sales and marketing expenses will increase as we hire more
sales and marketing personnel, with additional sales incentive pay, and as we
roll out our sales and marketing strategy.

DEPRECIATION EXPENSE Depreciation expense consisted of depreciation on
capitalized equipment, leasehold improvements, and other capital assets.
Depreciation expense increased 337% from $29,931 in the third fiscal quarter of
2004 to $130,795 in the third fiscal quarter of 2005. For the Nine Months ended
June 30, depreciation expense increased 500% from $61,170 in 2004 to $367,123 in
2005. The dollar increase was due to a higher depreciable asset base in fiscal
2005 than 2004.

INTEREST INCOME Interest income increased 1,100% from $1,715 in the third fiscal
quarter of fiscal 2004 to $21,033 in the third fiscal quarter of 2005 and
increased from $1,715 for the Nine Months ended June 30, 2004 to $53,577 for the
Nine Months ended June 30, 2005. The increase was due to interest earned on
higher cash balances.


                                       27
<PAGE>

INTEREST EXPENSE Interest expense increased from $14,728 in the third fiscal
quarter of 2004 to $459,150 in the third fiscal quarter of 2005. For the Nine
Months ended June 30, interest expense increased from $14,875 in 2004 to
$1,993,939 in 2005. The dollar increase was due to cash interest expense paid on
the capital leases that were initiated late in fiscal 2004 and the interest on
the Convertible Subordinated Debentures issued in the fourth quarter of fiscal
2004.

REORGANIZATION ITEM - ADJUSTMENT TO CARRYING VALUE OF CONVERTIBLE DEBENTURES.
During the quarter ending June 30, 2005, coinciding with the filing of our plan
of reorganization, we determined that the allowed amount of liability relating
to our $15MM Debenture offering of August, 2004 was $15,000,000. Prior to the
filing of the plan, the carrying value of the Debentures was determined to be
$10,168,030, representing a debt discount due to conversion features of the
Convertible Debentures. Prior to the filing of the plan, we had been amortizing
this discount to interest expense at approximately $176,780 per month. Under SOP
90-7, when the carrying value of a liability is not equal to the allowed value
of the liability due to a debt discount or premium, the liability must be
adjusted to the expected allowed value. As a result, we recorded an additional
$4,831,970 in other expense in the quarter ending June 30, 2005, to adjust the
carrying value of the Debentures to $15,000,000. There were no such expenses in
any prior periods.

INCOME TAXES We made no provision for income taxes in the three months ending
June 30, 2005 and 2004 due to net losses incurred. In 2002, we 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 June 30, 2005, 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 realizability of our deferred tax assets.

Net Loss

Our net loss increased to $11.8 million and $22.0 million for the three and Nine
Months ended June 30, 2005 compared to $3.5 million and $8.7 during the
corresponding periods in 2004.

The increase in fiscal 2005 from 2004 for the quarter ending June 30 of $8.3
million was due to the carrying value adjustment of $4.8 million related to our
Bankruptcy filing (see Note 8), the $2.5 million receivable reserve, $1.2
million in increased employee headcount, consulting, supplies, equipment,
testing services, depreciation, and additional overhead expenses related to
production of our core product, $900,000 in increased legal fees associated with
the litigation defense and our Chapter 11 bankruptcy filing, $800,000 increase
in interest expense on our $15.0 million debentures and our capital leases,
offset by a decrease of $1.5 million related to a modification of warrants in
June of 2004.

The increase in fiscal 2005 from 2004 for the nine months ending June 30 of $3.3
million was due to the carrying value adjustment of $4.8 million related to our
Bankruptcy filing (see Note 8), the $2.5 million receivable reserve, $2.1
million in increased employee headcount, consulting, supplies, equipment,
testing services, depreciation and additional overhead expenses related to
production of our core product , $1.7 million on increased legal fees associated
with our litigation defense and our Chapter 11 bankruptcy filing, $2.3 million
in increased interest expense on our $15.0 million debentures and our capital
leases, $2.0 million in expense related to warrants issued for the release of
$10 million in restricted cash offset by a decrease of $1.5 million related to a
modification of warrants in June of 2004.

RECENT ACCOUNTING PRONOUNCEMENTS

SFAS No. 151

In November 2004, the FASB issued SFAS No. 151,"Inventory Costs". SFAS No. 151
amends the accounting for abnormal amounts of idle facility expense, freight,
handling costs, and wasted material (spoilage) under the guidance in ARB No. 43,
Chapter 4,"Inventory Pricing". Paragraph 5 of ARB No. 43, Chapter 4, previously
stated that ". . . under some circumstances, items such as idle facility
expense, excessive spoilage, double freight, and rehandling costs may be so
abnormal as to require treatment as current period charges. . . ." This
Statement requires that those items be recognized as current-period charges
regardless of whether they meet the criterion of "so abnormal." In addition,
this Statement requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. This statement is effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. Management does not expect adoption
of SFAS No. 151 to have a material impact on the Company's financial statements.


                                       28
<PAGE>

SFAS No. 152
In December 2004, the FASB issued SFAS No. 152,"Accounting for Real Estate
Time-Sharing Transactions". The FASB issued this Statement as a result of the
guidance provided in AICPA Statement of Position (SOP) 04-2,"Accounting for Real
Estate Time-Sharing Transactions". SOP 04-2 applies to all real estate
time-sharing transactions. Among other items, the SOP provides guidance on the
recording of credit losses and the treatment of selling costs, but does not
change the revenue recognition guidance in SFAS No. 66,"Accounting for Sales of
Real Estate", for real estate time-sharing transactions. SFAS No. 152 amends
Statement No. 66 to reference the guidance provided in SOP 04-2. SFAS No. 152
also amends SFAS No. 67, "Accounting for Costs and Initial Rental Operations of
Real Estate Projects", to state that SOP 04-2 provides the relevant guidance on
accounting for incidental operations and costs related to the sale of real
estate time-sharing transactions. SFAS No. 152 is effective for years beginning
after June 15, 2005, with restatements of previously issued financial statements
prohibited. This statement is not applicable to the Company.

SFAS No. 153
In December 2004, the FASB issued SFAS No. 153,"Exchanges of Nonmonetary
Assets," an amendment to Opinion No. 29,"Accounting for Nonmonetary
Transactions". Statement No. 153 eliminates certain differences in the guidance
in Opinion No. 29 as compared to the guidance contained in standards issued by
the International Accounting Standards Board. The amendment to Opinion No. 29
eliminates the fair value exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. Such an exchange has
commercial substance if the future cash flows of the entity are expected to
change significantly as a result of the exchange. SFAS No. 153 is effective for
nonmonetary asset exchanges occurring in periods beginning after June 15, 2005.
Earlier application is permitted for nonmonetary asset exchanges occurring in
periods beginning after December 16, 2004. Management does not expect adoption
of SFAS No. 153 to have a material impact on the Company's financial statements.

SFAS No. 123(R)
In December 2004, the FASB issued SFAS No. 123(R),"Share-Based Payment". SFAS
123(R) amends SFAS No. 123,"Accounting for Stock-Based Compensation", and APB
Opinion 25,"Accounting for Stock Issued to Employees." SFAS No.123(R) requires
that the cost of share-based payment transactions (including those with
employees and non-employees) be recognized in the financial statements. SFAS No.
123(R) applies to all share-based payment transactions in which an entity
acquires goods or services by issuing (or offering to issue) its shares, share
options, or other equity instruments (except for those held by an ESOP) or by
incurring liabilities (1) in amounts based (even in part) on the price of the
entity's shares or other equity instruments, or (2) that require (or may
require) settlement by the issuance of an entity's shares or other equity
instruments. This statement is effective for the Company (1) for public
companies qualifying as SEC small business issuers, as of the first interim
period or fiscal year beginning after December 15, 2005, or (2) for all other
public companies, as of the first interim period or fiscal year beginning after
June 15, 2005, or beginning its fourth quarter of fiscal 2005., or (3) for all
nonpublic entities, as of the first fiscal year beginning after December 15,
2005. Management is currently assessing the effect of SFAS No. 123(R) on the
Company's financial statement.

SFAS No. 154
In May 2005, the FASB issued SFAS No. 154,"Accounting Changes and Error
Corrections" SFAS 154 replaces APB Opinion No. 20, " Accounting Changes" and
FASB Statement No. 3 , "Reporting Accounting Changes in Interim Financial
Statements" and changes the requirements for the accounting for and reporting of
a change in accounting principle. SFAS 154 requires retrospective application to
prior periods' financial statements of changes in accounting principles unless
it is impractical to do so and limits the application of a change in accounting
principle to the direct effects of the change. The Statement also requires that
a change in depreciation, amortization, or depletion methods for long-lived
nonfinancial assets be accounted for as a change in accounting estimate effected
by a change in accounting principle. SFAS 154 carries forward without change the
guidance contained in APB 20 for reporting the correction of an error in
previously issued financial statements and for changes in accounting estimates.
This statement is effective for accounting changes and corrections of errors
made in fiscal years beginning after December 15, 2005. Management does not
expect adoption of SFAS No. 153 to have a material impact on the Company's
financial statements.


                                       29
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of working capital have been private debt issuances and
equity financings.

For the nine months ended June 30, 2005, we had a net loss of $22.0 million. At
June 30, 2005, we had $2.4 million of cash and cash equivalents, which
represented a decrease of $522,000 from September 30, 2004. The decrease was due
to the transfer of $10.0 million of cash from restricted cash related to the
convertible subordinated debentures offset by $10.5 million of net change in
cash.

Cash used by operations during the nine months ended June 30, 2005 of $721,366
was primarily the result of operating losses, offset by receivable reserves,
depreciation, amortization, and non-cash compensation expenses and working
capital requirements, in particular the release of the $10 million in restricted
cash in November, 2004. Cash used for investing activities of $1,362,510 was
related to the purchase of computer hardware and software, and equipment put in
service in anticipation of manufacturing activities. Cash provided by financing
of $2,930,615 was primarily due to the cash proceeds from option and warrant
exercises net of principal payments made on capital lease obligations.

In November 2004, we reached an agreement with the investors that purchased
debentures in our $15 million financing of August 17, 2004 to release $10
million that was held in a custodian account. Following the release of the $10
million, we believe that we have sufficient operating capital to carry out our
currently planned operations until October, 2005. If our existing cash and cash
equivalents and cash generated from our operations are insufficient to satisfy
our liquidity requirements, we may seek to sell additional equity or debt
securities. The sale of additional securities could result in dilution to our
stockholders. If additional funds are raised through debt securities, these
securities could have rights senior to those associated with our common stock
and could contain covenants that restrict our operations. Additional funds may
not be available in amounts or on terms acceptable to us, or at all. If we are
unable to obtain this additional financing, we may have to delay
commercialization of our product and reduce resources devoted to our product.
Any of these results could harm our financial condition.

