**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 DECEMBER 31, 2006**





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


**ACT
      OF 1934.**





*COMMISSION
      FILE NUMBER 0-10999*





**COMPOSITE
      TECHNOLOGY CORPORATION**


(Exact
      Name of Registrant as Specified in Its Charter)




NEVADA
            
            59-2025386(State
                or Other Jurisdiction of
              Incorporation
                or Organization)
            
            (I.R.S.
                Employer Identification No.)2026
                McGaw Avenue Irvine, CA 92614(Address
                of Principal Executive Offices)(Zip
                Code)(949)
                428-8500(Registrant's
                Telephone Number, Including Area Code)




Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.





YES
x
      NO o





Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      Rule
      12b-2 of the Exchange Act).





YES
x
      NO o





Indicate
      the number of shares outstanding of the issuer's common stock as of




February 8, 2006CLASS
            
            NUMBER
                OF SHARES
                OUTSTANDINGCommon
                Stock, par value$0.001
                per share
            
            178,862,848
                shares







**COMPOSITE
      TECHNOLOGY CORPORATION**


Form
      10-Q
      for the Quarter ended December 31, 2006


Table
      of
      Contents


PagePART
                  I - FINANCIAL INFORMATIONItem
                  1
              Financial
                Statements
              
              3Item
                  2
              Management's
                Discussion and Analysis of Financial Condition and
                Results
                of Operations
              
              27Item
                  3
              Quantitative
                and Qualitative Disclosures About Market Risk
              
              37Item
                  4
              Controls
                and Procedures
              
              37PART
                  II - OTHER INFORMATIONItem
                  1
              Legal
                Proceedings
              
              40Item
                  1A
              Risk
                Factors
              
              40Item
                  2
              Unregistered
                Sales of Equity Securities and the Use of Proceeds
              
              42Item
                  3
              Defaults
                Upon Senior Securities
              
              42Item
                  4
              Submission
                of Matters to a Vote of Security Holders
              
              42Item
                  5
              Other
                Information
              
              42Item
                  6
              Exhibits
              
              43SIGNATURE
              
              45INDEX
                  TO EXHIBITS




2


**ITEM
        1**
 
 **PART
        1 - FINANCIAL STATEMENTS**
 **COMPOSITE
        TECHNOLOGY CORPORATION**
 **AND
        SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**
 
 December
                  31, 2006
              
              September
                  30, 2006(Unaudited)ASSETSCURRENT
                  ASSETSCash
                  and Cash Equivalents
              
              $
              1,357,083
              
              $
              2,578,347Accounts
                  Receivable, net
              
              
              13,846,226
              
              
              9,473,863Inventory,
                  net
              
              
              23,389,940
              
              
              23,891,867Prepaid
                  expenses and other current assets
              
              
              4,719,640
              
              
              3,433,936Total
                  current assets
              
              
              43,312,889
              
              
              39,378,013Long
                  Term Trade Receivables
              
              
              --
              
              
              2,028,927Property
                  and Equipment, net
              
              
              4,702,892
              
              
              4,714,084Goodwill
                  and Intangible Assets
              
              
              49,532,940
              
              
              49,616,000Other
                  Assets
              
              
              325,079
              
              
              515,800TOTAL
                  ASSETS
              
              $
              97,873,800
              
              $
              96,252,824LIABILITIES
                  AND SHAREHOLDERS’ EQUITYCURRENT
                  LIABILITIESAccounts
                  Payable and Other Accrued Liabilities
              
              $
              17,554,171
              
              $
              12,965,468Deferred
                  Revenues and Customer Advances
              
              
              17,961,262
              
              
              17,808,209Warranty
                  Provision
              
              
              10,162,053
              
              
              11,594,876Notes
                  payable and Capital Leases, current
              
              
              8,549,417
              
              
              6,309,900Total
                  Current Liabilities
              
              
              54,226,903
              
              
              48,678,453LONG
                  TERM LIABILITIESLong
                  Term Portion of Warranty Provision
              