Bankruptcy and related activity:
On April 14, 2005, CTC was served with notice that pursuant to the Acquvest
litigation, the Orange County Superior Court granted an attachment of CTC's
assets totaling $2.55 million. The Court had denied two prior applications by
defendants and cross-complainants for Writs of Attachment. CTC immediately filed
a Notice of Appeal on April 14, 2005 and an Emergency Writ on April 18, 2005
with the California Courts of Appeal to challenge the Court's decision to grant
the Writs of Attachment and to stay the Writs of Attachment.

In May, 2005 we filed for Chapter 11 bankruptcy protection, in part to release
this cash so that we had it available for operations. In June, 2005, the entire
$2.55 million attached pursuant to the Acquvest litigation was released back to
us.

Although our reorganization plan has not been accepted to date, our bankruptcy
plan of reorganization is expected to have several impacts on our operating cash
flows including:

i. the cash interest payment on our Debentures is proposed to be paid in common
stock. Prior to the bankruptcy filing we paid our debenture holders $225,000 per
quarter in cash. We have accrued the entire $225,000 interest payment on our
balance sheet as accrued interest payable.

ii. any litigation related claims settled or resolved under the bankruptcy plan
will be payable in company common stock rather than in cash or property.


                                       30
<PAGE>

iii. we had approximately $1,100,000 in accounts payable as of the date of the
filing that is payable at the direction of the US Trustee and there are
additional restrictions on cash payments while we are in bankruptcy proceedings.
There are approximately $800,000 in additional claims related to disputed
contracts that are expected to be resolved during the bankruptcy proceedings.

iv. prior to the bankruptcy we were spending approximately $300,000 per month or
approximately 30% of our negative operating cash flow for the quarter ending
March 31, 2005 in legal fees, primarily for litigation related activities. The
bankruptcy consolidates most of our litigation activities in one legal forum and
delays the litigation activities. We anticipate substantial cash savings as a
result of the consolidation and delay of the litigation offset by approximately
$500,000 in additional bankruptcy related legal and professional fee costs
during the term of the bankruptcy.

v. We recorded a carrying value adjustment expense of $4.8 million on May 5,
2005 to reduce the previously recorded discount on our $15.0 million Convertible
Debentures to zero. This adjustment resulted in the carrying value of our
Debentures to be increased to their Allowed value of $15.0 million as
appropriate under SOP 90.7. We recorded approximately $325,000 less in non-cash
interest expense during the quarter ended June 30, 2005 than we would have
recorded absent the adjustment. From August, 2004 through the date of the
adjustment, we had recorded non-cash interest expense of approximately $531,000
per fiscal quarter and prospectively, we will record $0 in non-cash interest
expense related to the discount for the Debentures beginning from the date of
the Carrying Value adjustment.

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. Price risks are managed through cost-containment measures.
Except as noted below, we do not believe that inflation risk or other price
risks with respect to raw materials used to produce our products are material to
our business, financial position, results of operations or cash flows. Due to
increased demand for composite quality carbon materials worldwide in particular
in the aerospace and defense industries and due to a restricted supply of high
quality carbon due to a limited number of suppliers, the Company may be exposed
to raw material price increases or carbon materials shortfalls until additional
suppliers or supplies become available. We can not quantify any such price or
material impacts at this time.

DEVELOPMENTS THIS QUARTER

Initial Product Sales: We closed our first commercial sales of our composite
core products. As of June 30, 2005 we had received cancelable purchase orders or
purchase commitments directly from, FCI, and Jiangsu Far East Group and through
our agreement with General Cable, orders from American Electric Power and
Pacificorp totaling approximately $1.6 million. As of June 30, 2005 we have made
full or partial shipments on three of these orders and billed a total of
approximately $566,000 through the end of the fiscal quarter. We have deferred
recognition of all revenue associated with these orders as of June 30, 2005.

Receivable reserve: In March, 2005, we negotiated with a customer to establish a
payment schedule on the $2.5 million receivable recorded in September, 2004 for
consulting services performed. Under the terms of the payment schedule, the
customer was to have paid CTC $250,000 on or before April 30, 2005 with
additional payments of $250,000 due on or before May 31 and the remaining
balance due by July 31, 2005. We received a check for the initial payment which
we believed to be negotiable and deposited the check on April 29, 2005. In May,
2005 our bank returned the check for insufficient funds. Subsequent attempts to
collect on the initial payment and on subsequent amounts due according to the
negotiated payment schedule were not successful. In June, 2005, the Company
issued a demand letter requesting immediate payment of the balance due. No
payments were made on either the initial or subsequent progress payments
scheduled during the quarter. As a result and based on management's assessment
of the likelihood of collection, the Company recorded a receivable reserve for
the entire $2,500,000 as additional General and Administration expense and as a
reduction in the carrying value of the account receivable during the quarter
ending June 30, 2005. The Company intends to vigorously pursue collection of the
receivable. Any future balances collected will be recorded prospectively as
reductions in General and Administration expense.


                                       31
<PAGE>

Bankruptcy and Litigation:

Composite Technology Corporation v. Acquvest (OCSC Case No. 03 CC 12640): On
October 16, 2003, CTC filed suit against Acquvest, Inc., Paul Koch, Victoria
Koch, Patricia Manolis, and Michael Tarbox in Orange County Superior Court. CTC
alleges causes of action for declaratory relief, breach of contract, fraudulent
inducement, rescission and economic duress arising out of certain subscription
and related agreements among the Company and the defendants. In connection with
such agreements, CTC issued to Acquvest, Inc. and Patricia Manolis, in April
2003 and September 2003, a total of 150,000 units for a total purchase price of
$375,000. Each unit consists of 10 shares of unregistered, restricted common
stock and 10 Series I warrants to purchase one share of unregistered, restricted
common stock. Each Series I warrant entitles the holder to purchase a share of
common stock at $0.50 per share and expires on March 30, 2005. The agreements
provide for the issuance of up to an additional 550,000 of such units for the
same purchase price of $2.50 per unit, subject to certain conditions, and
registration of share issuances under the Securities Act of 1933. The additional
units have not been issued and the additional purchase consideration has not
been paid. The parties disagree as to their respective rights and obligations
with respect to the original issuances and such additional units. 10,000 units
were also issued to Paul Koch for services in connection with such agreements,
and a dispute has arisen as to his entitlement to those and additional units and
warrants in connection with the agreements. CTC is seeking actual damages,
punitive damages, statutory costs, attorneys' fees and injunctive relief against
the defendants. CTC also seeks rescission of the pertinent agreements based on
numerous grounds, including fraudulent inducement. By a letter to CTC's counsel
dated September 8, 2004, Acquvest stated that it was waiving the contractual
conditions to its purchase of an additional 400,000 units under its subscription
agreement and was tendering $1,000,000, which was available on deposit, to CTC
as payment for the units. Acquvest, Koch, and Manolis filed a Cross-Complaint on
September 16, 2004, which they amended per stipulation on December 17, 2004. On
April 14, 2005, CTC was served with notice that the Court granted defendants and
cross-complainants' application for Writs of Attachment allowing for the
attachment of CTC's assets totaling $2.55 million. The Court had denied two
prior applications by defendants and cross-complainants for Writs of Attachment.
CTC immediately filed a Notice of Appeal on April 14, 2005 and an Emergency Writ
on April 18, 2005 with the California Courts of Appeal to challenge the Court's
decision to grant the Writs of Attachment and to stay the Writs of Attachment.
Additionally, CTC is working to arrange to post the bond to stay attachment of
the entire amount subject to the Writs of Attachment. CTC believes that the
Court committed reversible error by granting the Writs of Attachment and intend
to vigorously seek to reversal of the order. The grounds for reversal of the
order are that: (1) the corporate entity (Acquvest) that applied for the Writ of
Attachment lacks capacity to maintain a proceeding in the State of California;
(2) both applicants failed to make any showing of imminent danger of irreparable
harm as required by California law; (3) the applicants failed to make any
showing that their claims were for a fixed on readily ascertainable amount as
required by California law; and (4) the applicants failed to make an adequate
showing of likelihood of success on the merits as required by California law.
Trial date was set for May 9, 2005, but was vacated as a result of the
bankruptcy filing. The litigants seek issuance of a total of 10,300,000 shares
of common stock in exchange for $2,375,000 in cash and warrants to exercise
9,900,000 shares of common stock at $0.50 per share plus punitive damage.
Assuming a market price per share of $1.40, issuance of these securities would
result in a charge to earnings of $23,232,000 plus punitive damages and attorney
fees, consisting of $12,045,000 for the common stock issued and $11,187,000 for
the warrants issued, valued using the Black-Scholes option pricing model using a
volatility of 84.2%, a risk free rate of 4.13%, and a life of 4 years. Any
punitive damages or attorney fees are not estimable at this time.


                                       32
<PAGE>

On May 5, 2005, (Petition Date) Composite Technology Corporation filed a
reorganization plan and disclosure statement under the provisions of Title 11 of
the Federal Bankruptcy Code in the United States Bankruptcy Court for the
Central District of California under case number SA 05-13107 JR. Its
subsidiaries, including CTC Cable Corporation, CTC Wind Systems Corporation and
CTC Towers and Poles Corporation, are not party to the Title 11 case. As of the
Petition Date, multiple lawsuits were taxing the Company's managerial,
operational and financial resources and threatened to divert management from
their duties of running the business. One of these lawsuits also resulted in an
attachment of more than $2.5 million of the Company's funds. The Company
believes the bankruptcy filing was necessary to release cash for the operation
of its business, to give it a reprieve from burdensome litigation so that
management could focus on marketing and sales, and to establish a plan for
treating the claims of various parties in interest fairly. The Company believes
that having these lawsuits heard by the Bankruptcy Court as part of the
reorganization will provide a fair and reasonable means of addressing each claim
and affording the same treatment to each claim. If the lawsuits proceed in
different jurisdictions there is a possibility of inconsistent judgments.
Moreover, as a result of the Title 11 filing, attempts to collect, secure or
enforce remedies with respect to most pre-petition claims against the Company
are subject to the automatic stay provisions of Section 362(a) of Title 11. Our
disclosure statement was approved by the bankruptcy court on July 6, 2005 and a
hearing for confirmation of our bankruptcy plan has been scheduled for September
8, 2005. This means that the bankruptcy court has determined that the disclosure
statement contains adequate information for the parties in interest to make an
informed vote on whether to accept the reorganization plan. Approval of the
disclosure statement does not mean that the court is recommending approval of
the plan of reorganization.