              
              4,603,329
              
              
              3,059,328Long-Term
                  Portion of Deferred Revenues
              
              
              1,592,850
              
              
              2,304,492Lease
                  Obligation - Long Term
              
              
              72,359
              
              
              111,038Total
                  Long-Term Liabilities
              
              
              6,268,538
              
              
              5,474,858Total
                  Liabilities
              
              $
              60,495,441
              
              $
              54,153,311COMMITMENTS
                  AND CONTINGENCIESMinority
                  Interest in Consolidated Subsidiary
              
              
              1,606,392
              
              
              --SHAREHOLDERS’
                  EQUITYCommon
                  Stock, $.001 par value 300,000,000 shares authorized 178,862,848
                  and
                  178,635,325 issued and outstanding
              
              
              178,863
              
              
              178,635Additional
                  Paid-in Capital
              
              
              138,006,228
              
              
              137,461,330Subscription
                  Receivable
              
              
              (378,000
              )
              
              (378,000
              )Accumulated
                  Deficit
              
              
              (102,075,283
              )
              
              (95,125,955
              )Accumulated
                  Other Comprehensive Income (Loss)
              
              
              40,159
              
              
              (36,497
              )Total
                  Shareholders’ Equity
              
              
              37,771,967
              
              
              42,099,513TOTAL
                  LIABILITIES AND SHAREHOLDERS’ EQUITY
              
              $
              97,873,800
              
              $
              96,252,824
 
 
 The
        accompanying notes are an integral part of these financial statements
 
 
 3




**COMPOSITE
      TECHNOLOGY CORPORATION**


**AND
      SUBSIDIARIES**


CONSOLIDATED
      STATEMENTS OF OPERATIONS


FOR
      THE
      THREE MONTHS ENDED DECEMBER 31, 2006 AND 2005




Three
                Months
              ended
              December
                31, 2006
            
            Three
                Months
              ended
              December
                31, 2005(unaudited)
            
            (unaudited)Revenue:Cable
                Revenue
            
            $
            1,643,908
            
            $
            22,892Turbine
                Revenue
            
            
            6,602,392
            
            
            --Turbine
                Service and Maintenance Revenue
            
            
            4,786,428
            
            
            --Consulting
                Revenue
            
            
            --
            
            
            550,000Total
                Revenue
            
            
            13,032,728
            
            
            572,892Cost
                of Revenue
            
            
            11,778,991
            
            
            321,467Gross
                margin
            
            
            1,253,737
            
            
            251,425OPERATING
                EXPENSESOfficer
                compensation
            
            
            247,694
            
            
            102,130General
                and administrative
            
            
            3,424,967
            
            
            907,164Legal,
                professional, & consulting
            
            
            243,090
            
            
            1,060,621Research
                and development
            
            
            1,437,071
            
            
            1,211,255Sales
                and Marketing
            
            
            1,857,427
            
            
            516,449Depreciation
                & Amortization
            
            
            778,196
            
            
            191,645Reorganization
                Expense - Bankruptcy legal fees
            
            
            --
            
            
            283,369Total
                operating expenses
            
            
            7,988,445
            
            
            4,272,633LOSS
                FROM OPERATIONS BEFORE MINORITY INTEREST
            
            $
            (6,734,708
            )
            $
            (4,021,208
            )OTHER
                INCOME /(EXPENSE) BEFORE MINORITY INTERESTInterest
                expense
            
            
            (415,553
            )
            
            (218,666
            )Interest
                income
            
            
            33,050
            
            
            14,245Other
                income
            
            
            208,001
            
            
            3,529Expense
                related to modification of warrants
            
            
            --
            
            
            (388,962
            )Reorganization
                item - adjustment to carrying value - Convertible Debt
            
            
            --
            
            
            (2,622,240
            )Total
                other income/(expense) before minority interest
            
            
            (174,502
            )
            