The Company does not believe that the bankruptcy proceeding will have a material
negative impact on operations. The Company's management was required to devote
time at the beginning of the bankruptcy case on the bankruptcy petition and
related paperwork. The Company's management will also be involved with ongoing
compliance requirements for the United States Trustee's office and with ongoing
negotiations regarding formulating and implementing the reorganization plan.
Nonetheless, we do not expect these activities to impair the ability of
management to focus on marketing and operational issues.

The bankruptcy filing has not altered the Company's plans with respect to
marketing, processing orders and shipments, product development, or any other
aspect of the business. The Company's relationships with its vendors and
strategic partners have not been interrupted by the bankruptcy filing. To date,
the Company believes that the bankruptcy has facilitated rather than hindered
the Company's plans for the business.

Operational changes:
A number of changes have been made to our operations capabilities, both in terms
of systems implementation and human resources.

We continued to develop and refine the ACCC product in the quarter ending June
30, 2005. During this quarter, refinements to the product and production process
have resulted in processing improvements, including increasing line speed and
running multiple lines per pultrusion machine. As of June 30, 2005 with our
current equipment configurations, we have production capacity of approximately
10,000 feet of core per day. We expect that with additional minor modifications
that we can produce up to 23,000 feet of core per day without additional
production equipment or without significant improvements in line speed. In
addition, funds were expended for further development work for various conductor
ancillaries, such as connection hardware, which we anticipate will facilitate
the installation of ACCC cable in the field using conventional installation
tools. We have also continued the testing of our products with both independent
testing agencies and with cable provided to utilities on a trial basis.

We have purchased additional information technology systems supporting finance,
sales, marketing and administration. We believe these infrastructure
improvements will improve efficiency and enhance our compliance with the
requirements of the Sarbanes Oxley Act.


                                       33
<PAGE>

During the Nine Months ending June 30, 2005, we sought to strengthen our
operational management specifically in relation to increasing our production
capabilities and in the strategic marketing arena. These efforts culminated,
subsequent to the end of the first quarter, in the appointment of a new Acting
Chief Operating Officer, Brian Brittsan, who has had considerable experience in
managing companies as they take new technology products into the commercial
production stage of operations. It is hoped that following a probationary period
Mr. Brittsan will be appointed COO and become an officer of the Company. In
addition, we strengthened our financial management with the employment of
Domonic Carney as VP of Finance who will assist the Acting Chief Financial
Officer, Benton Wilcoxon, in the fulfillment of his duties. Mr. Carney has
extensive experience in operational financial systems, accounting, and
Sarbanes-Oxley compliance.

Mr. William Arrington, our Senior Vice President, Office of the CEO, which is a
position that enables Mr. Arrington to focus on public relations and strategic
marketing of our products in addition to assisting the CEO in the fulfillment of
his duties.

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 June 30, 2005:

<TABLE>
<CAPTION>
Contractual
Obligations         Total         Less than 1 Year   1-3 Years     3-5 Years   More than 5 Years
<S>                 <C>           <C>                <C>           <C>         <C>
  Long-Term Debt
  Obligations       $17,157,500   $   900,000        $16,257,500          --                --

  Capital Lease
  Obligations       $ 1,075,820   $   481,292        $   594,528          --                --

  Operating Lease
  Obligations       $ 5,632,330   $   939,773        $ 3,046,378   $ 1,646,179              --
</TABLE>



                                       34
<PAGE>

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

BANKRUPTCY RELATED RISKS

OUR PLAN OF REORGANIZATION MAY NOT BE CONFIRMED BY THE BANKRUPTCY COURT AND MAY
NOT BE SUCCESSFULLY CONSUMMATED.

Our future results are dependent upon successfully obtaining approval,
confirmation and implementation of our plan of reorganization. The Bankruptcy
Court may not approve our plan of reorganization. Section 1129 of Title 11
requires, among other things, a showing that confirmation of the plan will not
be followed by liquidation or the need for further financial reorganization, and
that the value of distributions to dissenting holders of claims and interests
may not be less than the value such holders would receive if the Company were
liquidated under Chapter 7 of the United States Bankruptcy Code. There can be no
assurance that the Bankruptcy Court will conclude the plan satisfies the
requirements of Section 1129. Conversely, the Bankruptcy Court may confirm a
plan even though it was not accepted by one or more impaired classes of
creditors, if requirements of Title 11 are met. Currently, we anticipate that we
will operate under the protection of Title 11 and emerge from bankruptcy
proceedings in September 2005.

We filed our plan of reorganization and disclosure statement on May 5, 2005. The
plan of reorganization may be amended prior to confirmation. Even if the
Bankruptcy Court confirms our plan, consummation of the plan will likely be
dependent upon a number of other conditions. There can be no assurance that any
or all of the conditions in the plan will be met (or waived) or that the other
conditions to consummation of the plan, if any, will be satisfied. If a plan is
not timely consummated, it could result in our Title 11 proceedings becoming
protracted, which could substantially erode the value of our enterprise to the
detriment of all stockholders.

OUR TITLE 11 PROCEEDINGS MAY RESULT IN A NEGATIVE PUBLIC PERCEPTION OF US THAT
MAY ADVERSELY AFFECT OUR RELATIONSHIPS WITH CUSTOMERS, AS WELL AS OUR BUSINESS,
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

Even if we submit a plan of reorganization that is confirmed by the Bankruptcy
Court and consummated by us, our Title 11 filing may hinder our ongoing business
activities and our ability to operate, fund and execute our business plan by

      (i)   impairing relations with existing and potential customers;
      (ii)  negatively impacting our ability to attract, retain and compensate
            key executives and associates and to retain employees generally;
      (iii) limiting our ability to obtain additional funding; and
      (iv)  impairing present and future relationships with strategic partners.

OUR TITLE 11 FILINGS OSTENSIBLY TRIGGERED DEFAULTS, OR TERMINATION EVENTS, ON
SUBSTANTIALLY ALL OF OUR DEBT AND LEASE OBLIGATIONS, AND CONTRACTUAL
OBLIGATIONS.

At June 30, 2005, we had a shareholders' deficit of $11,989,670 and had a total
of $15,942,728 outstanding debt. After failing to obtain a stay of Writs of
Attachment allowing for the attachment of our assets totaling $2.55 million as
previously reported, we filed a petition with the Bankruptcy Court in order to
resolve several litigation matters under Title 11 of the Bankruptcy Code.
However, under Title 11, actions by creditors to collect claims on
pre-petition debt are stayed or deferred unless specifically ordered by the
Bankruptcy Court.


                                       35
<PAGE>

We may file motions with the Bankruptcy Court to assume or reject our executory
contracts. An executory contract is one in which the parties have mutual
obligations to perform (e.g., equipment leases and real property leases). Unless
otherwise agreed, the assumption of a contract will require that we cure all
prior defaults under the related contract, including all pre-petition
liabilities. Unless otherwise agreed, the rejection of a contract is deemed to
constitute a breach of the agreement as of the moment immediately preceding the
Title 11 filing, giving the other party to the contract a right to assert a
general unsecured claim for damages arising out of the breach. Additional
liabilities subject to the proceedings may arise in the future as a result of
the rejection of executory contracts, including leases, and from the
determination of the Bankruptcy Court (or agreement by parties in interest) of
allowed claims for contingencies and other disputed amounts. Conversely, the
assumption of executory contracts and unexpired leases may convert liabilities
shown as subject to compromise to postpetition liabilities. Due to the uncertain
nature of many of the potential claims, we are unable to project the magnitude
of such claims with any degree of certainty.

THE BANKRUPTCY PROCEEDING WILL HAVE AN IMPACT ON OUR FINANCIAL STATEMENTS THAT
MAY REQUIRE US TO REVALUE OUR ASSETS TO THEIR MARKET VALUE AND RECORD ADDITIONAL
EXPENSES AND LIABILITIES THAT REPRESENT CLAIMS ALLOWED BY THE BANKRUPTCY COURT,
WHICH MAY BE IN EXCESS OF LIABILITES RECORDED IN OUR FINANCIAL STATEMENTS

Under GAAP, in particular AICPA SOP 90-7, upon the approval of our plan of
reorganization, we are required to revalue our assets to their market values and
to record as additional expenses and additional liabilities for any amounts
which represent claims allowed by the Bankruptcy Court, which may be in excess
of the liabilities recorded in our financial statements. Our assets consist
primarily of current assets valued at the lower of cost or market, which we
believe approximates their market value and for equipment which we believe that
depreciated net book value to approximate the market value. With respect to
current liabilities and capital leases, we intend to honor all payables and
accrued liabilities and our plan of reorganization stipulates payment in full
for our pre-petition accounts payable. Our Plan also stipulates the assumption
of our capital leases. However, we have not reached the deadline for potential
claimants to make claims under the bankruptcy. In addition, to date, we have
three claims representing approximately $750,000 in additional expenses and
liabilities that we have disputed under the Chapter 11 but which may be allowed
by the Bankruptcy Court in their entirety or a fraction of that total, or not at
all. Although we have recorded all liabilities that we believe will be the
amounts approved under the bankruptcy, we may be required to record additional
expenses.

Effective as of the date of the bankruptcy filing and as stipulated in our Plan
of Reorganization, the allowed value of our debentures was determined to be
$15,000,000, which is in excess of our carrying value as of that date. For the
quarter ending June 30, 2005, we recorded additional expense of approximately
$4.8 million as a reorganization item to adjust the carrying value of our $15
million debentures to the anticipated allowed claim.

RISKS RELATED TO OUR BUSINESS

AS A COMPANY IN THE EARLY STAGE OF COMMERCIALIZATION, OUR LIMITED HISTORY OF
OPERATIONS MAKES EVALUATION OF OUR BUSINESS AND FUTURE GROWTH PROSPECTS
DIFFICULT.

Since the reorganization of the Company in 2001, we have had a limited operating
history and are at an early stage of commercialization of a new technology
product to a market not used to using new technologies. We made our ACCC cable
available and entered into our first commercial agreement in 2005. Our
technology is a relatively new advance for the electrical utility industry
technology and has not yet achieved widespread adoption. We do not have enough
experience in selling our products at a level consistent with broad market
acceptance and do not know whether we can do so and generate a profit. As a
result of these factors, it is difficult to evaluate our prospects, and our
future success is more uncertain than if we had a longer or more proven history
of operations.