            (3,212,094
            )Loss
                before Income Taxes and Minority Interest
            
            
            (6,909,210
            )
            
            (7,233,302
            )Income
                Taxes
            
            
            50,833
            
            
            1,600NET
                LOSS BEFORE MINORITY INTEREST
            
            
            (6,960,043
            )
            
            (7,234,902
            )Minority
                Interest in Consolidated Subsidiary
            
            
            10,719
            
            
            --NET
                LOSS
            
            $
            (6,949,324
            )
            $
            (7,234,902
            )OTHER
                COMPREHENSIVE INCOME/LOSSForeign
                Currency Translation Adjustment, net of tax of $0 and $0
            
            $
            76,656
            
            
            --COMPREHENSIVE
                LOSS
            
            $
            (6,872,668
            )
            
            (7,234,902
            )BASIC
                AND DILUTED LOSS PER SHARE
            
            $
            (0.04
            )
            
            (0.06
            )TOTAL
                BASIC AND DILUTED LOSS PER SHARE
            
            $
            (0.04
            )
            
            (0.06
            )WEIGHTED-AVERAGE
                COMMON SHARES OUTSTANDING, BASIC AND DILUTED
            
            
            **178,769,958**
            
            
            **124,511,518**




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




4


**COMPOSITE
        TECHNOLOGY CORPORATION**
 **AND
        SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **FOR
        THE THREE MONTHS ENDED DECEMBER 31, 2006 AND 2005**
  For
                  the Three Months ended Dec. 31, 2006
              
              For
                  the Three Months ended Dec. 31, 2005(unaudited)
              
              (unaudited)CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  loss
              
              $
              (6,949,324
              )
              $
              (7,234,902
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
                  & amortization
              
              
              778,196
              
              
              191,645Amortization
                  of prepaid expenses paid in stock
              
              
              129,369
              
              
              --Imputed
                  Interest Expense - unissued warrants
              
              
              95,115
              
              
              --Inventory
                  reserve expense
              
              
              --
              
              
              529,613Expense
                  related to fair value of vested options
              
              
              132,418
              
              
              145,029Issuance
                  of common stock for services
              
              
              248,500
              
              
              494,330Issuance
                      of warrants for services
              
              
              --
              
              
              180,416Issuance
                  of warrants for interest
              
              
              164,208
              
              
              --Compensation
                  expense related to modification of stock warrants
              
              
              --
              
              
              388,692Reorganization
                  item - adjustment to carrying value of convertible debt
              
              
              --
              
              
              2,622,240Minority
                  interest portion of net loss
              
              
              (10,719
              )
              
              --Other
              
              
              --
              
              
              5,673(Increase)
                  Decrease in Assets:Accounts
                  Receivable
              
              
              (2,162,045
              )
              
              43,938Inventory
              
              
              1,100,557
              
              
              (1,779,518
              )Prepaid
                  expenses
              
              
              (1,266,981
              )
              
              217,878Capitalized
                  construction costs
              
              
              --
              
              
              304,787Other
                  assets
              
              
              190,717
              
              
              (15,805
              )Increase
                  (Decrease) in LiabilitiesAccounts
                  Payable and Accrued expenses
              
              
              4,336,683
              
              
              (1,137,338
              )Accrued
                  Warranty Liability
              
              
              (373,899
              )
              
              --Deferred
                  revenue
              
              
              (1,048,766
              )
              
              (593,938
              )Net
                  cash used in operating activities
              
              $
              (4,635,971
              )
              $
              (5,637,260
              )CASH
                  FLOW FROM INVESTING ACTIVITIESPurchase
                  of property and equipment
              
              
              (340,411
              )
              
              (130,747
              )Net
                  cash provided by (used in) investing activities
              
              $
              (340,411
              )
              $
              (130,747
              )CASH
                  FLOW FROM FINANCING ACTIVITIESProceeds
                  from issuance of convertible debentures
              