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 not had any recordable
revenues from operations subsequent to acquiring TTC through June 30, 2004. We
may experience significant quarterly and annual losses for the foreseeable
future.

We may not ever 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 general administrative and product
prototype and equipment prototype production expenses, as necessary. As a
result, we will need to generate significant revenues to achieve and maintain
profitability.

OUR INDEPENDENT AUDITORS HAVE ISSUED A QUALIFIED REPORT WITH RESPECT TO OUR
ABILITY TO CONTINUE AS A GOING CONCERN, AND WE MAY NEVER ACHIEVE PROFITABILITY.

In previous filings, 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 product will be accepted or
provide a marketable advantage, and therefore, no guarantee that the
commercialization will ever be profitable.


                                       36
<PAGE>

For the nine months ended June 30, 2005, we had a net loss of $21,990,082 and
negative cash flows from operations of $721,366. For the fiscal year ended
September 30, 2004, we had a net loss of $14,687,874 and negative cash flows
from operations of $18,735,430. For the fiscal years ended September 30, 2003
and 2002, we had net losses of $6,771,252 and $4,523,953, respectively. For the
same periods, we had negative cash flows from operations of $2,022,935 and
$715,923, respectively.

As of June 30, 2005, our accumulated deficit was $48,429,438.

WE HAVE EXPERIENCED DIFFICULTIES IN COLLECTING ACCOUNTS RECEIVABLE, WHICH COULD
HARM OUR BUSINESS AND RESULT IN HIGHER LOSSES THAN ANTICIPATED.

Our management believed the $2.5 million receivable to be collectible from
Global American Energy for work carried out between March 31, 2003 and September
30, 2004 as of the original filing date of our annual report for the year ended
September 30, 2004 through the date that the initial payment from Global
American Energy was returned for insufficient funds. We recorded the entire
balance outstanding of $2,500,000 as services revenue in fiscal 2004 and
included it in our accounts receivable balance as of September 30, 2004. In
March 2005, we agreed to an extended payment plan whereby Global American Energy
would pay $250,000 by April 30, 2005, $250,000 by May 31, 2005, $250,000 by June
30, 2005 and the remaining $1,750,000 by July 31, 2005. The check for the
initial payment under this schedule was deposited on April 29, 2005 and returned
as insufficient funds on May 9, 2005. As of August 9, 2005, no additional
payments have been received. As such, we recorded into the quarter ending June
30, 2005 an allowance for uncollectible accounts in the amount of 2.5 million
that remained uncollectible.

Accounts receivable may not result in actual revenue because we have experienced
issues surrounding payment for our services. Consequently, we may have to
maintain significant allowances for uncollectible or doubtful accounts. If we
fail to realize revenue from our accounts receivable or we do not recognize that
revenue on our anticipated timeframe, our operating results in future reporting
periods may be materially impacted due to decreased revenue. Failure to
recognize our accounts receivable may result in higher losses than anticipated
and have an adverse impact or our cash flow.

OUR INABILITY TO RAISE ADDITIONAL WORKING CAPITAL AT ALL OR TO RAISE IT IN A
TIMELY MANNER COULD NEGATIVELY IMPACT OUR ABILITY TO FUND OUR OPERATIONS, TO
GENERATE REVENUES, AND TO OTHERWISE EXECUTE OUR BUSINESS PLAN, LEADING TO THE
REDUCTION OR SUSPENSION OF OUR OPERATIONS AND ULTIMATELY OUR GOING OUT OF
BUSINESS. SHOULD THIS OCCUR, THE VALUE OF YOUR INVESTMENT IN OUR COMMON STOCK
COULD BE ADVERSELY AFFECTED, AND YOU COULD EVEN LOSE YOUR ENTIRE INVESTMENT.


                                       37
<PAGE>

While we have raised significant capital through our debenture offering, we
anticipate that the sales of our ACCC cable will not be sufficient enough to
sustain our operations, and further anticipate that we will continue to incur
net losses due to our costs exceeding our revenues for an indefinite period of
time. For these reasons, we believe that we will need to raise additional
capital until such time, if any, 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 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.
However, 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. Should
the financing we require to sustain our working capital needs be unavailable or
prohibitively expensive when we require it, we may not be able to complete the
commercialization of any products that we may have developed. As a result, we
may be required to discontinue our operations without obtaining any value for
our products under development, 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 to develop such products.

IF OUR PRODUCT IS NOT ACCEPTED BY OUR POTENTIAL CUSTOMERS, IT IS UNLIKELY THAT
WE WILL EVER BECOME PROFITABLE.

The electrical utility industry has historically used a variety of technologies,
including a variety of technologies involving steel cable. Compared to these
conventional technologies, our technology is relatively new, and the number of
companies using our technology is limited. The commercial success of our product
will depend upon the widespread adoption of our technology as a preferred method
by major utility companies to transmit electricity. In order to be successful,
our product must meet the technical and cost requirements for electric
transmission within the electric utility industry. Market acceptance will depend
on many factors, including:

      (i)   the willingness and ability of customers to adopt new technologies;
      (ii)  our ability to convince prospective strategic partners and customers
            that our technology is an attractive alternative to conventional
            methods used by the electric utility industry;
      (iii) our ability to change our customers' evaluation of the economics of
            powerline construction, changing their focus on limiting initial
            capital costs to evaluating the cost and benefit of the full life of
            a line liberating capital funding to acquire our products that can
            overall reduce costs in power transmission; and
      (iv)  our ability to sell sufficient quantities of our products.

Because of these and other factors, our product may not gain market acceptance
or become the industry standard for the electrical utility industry. The failure
of utility companies to purchase our products would have a material adverse
effect on our business, results of operations and financial condition.

IF WE FAIL TO PROPERLY MANAGE OUR GROWTH EFFECTIVELY, OUR BUSINESS COULD BE
ADVERSELY AFFECTED.

The transition from a small company focused on research and development of our
products to a company with the additional focus on commercial production,
marketing, and sales has placed and will continue to place a significant strain
on our managerial, operational, and financial resources. Although we rely
significantly on the General Cable sales force pursuant to the recent agreements
that we entered into with General Cable, the failure to manage our sales and
growth effectively could have a material adverse effect on our business, results
of operations and financial condition. Significant additional growth will be
necessary for us to achieve our plan of operation.


                                       38
<PAGE>

FAILURE TO ADEQUATELY PROTECT OUR PROPRIETARY RIGHTS COULD ENABLE THIRD
PARTIES TO USE OUR TECHNOLOGY, OR VERY SIMILAR TECHNOLOGY, AND COULD REDUCE OUR
ABILITY TO COMPETE IN THE MARKET, AND ANY PROPRIETARY RIGHTS LITIGATION COULD BE
TIME CONSUMING AND EXPENSIVE TO PROSECUTE AND DEFEND.

Due to the importance of proprietary technology in the electrical utility
industry, establishment of patents and other proprietary rights is important to
our success and our competitive position. Performance in the electrical utility
industry can depend, among other factors, on patent protection. Accordingly, we
have filed patent applications in the U.S. and internationally for all aspects
of our composite materials, products and processes, including aspects of our
product other than the core, and intend to devote substantial resources to the
establishment and protection of patents and other proprietary rights. Despite
our efforts to establish and protect our patents or other proprietary rights,
unauthorized parties may attempt to copy aspects of our technology or to obtain
and use information that we regard as proprietary. In addition, the laws of some
foreign countries do not protect our proprietary rights to as great an extent as
do the laws of the United States. Our means of establishing and protecting our
proprietary rights may not be adequate and our competitors may independently
develop similar technology, duplicate our products or design around our patents
or our other proprietary rights.

As a result, our business involves a risk of overlap with third party patents
and subsequent litigation with competitors or patent-holders. Any claims, with
or without merit, could be time-consuming, result in costly litigation, or cause
us to enter into licensing agreements.

OUR SUCCESS WILL DEPEND PARTLY ON OUR ABILITY TO OPERATE WITHOUT INFRINGING OR
MISAPPROPRIATING THE PROPRIETARY RIGHTS OF OTHERS.

We may be exposed to future litigation by third parties based on claims that our
products infringe the intellectual property rights of others. Our competitors
may assert that their U.S. or foreign patents may cover our products and the
methods we employ. In addition, because patent applications can take many years
to issue, there may be currently pending applications of which we are unaware,
which may later result in issued patents that our products may infringe. There
could also be existing patents of which we are not aware that one or more of our
products may inadvertently infringe. Infringement and other intellectual
property claims, with or without merit, can be expensive and time-consuming to
litigate and can divert management's attention from our core business.

If we lose a patent infringement lawsuit, we could be prevented from selling our
products unless we can obtain a license to use technology or ideas covered by
such patent or are able to redesign the products to avoid infringement. A
license may not be available at all or on terms acceptable to us, or we may not
be able to redesign our products to avoid any infringement. If we are not
successful in obtaining a license or redesigning our products, we may be unable
to sell our products and our business could suffer.

WE OCCASIONALLY MAY BECOME SUBJECT TO LEGAL DISPUTES THAT COULD HARM OUR
BUSINESS.

We are currently the subject of, and may from time to time become engaged in,
legal disputes such as claims by consultants or other third parties. These
disputes could result in monetary damages or other remedies that could adversely
impact our financial position or operations. We believe these claims are without
merit and intend to vigorously defend against them. However, even if we prevail
in disputes such as this, the defense of these disputes will be expensive and
time-consuming and may distract our management from operating our business.

WE DEPEND ON KEY PERSONNEL IN A COMPETITIVE MARKET FOR SKILLED EMPLOYEES AND
FAILURE TO ATTRACT AND RETAIN QUALIFIED EMPLOYEES COULD SUBSTANTIALLY HARM OUR
BUSINESS.

We rely to a substantial extent on the management, marketing and product
development skills of our key employees, particularly Benton H Wilcoxon, our
Chief Executive Officer, and Brian Brittsan, our acting Chief Operating Officer.
If Mr. Wilcoxon or Mr. Brittsan were unable to provide services to us for
whatever reason, our business would be adversely affected. Mr. Wilcoxon has not
entered into an employment agreement with the Company. Mr. Brittsan has entered
into a consulting agreement. The term of such consulting agreement is from
January 3, 2005 through June 30, 2005 with an at-will extension thereafter.

In addition, our ability to develop and market our products and to achieve
profitability will depend on our ability to attract and retain highly talented
personnel. We face intense competition for personnel from other companies in the
electrical utility industry. The loss of the services of our key personnel or
the inability to attract and retain the additional, highly-talented employees
required for the development and commercialization of our products, may
significantly delay or prevent the achievement of product development and could
have a material adverse effect on us.