              
              --
              
              
              6,000,000Proceeds
                  from exercise of warrants
              
              
              --
              
              
              356,908Proceeds
                  from investment in subsidiary
              
              
              1,554,280
              
              
              --Proceeds
                  from Factoring Arrangements
              
              
              1,800,000
              
              
              --Proceeds
                  from Notes Payable
              
              
              500,000
              
              
              --Payments
                  on capital lease assets
              
              
              (99,162
              )
              
              (97,523
              )Net
                  cash provided by financing activities
              
              
              3,755,118
              
              
              6,259,385Net
                  increase/(decrease) in cash and cash equivalents
              
              
              (1,221,264
              )
              
              491,378CASH
                  AND CASH EQUIVALENTS, BEGINNING OF PERIOD
              
              
              2,578,347
              
              
              807,815CASH
                  AND CASH EQUIVALENTS, END OF PERIOD
              
              $
              1,357,083
              
              $
              1,299,193SUPPLEMENTAL
                  DISCLOSURES OF CASH FLOW INFORMATIONCASH
                  PAID FOR BANKRUPTCY ITEMS
              
              $
              --
              
              $
              503,279INTEREST
                  PAID
              
              $
              105,387
              
              $
              218,666INCOME
                  TAXES PAID
              
              $
              --
              
              $
              1,600
  The
        accompanying notes are an integral part of these financial
        statements.
 
 5




**Supplemental
      Schedule for Non Cash Financing Activities**


During
      the first three months of fiscal 2007, the Company issued:


50,000
            shares of common stock for the settlement
              of
              accounts payable related to marketing consulting services valued at
              $55,000 and177,523
            shares
              of common stock for settlement of accounts payable related to product
              development services valued at $193,500.220,000
            warrants
              valued at the fair value at the issuance date as described in note
              8 of
              $164,208 were issued to a note holder in lieu of interest and recorded
              as
              interest expense during the quarter at the fair value of the warrantsissued.




During
        the first quarter of fiscal 2006, the Company issued 2,858,913 shares of
        common
        stock for the conversion of $4,480,191 of the August, 2004 Convertible
        Debentures as follows:
  o
        $680,191 of principal was converted at $1.67 per share into 407,300 shares
        of
        common stock
  o
        $3,800,000 of principal was converted at $1.55 per share into 2,451,613 shares
        of common stock.
  During
        the first quarter of fiscal 2006, the Company issued 7,521,425 shares of
        common
        stock for settlement of bankruptcy claims and litigation settlements valued
        at
        $14,507,521. On September 30, 2005, $14,244,792 had been recorded as accrued
        litigation and $262,729 had been recorded as liabilities subject to compromise.
  During
        the first quarter of fiscal 2006, the Company issued 232,258 shares of common
        stock for debt financing services valued at $360,000.
  During
        the first quarter of fiscal 2006, the Company issued 73,961 shares of common
        stock in settlement of Accounts Payable totaling $131,651.
  During
        the first quarter of fiscal 2006, the Company issued 200,000 shares of common
        stock as prepayment for commissions valued at $354,000 in conjunction with
        a
        bankruptcy settlement.
  During
        the first quarter of fiscal 2006, the Company issued 261,132 shares of common
        stock in lieu of interest totaling $433,435.
  During
        the first quarter of fiscal 2006, in October, 2005 the Company raised $6,000,000
        in convertible notes. In conjunction with these notes:
  o
        The
        Company issued 1,354,838 warrants and valued the conversion features of the
        notes and warrants at $1,834,092. Under bankruptcy accounting, the entire
        balance was expensed as a reorganization item immediately following issuance.
  o
        The
        Company triggered certain anti-dilution provisions in the August, 2004
        Convertible debentures including the re-pricing of warrants issued to the
        debenture holders and a re-setting of the debt conversion price from $1.67
        to
        $1.55. The company re-priced 4,537,538 warrants and recorded an expense charge
        of $388,962 to legal, professional, and consulting. The Company recorded
        the
        intrinsic value of the change to the conversion price at $788,148 as additional
        debt discount to the August, 2004 debentures. Under bankruptcy accounting,
        the
        debt discount was immediately charged to expense as a reorganization item
        -
        adjustment to debt carrying value immediately following the re-pricing .






6





**COMPOSITE
      TECHNOLOGY CORPORATION**


**AND
      SUBSIDIARIES**


**NOTES
      TO FINANCIAL STATEMENTS**





**NOTE
      1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES**





*Company*


Composite
      Technology Corporation (“us,” “CTC," the “Company,” or "Composite Technology")
      originally incorporated
      in Florida and reincorporated in Nevada, is an Irvine, California based company
      focusing on marketing products that provide efficient and environmentally
      friendly transmission and generation of electricity. CTC operates in two
      segments: CTC Cable “Cable” and DeWind, “Wind”. The Cable Segment sells advanced
      composite core conductor ("ACCC") cables for electric transmission and
      distribution lines both as replacement for less efficient older technology
      steel
      cored cables and for new high capacity transmission lines. Our cable has a
      higher weight to electrical conductivity ratio than current industry standard
      transmission cables and we believe that it is a more efficient electrical
      conductor than current industry standards. We market our cable through
      distributor relationships in the US, China, and elsewhere in the world along
      with direct sales to public, private, and governmentally owned utilities and
      transmission line operators.




In
      July,
      2006 we acquired EU Energy, Ltd. which has been operated as DeWind since the
      acquisition. The Wind segment sells wind powered electric generators under
      the
      brand name DeWind at 1.25 and 2.0 megawatts of rated power output per turbine
      unit. We market our wind turbines directly to wind farm operators in Europe,
      North America, and worldwide.




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. Our bankruptcy
      plan was confirmed on October 31, 2005. We exited Title 11 Bankruptcy on
      November 18, 2005 and received a formal decree which released us from Bankruptcy
      Court oversight on August 2, 2006.




On
      October 1, 2006 in conjunction with the
      recapitalization of DeWind’s formerly 100% owned subsidiary, we formed E Service
      by selling 50% of the share capital to Enertrag, as described in Note 9. We
      determined that the new entity was subject to FASB Interpretation No. 46, as
      revised (FIN 46R) “Consolidation of Variable Interest Entities, an
      Interpretation of ARB No. 51.” Prior to the founding of E Service, we did not
      own any Variable Interest Entities (VIEs) that require the guidance of FIN
      46R.
      FIN 46R requires a thorough review of the ownership and control of any such
      entities and a determination as to whether such entities should be consolidated.
      We determined that for the quarter ending December 31, 2006 that E Service
      was a
      VIE, that we are considered to be the primary beneficiary, and therefore under
      FIN 46R we are required to consolidate the financial statements of E Service
      into the Company’s consolidated financial statements.




*Accounting*


The
      accompanying unaudited consolidated financial statements of Composite Technology
      Corporation have been prepared in accordance with accounting principles
      generally accepted in the United States of America for interim financial
      information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
      S-X. Accordingly, they do not contain all of the information and footnotes
      required for complete financial statements. Interim information is unaudited;
      however, in the opinion of the Company's management, the accompanying unaudited,
      consolidated financial statements reflect all adjustments (consisting of normal,
      recurring adjustments) considered necessary for a fair presentation of the
      Company's interim financial information. These financial statements and notes
      should be read in conjunction with the audited financial statements of the
      Company included in the Company's Annual Report on Form 10-K for the fiscal
      year
      ended September 30, 2006 filed with the Securities and Exchange Commission
      on
      December 26, 2006.





The
      Company’s consolidated financial statements include the financial statements of
      E Service, a 50% owned subsidiary that effective October 1, 2006 has been
      treated as a variable interest entity under the guidelines of FIN 46R. See
      Note
      9.