                                       39
<PAGE>

A FAILURE TO ESTABLISH AND MAINTAIN RELATIONSHIPS WITH STRATEGIC PARTNERS MAY
HARM OUR BUSINESS.

We have entered into purchase and distribution agreements with General Cable to
manufacture and distribute our ACCC product in the United States and Canada. Our
success is dependent upon establishing and maintaining relationships with
strategic partners, such as our relationship with General Cable. We face
numerous risks in successfully obtaining suitable partners on terms consistent
with our business model, including, among others:

      (i)   we must typically undergo a lengthy and expensive process of
            building a relationship with a potential partner before there is any
            assurance of an agreement with such party;
      (ii)  we must persuade cable manufacturers with significant resources to
            rely on us for critical technology on an ongoing basis rather than
            trying to develop similar technology internally;
      (iii) we must persuade potential partners to bear retooling costs
            associated with producing our products; and
      (iv)  we must successfully transfer technical know-how to our partners.

Moreover, the success of our business model also depends on the acceptance of
our products by the utility companies who have historically been conservative in
their adoption of new products and technologies into their infrastructure.
Further, our partners will be selling our products that may compete with their
existing or future cable products. Our partners are not required to sell our
products and they are not prohibited from discounting the prices of their
products below our prices.

Our business could be seriously harmed if:

      (i)   we cannot obtain suitable partners;
      (ii)  our partners fail to achieve significant sales of ACCC cable or
            products incorporating our technology; or
      (iii) we otherwise fail to implement our business strategy successfully.

WE CANNOT CONTROL THE COST OF OUR RAW MATERIALS, WHICH MAY ADVERSELY AFFECT OUR
BUSINESS.

Our principal raw materials are glass and carbon fibers, plus various polymer
resins.. The prices for these raw materials are subject to market forces largely
beyond our control, including energy costs, organic chemical feed stocks, market
demand, and freight costs. The prices for these raw materials have varied
significantly and may vary significantly in the future. We may not be able to
adjust our product prices, especially in the short-term, to recover the costs of
increases in these raw materials. Our future profitability may be adversely
affected to the extent we are unable to pass on higher raw material and energy
costs to our customers.

INTERRUPTIONS OF SUPPLIES FROM OUR KEY SUPPLIERS MAY AFFECT OUR RESULTS OF
OPERATIONS AND FINANCIAL PERFORMANCE.

Interruptions or shortages of supplies from our key suppliers of raw materials
could disrupt production or impact our ability to increase production and sales.
We use a limited number of sources for most of the other raw materials that we
use. We do not have long-term or volume purchase agreements with most of our
suppliers, and may have limited options in the short-term for alternative supply
if these suppliers fail, for any reason, including their business failure or
financial difficulties, to continue the supply of materials or components.
Moreover, identifying and accessing alternative sources may increase our costs.


                                       40
<PAGE>

WE ARE CONTROLLED BY A SMALL NUMBER OF STOCKHOLDERS, WHOSE INTERESTS MAY DIFFER
FROM OTHER STOCKHOLDERS.

As of August 2, 2005 Benton H Wilcoxon, our Chairman of the Board, Chief
Executive Officer and Acting Chief Financial Officer, and C. William Arrington,
our director, in the aggregate beneficially own or control approximately 35% of
the outstanding common stock. As a result, these persons have controlling
influence in determining the outcome of any corporate matters submitted to our
stockholders for approval, including mergers, consolidations and the sale of all
or substantially all of our assets, election of directors and other significant
corporate actions. They also have the power to prevent or cause a change in
control. The interests of these stockholders may differ from the interests of
the other stockholders, and may limit the ability of other stockholders to
affect our management and affairs.

WE WILL LIKELY EXPERIENCE CUSTOMER CONCENTRATION, WHICH MAY EXPOSE US TO ALL OF
THE RISKS FACED BY OUR POTENTIAL MATERIAL CUSTOMERS.

Until and unless we secure multiple customer relationships, it is likely that we
will experience periods during which we will be highly dependent on one or a
limited number of customers. Our current customers consist of General Cable,
American Electric Power, Pacificorp, Jiangsu Far East Group, and FCI. Dependence
on a single or a few customers will make it difficult to satisfactorily
negotiate attractive prices for our products and will expose us to the risk of
substantial losses if a single dominant customer stops conducting business with
us. Moreover, to the extent that we may be dependent on any single customer, we
could be subject to the risks faced by that customer to the extent that such
risks impede the customer's ability to stay in business and make timely payments
to us.

OUR BUSINESS MAY BE SUBJECT TO INTERNATIONAL RISKS.

We are pursuing international business opportunities, including in China,
Mexico, Brazil, Europe, the Middle East, certain far eastern countries and
Africa. As to international business in the Middle East, our current target
markets include Saudi Arabia, Qatar, United Arab Emirates, Oman, Iraq,
Afghanistan and Jordan. Of these the only countries that we believe pose a
particular problem are Iraq and Afghanistan as a result of additional
instability. In Africa we are actively pursuing South Africa and Kenya as well
as engaging in discussions with engineering companies that bid on trans-African
projects. There are no special additional risks related to these countries that
are not disclosed in the list of risks affecting most international business. To
date, we have not engaged in any transactions on these countries except for the
purchases from Jiangsu Far East Group in China consisting of a sale of 2km of
ACCC shipped in June, 2005 and an order for 30km of ACCC contingent upon testing
of the 2km order. Except for these purchases, our business model has been
implemented only in the United States and Canada where we produce the ACCC core
for delivery to General Cable under a manufacturing agreement. Expansion
internationally will depend on our adaptation of this model to international
markets and may be costly and time consuming. Risks inherent in international
operations in general include:

      (i)   unexpected changes in regulatory requirements, export restrictions,
            tariffs and other trade barriers;
      (ii)  challenges in staffing and managing foreign operations;
      (iii) differences in technology standards, employment laws and business
            practices;
      (iv)  longer payment cycles and problems in collecting accounts
            receivable;
      (v)   political instability;
      (vi)  changes in currency exchange rates;
      (vii) currency exchange controls; and
      (viii)potentially adverse tax consequences.

In particular, certain of our target markets in the Middle East may include Iraq
and Afghanistan in which there is considerable violent instability that may
affect our ability to operate in those markets.


                                       41
<PAGE>

COMPLIANCE WITH ENVIRONMENTAL REGULATIONS COULD INCREASE OUR OPERATING COSTS,
WHICH WOULD ADVERSELY AFFECT THE COMMERCIALIZATION OF OUR TECHNOLOGY.

Our intended operations are subject to various federal, state, and local laws
and regulations relating to the protection of the environment. These
environmental laws and regulations, which have become increasingly stringent,
are implemented principally by the Environmental Protection Agency and
comparable state agencies, and govern the management of hazardous wastes, the
discharge of pollutants into the air and into surface and underground waters,
and the manufacture and disposal of certain substances. There are no material
environmental claims currently pending or, to our knowledge, threatened against
us. In addition, we believe our planned operations will be implemented in
compliance with the current laws and regulations. We estimate that any expenses
incurred in maintaining compliance with current laws and regulations will not
have a material effect on our earnings or capital expenditures. However, there
can be no assurance that current regulatory requirements will not change, that
currently unforeseen environmental incidents will not occur, or that past
non-compliance with environmental laws will not be discovered.

CHANGES IN INDUSTRY STANDARDS AND REGULATORY REQUIREMENTS MAY ADVERSELY AFFECT
OUR BUSINESS.

As a manufacturer and distributor of wire and cable products we are subject to a
number of industry standard-setting authorities, such as the Institute of
Electrical and Electronic Engineers, the European based International Council on
Large Electric Systems , the American Society of Testing and Materials and the
Canadian Standards Association. In addition, many of our products may become
subject to the requirements of federal, state and local or foreign regulatory
authorities. Changes in the standards and requirements imposed by such
authorities could have an adverse effect on us. In the event we are unable to
meet any such standards when adopted our business could be adversely affected.
In addition, changes in the legislative environment could affect the growth and
other aspects of important markets served by us. Legislative bills and
regulatory rulings have recently been enacted in the energy and
telecommunications sectors which could improve our markets, including energy
bill H.R. 6 which has passed both the House and Senate in 2005 and was signed by
President Bush on August 8, 2005. Energy bill H.R. 6 is a federal bill that
covers energy conservation, research and development and improvement of the
energy infrastructure pursuant to a national energy policy. We believe that this
bill could improve our market opportunities if, as a result, it enhances the
willingness and ability of potential customers to adopt new technologies in the
electrical utility industry. It is not possible at this time to predict the
impact that any such legislation or regulation or other changes in laws or
industry standards that may be adopted in the future, could have on our
financial results, cash flows or financial position.


                                       42
<PAGE>

WE EXPERIENCE COMPETITION FROM OTHER COMPANIES IN THE ELECTRICAL UTILITY
INDUSTRY, WHICH COULD RENDER OUR PRODUCTS OBSOLETE OR SUBSTANTIALLY LIMIT THE
VOLUME OF PRODUCTS THAT WE SELL. THIS WOULD LIMIT OUR ABILITY TO COMPETE AND
ACHIEVE PROFITABILITY.

The market in which we compete is intensely competitive. Our competitors include
makers of traditional bare overhead wire and other companies with
developmental-stage products that may be marketing or developing products that
compete with our products or would compete with them if developed. There is no
certainty that unique technological advances won't be achieved by our
competition, with better capital resources, in the future or that would render
our technologies and products obsolete. We believe our competitors will continue
to improve the design and performance of their products and to introduce new
products with competitive price and performance characteristics. We expect that
we will be required to continue to invest in product development, productivity
improvements and customer service and support in order to compete in our
markets. Such competitors could develop a more efficient product or undertake
more aggressive and costly marketing campaigns than us which may adversely
affect our marketing strategies and could have a material adverse effect on our
business, results of operations or financial condition. In addition, as we
introduce new products, we will compete directly with a greater number of
companies. There can be no assurance that we can compete successfully against
current or future competitors nor can there be any assurance that competitive
pressures faced by us will not result in increased marketing costs, loss of
market share or otherwise will not materially adversely affect our business,
results of operations and financial condition.

RISKS RELATED TO OUR SECURITIES

THERE IS CURRENTLY A LIMITED TRADING MARKET FOR OUR COMMON STOCK, SO YOU MAY BE
UNABLE TO LIQUIDATE YOUR SHARES IF YOU NEED MONEY.

Our common stock is traded in the OTC market through the OTC Bulletin Board.
There is currently an active trading market for the common stock; however there
can be no assurance that an active trading market will be maintained. Trading of
securities on the OTC Bulletin Board is generally limited and is effected on a
less regular basis than that effected on other exchanges or quotation systems,
such as the NASDAQ Stock Market, and accordingly investors who own or purchase
common stock will find that the liquidity or transferability of the common stock
is limited. Additionally, a stockholder may find it more difficult to dispose
of, or obtain accurate quotations as to the market value, of common stock. There
can be no assurance that the common stock will ever be included for trading on
any stock exchange or through any other quotation system, including, without
limitation, the NASDAQ Stock Market.

THE APPLICATION OF THE PENNY STOCK RULES COULD ADVERSELY EFFECT THE MARKET PRICE
OF OUR COMMON STOCK.

As long as the trading price of our common stock is below $5.00 per share, the
open-market trading of our common stock will be subject to the penny stock
rules. The penny stock rules impose additional sales practice requirements on
broker-dealers who sell securities to persons other than established customers
and accredited investors, generally those with assets in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 together with their spouse. For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of securities and have received the
purchaser's written consent to the transaction before the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
broker-dealer must deliver, before the transaction, a disclosure schedule
prescribed by the Securities and Exchange Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements must be sent disclosing recent price
information on the limited market in penny stocks. These additional burdens
imposed on broker-dealers may restrict the ability of broker-dealers to sell the
common stock and may affect a stockholder's ability to resell the common stock.

Stockholders should be aware that, according to Securities and Exchange
Commission Release No. 34-29093, dated April 17, 1991, the market for penny
stocks has suffered in recent years from patterns of fraud and abuse. Such
patterns include:

      (i)   control of the market for the security by one or a few
            broker-dealers that are often related to the promoter or issuer;
      (ii)  manipulation of prices through prearranged matching of purchases and
            sales and false and misleading press releases;
      (iii) boiler room practices involving high-pressure sales tactics and
            unrealistic price projections by inexperienced sales persons;
      (vi)  excessive and undisclosed bid-ask differential and markups by
            selling broker-dealers; and
      (v)   the wholesale dumping of the same securities by promoters and
            broker-dealers after prices have been manipulated to a desired
            level, along with the resulting inevitable collapse of those prices
            and with consequent investor losses.

THE PRICE OF OUR COMMON STOCK IS VOLATILE, WHICH MAY INCREASE IN THE FUTURE, AND
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 $6.24 to a low of $0.45. Fluctuations in the
trading price or liquidity of our common stock may adversely affect our ability
to raise capital through future equity financings.


                                       43
<PAGE>

WE DO NOT ANTICIPATE PAYING DIVIDENDS IN THE FORESEEABLE FUTURE, WHICH MAY
REDUCE YOUR RETURN ON AN INVESTMENT IN OUR COMMON STOCK.

We plan to use all of our earnings; to the extent we have earnings, to fund our
operations. We have not paid dividends on the common stock and do not anticipate
paying such dividends in the foreseeable future. We cannot guarantee that we
will, at any time, generate sufficient surplus cash that would be available for
distribution as a dividend to the holders of our common stock. Therefore, any
return on your investment would derive from an increase in the price of our
stock, which may or may not occur.

In the past, following periods of volatility in the market price of a company's
securities, securities class action litigation has often been instituted. If a
securities class action suit is filed against us, we would incur substantial
legal fees and our management's attention and resources would be diverted from
operating our business in order to respond to the litigation.

WE ISSUED DULY AUTHORIZED SHARES TO EMPLOYEES AND CONSULTANTS UNDER OUR 2002
NON-QUALIFIED STOCK COMPENSATION PLAN UNDER THE INCORRECT ASSUMPTION THAT WE HAD
REGISTERED THE SHARES PURSUANT TO FEDERAL SECURITIES LAWS. HOWEVER, WE
SUBSEQUENTLY REALIZED THAT THESE SHARES HAD NOT BEEN REGISTERED PRIOR TO
ISSUANCE. AS A RESULT, OUR ISSUANCE MAY HAVE VIOLATED FEDERAL AND STATE
SECURITIES LAWS, AND MAY RESULT IN OUR LIABILITY TO CERTAIN SUBSEQUENT
PURCHASERS OF THESE SHARES.

Between March 18, 2003 and February 4, 2004 we issued common stock and options
representing 1,504,780 shares of common stock to nine employees and consultants
in satisfaction of bona fide services rendered and valued at an aggregate amount
of $880,266 pursuant to our 2002 Non-Qualified Stock Compensation Plan. Although
we believed that we and our counsel had filed the appropriate registration
statement on Form S-8, it came to our attention in February, 2004 in connection
with the preparation of a registration statement that an appropriate Form S-8
had not been filed. It may be determined that such issuances were not exempt
from registration or qualification under federal and state securities laws, and
we did not obtain the required registrations or qualifications. As a result, we
may be subject to contingent liabilities from these investors, as well as
subsequent purchasers of the shares directly and indirectly issued. These
liabilities may include an obligation to make a rescission offer to the holders
of these shares and options. If rescission is required and accepted, we could be
required to make payments to the holders of these shares and options. In
addition, federal securities laws do not expressly provide that a rescission
offer will terminate a purchaser's right to rescind a sale of stock that was not
registered as required. If rescission is required, and any or all of the
offerees reject the rescission offer, we may continue to be liable under federal
and state securities laws. See our disclosure titled "Stock Compensation
Issuances."

AS OF AUGUST 4, 2005, 25,672,811 COMMON SHARES ARE ISSUABLE UPON EXERCISE OF ALL
OUTSTANDING OPTIONS, WARRANTS AND CONVERSION OF CONVERTIBLE DEBENTURES FOR LESS
THAN THE MARKET PRICE OF $2.55 PER SHARE. CASH PROCEEDS RESULTING FROM THE FULL
EXERCISE AND CONVERSION OF THESE SECURITIES WOULD BE APPROXIMATELY $17,266,542.
THE EXERCISE OR CONVERSION OF THESE SECURITIES COULD RESULT IN THE SUBSTANTIAL
DILUTION OF THE COMPANY IN TERMS OF A PARTICULAR PERCENTAGE OWNERSHIP IN THE
COMPANY AS WELL AS THE BOOK VALUE OF THE COMMON SHARES. THE SALE OF A LARGE
AMOUNT OF COMMON SHARES RECEIVED UPON EXERCISE OF THESE OPTIONS OR WARRANTS ON
THE PUBLIC MARKET TO FINANCE THE EXERCISE PRICE OR TO PAY ASSOCIATED INCOME
TAXES, OR THE PERCEPTION THAT SUCH SALES COULD OCCUR, COULD SUBSTANTIALLY
DEPRESS THE PREVAILING MARKET PRICES FOR OUR SHARES. FULL CONVERSION OF SUCH
SHARES WOULD INCREASE THE OUTSTANDING COMMON SHARES BY 22.1% TO APPROXIMATELY
141,628,000 SHARES.


                                       44
<PAGE>

The exercise price or conversion price of outstanding options, warrants and
convertible debentures 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 or her investment in terms of the percentage
ownership in us as well as the book value of the common shares held. At the
August 4, 2005 market price of $2.55 per share, 25,672,811 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 $17,266,542 and would increase the outstanding common shares by
22.1% to approximately 141,628,000 shares.

OUR FUTURE REVENUE IS UNPREDICTABLE AND COULD CAUSE OUR OPERATING RESULTS TO
FLUCTUATE SIGNIFICANTLY FROM QUARTER TO QUARTER.

Our quarterly revenue and operating results are difficult to predict and may
fluctuate significantly from quarter to quarter. Because we have not had any
substantial ACCC product revenues to date, we can have no assurance that our
revenues will materialize. Since our revenues may fluctuate and are difficult to
predict, and our expenses are largely independent of revenues in any particular
period, it is difficult for us to accurately forecast revenues and
profitability.

Our business is subject to a variety of additional risks, which could materially
adversely affect quarterly and annual operating results, including:

      (i)   market acceptance of our composite technologies by utility
            companies;
      (ii)  due to the potential lengthy lead time for the implementation of new
            lines or the reconductoring of existing lines, the extent and timing
            of these new cable transactions with utility companies may lead to
            significant delays in sales that could adversely impact our cash
            flow;
      (iii) the loss of a strategic relationship or termination of a
            relationship with a cable partner, specifically General Cable;
      (iv)  announcements or introductions of new technologies or products by us
            or our competitors;
      (v)   delays or problems in the introduction or performance of
            enhancements or of future generations of our technology;
      (vi)  failures or problems in our utility cable product, particularly
            during the early stages of the introduction of the product when
            problems or failures identified during trials carried out with the
            product or during its installation or operation can have an adverse
            effect;
      (vii) delays in the adoption of new industry standards or changes in
            market perception of the value of new or existing standards;
      (viii) competitive pressures resulting in lower revenues;
      (ix)  personnel changes, particularly those involving engineering and
            technical personnel;
      (x)   costs associated with protecting our intellectual property;
      (xi)  the potential that customers could fail to make payments under their
            current contracts, including Global American Energy and City of
            Kingman;
      (xii) market-related issues, including lower ACCC Cable demand brought on
            by excess cable inventory and lower average selling prices for ACCC
            cable as a result of market surpluses;
      (xiii) increased costs or shortages of key raw materials including carbon
            fiber and glass fiber;
      (xiv) regulatory developments; and
      (xv)  general economic trends and other factors.

                                       45
<PAGE>

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 debentures bear a fixed rate of interest.

As of June 30, 2005 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 June 30, 2005, we had $2.4 million in cash, cash
equivalents and short-term investments that mature in twelve 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.

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 financial
consultant assisting the acting Chief Financial Officer, and the acting Chief
Operating Officer, the Company's principal executive officer and principal
financial officer has concluded that the Company's disclosure controls and
procedures (as defined under the Securities Exchange Act of 1934, as amended
(Exchange Act)) were effective as of June 30, 2005 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.

There were no significant changes in the Company's internal control over
financial reporting identified in management's evaluation during the third
quarter of fiscal 2005 that have materially affected or are reasonably likely to
materially affect the Company's internal control over financial reporting.


                                       46
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS

J.P. TURNER & COMPANY, LLC V. COMPOSITE TECHNOLOGY CORP. (NASD ARBITRATION
NUMBER 04-01114):

J.P. Turner & Company, L.L.C. ("J.P. Turner") initiated arbitration before the
National Association of Securities Dealers in February 2004 alleging Composite
Technology Corporation ("CTC") breached a finder's agreement by failing to pay
certain fees to J.P. Turner. CTC disputes that any breach of the agreement took
place and denies that J.P. Turner made any introduction of investors to CTC
which directly led to financing. CTC has filed a counterclaim against J.P.
Turner alleging claims of fraud against J.P. Turner arising out of
misrepresentations made by J.P. Turner concerning an investment opportunity.
J.P. Turner claimed $200,000 in monetary damages, a warrant to purchase shares
of CTC common stock amounting to $200,000 at an exercise price equal to the
closing bid on December 17, 2003, pre-judgment interest as of December 18, 2003,
attorneys' fees and costs. CTC sought compensatory damages in an amount
according to proof, punitive damages, and attorneys' fees and costs based upon
its counterclaims. CTC filed its Statement of Answer and Counterclaims on May
17, 2004. The Arbitration took place on February 24-25, 2005 in Atlanta, Georgia
before an NASD Arbitration Panel. On March 2, 2005, the Panel awarded J.P.
Turner compensatory damages in the amount of $106,763.28, plus interest at the
rate of 7% per annum from December 18, 2003 until the date of payment of the
award, and $500 for one-half of the initial claim filing fee. The award was
settled in its entirety by the payment of $100,000 on May 4, 2005.


                                       47
<PAGE>

COMPOSITE TECHNOLOGY CORPORATION V. ACQUVEST (OCSC CASE NO. 03 CC 12640):

On October 16, 2003, CTC filed suit against Acquvest, Inc., Paul Koch, Victoria
Koch, Patricia Manolis, and Michael Tarbox in Orange County Superior Court. CTC
alleges causes of action for declaratory relief, breach of contract, fraudulent
inducement, rescission and economic duress arising out of certain subscription
and related agreements among the Company and the defendants. In connection with
such agreements, CTC issued to Acquvest, Inc. and Patricia Manolis, in April
2003 and September 2003, a total of 150,000 units for a total purchase price of
$375,000. Each unit consists of 10 shares of unregistered, restricted common
stock and 10 Series I warrants to purchase one share of unregistered, restricted
common stock. Each Series I warrant entitles the holder to purchase a share of
common stock at $0.50 per share and expires on March 30, 2005. The agreements
provide for the issuance of up to an additional 550,000 of such units for the
same purchase price of $2.50 per unit, subject to certain conditions, and
registration of share issuances under the Securities Act of 1933. The additional
units have not been issued and the additional purchase consideration has not
been paid. The parties disagree as to their respective rights and obligations
with respect to the original issuances and such additional units. 10,000 units
were also issued to Paul Koch for services in connection with such agreements,
and a dispute has arisen as to his entitlement to those and additional units and
warrants in connection with the agreements. CTC is seeking actual damages,
punitive damages, statutory costs, attorneys' fees and injunctive relief against
the defendants. CTC also seeks rescission of the pertinent agreements based on
numerous grounds, including fraudulent inducement. By a letter to CTC's counsel
dated September 8, 2004, Acquvest stated that it was waiving the contractual
conditions to its purchase of an additional 400,000 units under its subscription
agreement and was tendering $1,000,000, which was available on deposit, to CTC
as payment for the units. Acquvest, Koch, and Manolis filed a Cross-Complaint on
September 16, 2004, which they amended per stipulation on December 17, 2004. On
April 14, 2005, CTC was served with notice that the Court granted defendants and
cross-complainants' application for Writs of Attachment allowing for the
attachment of CTC's assets totaling $2.55 million. The Court had denied two
prior applications by defendants and cross-complainants for Writs of Attachment.
CTC immediately filed a Notice of Appeal on April 14, 2005 and an Emergency Writ
on April 18, 2005 with the California Courts of Appeal to challenge the Court's
decision to grant the Writs of Attachment and to stay the Writs of Attachment.
Additionally, CTC is working to arrange to post the bond to stay attachment of
the entire amount subject to the Writs of Attachment. CTC believes that the
Court committed reversible error by granting the Writs of Attachment and intend
to vigorously seek to reversal of the order. Trial date was set for May 9, 2005,
but was vacated as a result of the bankruptcy filing. The bankruptcy court has
ordered that the trial be re-set in Orange County Superior Court. Trial date is
now set for November 28, 2005.


                                       48
<PAGE>

ASCENDIANT CAPITAL GROUP, LLC V. COMPOSITE TECHNOLOGY CORPORATION (JAMS ARB. NO.
1200034701 AND OCSC CASE NOS. 03CC13314 & 03CC13531):

On November 4, 2003, Ascendiant Capital Group LLC, Mark Bergendahl, and Bradley
Wilhite ("Plaintiffs") filed suit in Orange County Superior Court alleging
causes of action against CTC and its CEO, Benton Wilcoxon, personally
("Defendants") for breach of contract, specific performance, fraud and deceit,
negligent misrepresentations, breach of covenant of good faith and fair dealing,
and declaratory relief arising out of a business advisory and consulting
agreement (the "Agreement") allegedly executed between CTC and Ascendiant. CTC
denies the material allegations and, on November 10, 2003, CTC filed a case in
Orange County Superior Court against Plaintiffs alleging causes of action for
declaratory relief, breach of contract, fraudulent inducement, and economic
coercion arising out of the Agreement as well as various unrelated business
agreements between Plaintiffs and Wilcoxon. CTC is seeking actual damages,
punitive damages, statutory costs, attorneys' fees and injunctive relief against
Plaintiffs. The principal parties are Ascendiant, Bergendahl, Wilhite, CTC and
Wilcoxon. On November 24, 2003, the court entered an order consolidating the
cases. On January 15, 2004, the parties agreed to submit all claims and
cross-claims arising out of the Agreement to binding arbitration before the
Honorable Robert Thomas Ret. at JAMS - Orange County. The remaining claims and
cross-claims not arising out of the Agreement are pending before the Honorable
Kazuharu Makino of Orange County Superior Court. On May 28, 2004, CTC's
demurrers to Plaintiffs' causes of action in the arbitration for specific
performance, negligent misrepresentation and breach of covenant of good faith
and fair dealing were sustained, with leave to amend, as well as CTC's motion to
strike Plaintiff's claims for punitive damages. Plaintiffs subsequently filed an
amended complaint. Judge Thomas has reserved ruling on Plaintiffs' demurrers and
motion to strike in the arbitration pending the outcome of the ruling on
Plaintiffs' demurrers and motions to strike filed with respect to CTC's
cross-claim pending in the superior court. An order has issued in the Orange
County Superior Court action exempting this case from various pre-trial
deadlines and noting that he expects that the case will not proceed to trial
within 24 months of the date of filing. On February 22, 2005, CTC and Wilcoxon
filed a Demurrer to Plaintiffs' causes of action for breach of contract and
alter ego liability. The court overruled the Demurrer on April 1, 2005 and set
Trial in the State court action for November 7, 2005. The arbitration commenced
on February 9, 2005, but is not expected to be completed until the end of
August, 2005.


                                       49
<PAGE>

TARBOX V. KOCH (OCSC CASE NO. 04CC10345):

On October 13, 2004, Michael Tarbox ("Tarbox") filed an action in Orange County
Superior Court (Case No. 04-CC-10345) against Paul Koch, Acquvest, CTC and Doe
Defendants. Tarbox alleges that Koch made fraudulent transfers to Acquvest and
the Doe defendants for the purpose of avoiding the debt owed to Tarbox. Tarbox
alleges that CTC securities were intended to serve as security for a debt owed
by Koch to Tarbox. Tarbox alleges that Defendants were not bona fide purchasers
of the CTC securities since they were receiving such securities for the benefit
of Tarbox. Tarbox further alleges that CTC breached an agreement to pay him a
finder's fee in connection with investments made by Koch. Tarbox alleges that
CTC's breach has caused him to suffer damages in excess of $750,000. On November
14, 2004, CTC filed a demurrer to the Complaint, and the other defendants also
filed a demurrer. The Court granted leave to amend, and Tarbox then filed an
amended Complaint. CTC just recently filed an Answer to the Tarbox's Amended
Complaint. CTC recently filed an Answer to Tarbox's Amended Complaint. A
demurrer filed by the other Defendants was granted on February 22, 2005, and
Tarbox was again granted leave to amend. A conference hearing is set for
September 20, 2005.

JEREMIAH O'KEEFFE VS. C. WILLIAM ARRINGTON AND COMPOSITE TECHNOLOGY CORPORATION:

On December 31, 2004, Jeremiah O'Keeffe ("Plaintiff") filed suit against C.
William Arrington and Composite Technology Corporation ("Defendants") in the
District Court of Dallas, Texas (Cause No. 04-13004-A). Plaintiff alleges causes
of action for breach of agreement and quantum meruit, arising out of an alleged
failure, based on a verbal agreement, to compensate Plaintiff for unspecified
services provided to Defendants. Plaintiff seeks compensatory damages, including
the transfer 5,500,000 shares of common stock, $22,880,000 in monetary damages,
attorneys' fees, interest and costs. Defendants deny the claims and intend to
vigorously defend against them. On February 7, 2005, Defendants removed the case
to Federal Court (Case No. 3-05CV0257N). On February 14, 2005, Defendants filed
a Motion to Dismiss for lack of jurisdiction, and on March 7, 2005, Plaintiff
filed a Motion to Extend Time to File Response to the Motion to Dismiss and to
Allow Discovery on the Jurisdiction Issue. On May 5, 2005, CTC filed a motion to
transfer the case to the U.S. Bankruptcy Court in the Central District of
California. Plaintiff dismissed CTC without prejudice on May 11, 2005. On June
13, 2005, Defendant C. William Arrington filed a Motion to Dismiss for Failure
to Join CTC as a Party to the Action, and on June 29, 2005, Plaintiff filed a
Motion for Leave to File First Amended Complaint. On July 19, 2005, the Court
granted Plaintiff's Motion to Extend Time to Respond to the Motion to Dismiss,
which is due on or before September 1, 2005, and granted Plaintiff's motion to
conduct discovery of Defendants' contacts for the purposes of establishing
personal jurisdiction over the Defendants. All other motions are pending in
Federal Court.

DAVID S. SHIELDS V. COMPOSITE TECHNOLOGY CORPORATION:

On January 21, 2005, David S. Shields filed suit against CTC in Santa Clara
Superior Court (Case No. 1-05-CV-034368) alleging CTC breached a subscription
agreement by failing to issue the appropriate number of shares thereunder. CTC
denies the claims and intends to vigorously defend against them. CTC filed an
Answer and Cross-Complaint against Shields for Rescission and Declaratory Relief
on April 18, 2005. The case has been removed to the U.S. Bankruptcy Court in the
Central District of California. A status conference is set for January 10, 2006.


                                       50
<PAGE>

ITEM 2--UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following two unregistered sales of equity securities were made during the
quarter ending June 30, 2005:

On June 16, 2005, an accredited investor exercised 15,000 Series P warrants
issued in conjunction with the Series P PPM in September, 2003 at an exercise
price of $0.80 per share for cash proceeds of $12,000. The cash proceeds were
used for general corporate purposes and were recorded as Paid in Capital. We
issued 15,000 restricted, unregistered Common Shares as a result of this
transaction.

On June 30, 2005, an accredited investor exercised 83,335 Series O warrants
issued in conjunction with the Series O PPM in August, 2003 at an exercise price
of $0.60 per share for cash proceeds of $50,001. The cash proceeds were used for
general corporate purposes and were recorded as Paid in Capital. We issued
83,335 restricted, unregistered Common Shares as a result of this transaction.

From July 5, 2005 through August 3, 2005, we issued 464,998 shares of common
stock to accredited investors upon the exercise of Series P Warrants,
exercisable at $0.80 per share, for cash proceeds of $371,998.

On July 27, 2005, we issued 83,335 shares of common stock to an accredited
investor upon the exercise of a Series O Warrant, exercisable at $0.50 per
share, for cash proceeds of $41,667.

We relied on the exemption from registration as set forth in Section 4(2) of the
Securities Act of 1933 for the issuance of securities described above as
transactions by an issuer not involving any public offering. The recipients of
securities in each transaction made representations that they were accredited
investors within the meaning of Regulation D under the Securities Act. They also
represented their intentions to acquire the securities for investment purposes
without a view to distribution and had access to information concerning the
Company and our business prospects, as required by the Securities Act of 1933,
as amended. In addition, there was no general solicitation or advertising for
the acquisition of these securities.

There were no underwritten offerings employed in connection with any of these
transactions.

ITEM 3 - DEFAULTS ON SENIOR SECURITIES

None


                                       51
<PAGE>

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Our 2005 annual meeting of stockholders (the "2005 Annual Meeting") was held on
March 1, 2005 at the Atrium Hotel ballroom at 18700 MacArthur Blvd Irvine, CA
92612. Two proposals, as described in our Proxy Statement dated January 17,
2005, were voted on at the meeting. Following is a brief description of the
matters voted upon and the results of the voting:


1.  Election of Directors:

Nominee:                               Number of Shares:

Benton H Wilcoxon                      For   92,504,732
                                       Withheld 685,210

C. William  Arrington                  For   92,497,279
                                       Withheld 692,663


2. Ratification of selection of Singer Lewak Greenbaum & Goldstein LLP, as the
independent auditor for Composite Technology Corporation

For            Against                 Abstain
86,973,568     6,133,752               82,622


ITEM 5 - OTHER INFORMATION

None


                                       52
<PAGE>

ITEM 6 - EXHIBITS

      The exhibits listed in the Index to Exhibits are filed as part of this
      report.


                                       53
<PAGE>

                                    SIGNATURE

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

                        COMPOSITE TECHNOLOGY CORPORATION
                                  (Registrant)


                                                 By: /s/ Benton H Wilcoxon
                                                 -------------------------
                                                 Benton H Wilcoxon
                                                 Chief Executive Officer

August 9, 2005


                                       54
<PAGE>

                               Index to Exhibits
Exhibit
Number    Description

2.1(3)    Articles of Merger of ElDorado Financial Group, Inc., a Florida
          corporation, into ElDorado Financial Group, Inc., a Nevada
          corporation.

2.2(1)    Agreement and Plan of Reorganization By and Among Transmission
          Technology Corporation, Certain of its Stockholders, and ElDorado
          Financial Group, Inc. dated November 3, 2001.

2.3(16)   Plan of Reorganization of Composite Technology Corporation.

3.1(3)    Articles of Incorporation of the Registrant.

3.2(12)   Bylaws of Registrant.

4.1(9)    Form of Securities Purchase Agreement including form of the Debenture
          attached as Exhibit A, form of the Registration Rights Agreement
          attached as Exhibit B thereto, form of the Common Stock Purchase
          Warrant attached as Exhibit C thereto, form of legal opinion attached
          as Exhibit D, form of Custodial and Security Agreement attached as
          Exhibit E, dated August 17, 2004.

10.1(3)   2001 Transmission Technology Corporation Incentive Compensation Stock
          Option Plan.

10.2(2)   Technology License Agreement by and between W.B.G., Inc. and
          Transmission Technology Corporation dated May 7, 2001.

10.3(4)   Composite Technology Corporation 2002 Non-Qualified Stock Compensation
          Plan.

10.4(9)   Composite Technology Corporation Option Agreement - Dominic J.
          Majendie dated August 11, 2003.

10.5(5)   Composite Technology Corporation Option Agreement - Benton Wilcoxon
          dated August 13, 2003.

10.6(5)   Composite Technology Corporation Option Agreement - William Arrington
          dated August 13, 2003.

10.7(5)   Composite Technology Corporation Option Agreement - Brent N. Robbins
          dated August 13, 2003.

10.8(9)   Employment Agreement between Composite Technology Corporation and
          Dominic J. Majendie, dated October 1, 2003.

10.9(5)   Lease Agreement between Composite Technology Corporation and CNH, LLC
          dated November 7, 2003.

10.10(6)  Form of Securities Purchase Agreement, Registration rights Agreement
          and Common Stock Purchase Warrants, dated as of December 16, 2003.

10.11(9)  Form of Securities Purchase Agreement including form of the Debenture
          attached as Exhibit A, form of the Registration Rights Agreement
          attached as Exhibit B thereto, form of the Common Stock Purchase
          Warrant attached as Exhibit C thereto, form of legal opinion attached
          as Exhibit D, form of Custodial and Security Agreement attached as
          Exhibit E, dated August 17, 2004.

10.12(13) Letter Agreement between the Registrant and the city of Kingman,
          Kansas, dated November 11, 2003.

10.13(11) Engagement Agreement between Composite Technology Corporation and
          Brian Brittsan, dated December 18, 2004.

10.14(8)  Manufacturing Agreement between Composite Technology Corporation and
          General Cable Corp dated October 2,2004.


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<PAGE>

10.15(8)  Distribution Agreement between Composite Technology Corporation and
          General Cable Corp dated October 2, 2004.

10.16(10) Letter agreement between Composite Technology Corporation and Feldman
          Weinstein LLP, dated November 23, 2004.

10.17(13) Letter Agreement between Composite Technology Corporation and
          Midsummer Investment, Ltd., Bristol Investment Fund, Ltd., Islandia,
          L.P. and Omicron Trust dated January 21, 2005.

10.18(14) Exclusive Brokerage and Risk Management Agreement by and between
          Brakke Snafnitz Insurance Brokers, Inc. and Composite Technology
          Corporation dated June 29, 2005.

10.19(15) Consulting Agreement by and between Composite Technology Corporation,
          CTC Cable Corporation and Global American Energy Inc., dated
          March 31, 2003.

10.20(15) License Agreement between Composite Technology Corporation and W.
          Brandt Goldsworthy & Associates, Inc., dated February 6, 2003.

10.21(15) Consulting Agreement by and between Composite Products Development,
          Inc., George Korzeniowski and Composite Technology Corporation, dated
          March 1, 2002.

10.22(15) Consulting Agreement by and between Composite Support & Solutions,
          Inc. and Composite Technology Corporation.

10.23(15) Firm Fixed Price Billable Services Agreement Terms and Conditions
          between EPRI Solutions, Inc. and Composite Technology Corporation,
          dated February 2003.

10.24(15) Research Agreement between University of Southern California and
          Composite Technology Corporation, dated June 23, 2003.

10.25(15) Joint Development Agreement between FCI SA and Composite Technology
          Corporation, dated November 5, 2003.

10.26(15) Consulting Agreement between David C. Bryant and Composite Technology
          Corporation, dated February 21, 2003.

10.27(15) Employee Confidentiality and Assignment Agreement between David C.
          Bryant and Composite Technology Corporation, dated February 21, 2005.

21(7)     Subsidiaries of the Registrant.

31.1      Rule13a-14(a) / 15d-14(a) Certification of Chief Executive Officer and
          Acting Chief Financial Officer

32.1      Section 1350 Certification of Chief Executive Officer and Acting Chief
          Financial Officer

--------
      (1) Incorporated herein by reference to Form 8-K filed with the U. S.
      Securities and Exchange Commission on November 20, 2001.

      (2) Incorporated herein by reference to Form 8-K filed with the U. S.
      Securities and Exchange Commission on January 11, 2002.

      (3) Incorporated herein by reference to Form 10-KSB filed with the U. S.
      Securities and Exchange Commission on February 14, 2002.

      (4) Incorporated herein by reference to Definitive Schedule 14C filed with
      the U.S. Securities and Exchange Commission on January 27, 2003.

      (5) Incorporated herein by reference to Form 10-KSB filed with the U.S.
      Securities and Exchange Commission on February 4, 2004.

      (6) Incorporated herein by reference to Form 8-K filed with the U.S.
      Securities and Exchange Commission on December 19, 2003.

      (7) Incorporated herein by reference to Form SB-2 filed with the U.S.
      Securities and Exchange Commission on February 13, 2004.

      (8) Incorporated herein by reference to Form 8-K filed with the U.S.
      Securities and Exchange Commission on October 7, 2004.

      (9) Incorporated herein by reference to Form SB-2/A (File No. 333-118991)
      filed with the U.S. Securities and Exchange Commission on October 29,
      2004.

      (10) Incorporated herein by reference to Form 8-K filed with the U.S.
      Securities and Exchange Commission on November 24, 2004.

      (11) Incorporated by reference to Form 8-K filed with the U.S. Securities
      and Exchange Commission on January 11, 2005.

      (12) Incorporated herein by reference to Form 8-K filed with the U.S.
      Securities and Exchange Commission on January 18, 2005.

      (13) Incorporated herein by reference to Form SB-2 filed with the U.S.
      Securities and Exchange Commission on January 25, 2005.

      (14) Incorporated herein by reference to Form 8-K filed with the U.S
      Securities and Exchange Commission on July 11, 2005.

      (15) Incorporated herein by reference to Form 10KSB, as amended, filed
      with the U.S. Securities and Exchange Commission on July 8, 2005.

      (16) Incorporated by reference to the Registration Statement on Form S-3
      filed with the U.S. Securities and Exchange Commission on May 19, 2005.

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