7




*Estimates*


Our
      consolidated financial statements are prepared in accordance with U.S. generally
      accepted accounting principles (GAAP). These accounting principles require
      us to
      make certain estimates, judgments and assumptions. We believe that the
      estimates, judgments and assumption upon which we rely are reasonable based
      upon
      information available to us at the time that these estimates, judgments and
      assumptions are made. These estimates, judgments and assumptions can affect
      the
      reported amounts of assets and liabilities as of the date of the financial
      statements as we as the reported amounts of revenues and expenses during the
      period presented. To the extent there are material differences between these
      estimates, judgments or assumptions and actual results, our financial statements
      will be affected. In many cases, the accounting treatment of a particular
      transaction is specifically dictated by GAAP and does not require management's
      judgment in its application. There are also many areas in which management's
      judgment in selecting among available alternatives would not produce a
      materially different result. Our key estimates we use that rely upon management
      judgment includes:




-
            the
                estimates pertaining to the likelihood of our accounts receivable
                collectibility-
            the
                estimates pertaining to the valuation of our
                inventories,-
            the
                assumptions used to calculate fair value of our stocked based
                compensation, primarily the volatility component of the
                Black-Scholes-Merton option pricing model used to value our warrants
                and
                our employee and non-employee options-
            the
                warranty, retrofit and availability provisions for our wind
                turbines.-
            goodwill
                and intangible valuation.





Except
      as
      noted in this document, the methodology and assumptions used for the estimates
      pertaining to the activity during the quarter ended December 31, 2006 is
      consistent with the estimates included in our Form 10-K filed on December 26,
      2006.





*Recent
      Pronouncements*




**Statement
      No. 157, “Fair Value Measurements” (SFAS 157)** In September 2006, the FASB issued Statement No. 157, “Fair Value
      Measurements” (SFAS 157). SFAS 157 defines fair value, establishes a
      framework and gives guidance regarding the methods used for measuring fair
      value, and expands disclosures about fair value measurements. SFAS 157 is
      effective for financial statements issued for fiscal years beginning after
      November 15, 2007, and interim periods within those fiscal years. We are
      currently evaluating the impact of adopting SFAS 157 on our consolidated
      financial statements.




**EITF
      Issue No. 06-6** *Debtor’s
      Accounting for a Modification (or Exchange) of Convertible Debt Instruments:*


In
      November, 2006, the Emerging Issues Task Force (EITF) approved EITF Issue No.
      06-6. EITF 06-6 addresses the issue of accounting for modifications made to
      convertible debt instruments, supersedes Issue No. 05-7 “Accounting for
      Modifications to Conversion Options Embedded in Debt Instruments and Related
      Issues,” clarifies the accounting approach required for such modifications and
      modifies guidance provided in EITF 96-19 “Debtor’s Accounting for a Modification
      or Exchange of Debt Instruments.” EITF 06-6 is effective for convertible debt
      instrument modifications made after November 29, 2006. We will use the guidance
      provided in EITF 06-6 and in the revised EITF 96-19 for any future modifications
      to our Convertible Debt instruments on a prospective basis.




8




**EITF
      Issue No. 06-7** *Issuer’s
      Accounting for a Previously Bifurcated Conversion Option in a Convertible Debt
      Instrument When the Convesion Option No Longer Meets the Bifurcation Criteria
      in
      FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging
      Activities”*


In
      November, 2006 the Emerging Issues Task Force (EITF) approved EITF Issue No.
      06-7. EITF 06-7 provides clarification and guidance for bifurcated conversion
      options in convertible debt instruments where the bifurcation criteria of SFAS
      133 are no longer met. EITF 06-7 is effective for changes to such criteria
      after
      November 29, 2006. We will use the guidance provided in EITF 06-7 on a
      prospective basis. The adoption of EITF 06-7 had no impact to our financial
      statements for the period ending December 31, 2006.




Receivable
      Factoring Agreement


During
      the December, 2006 quarter, we entered into a receivable factoring arrangement
      as described in Note 4. We have accounted for this arrangement under SFAS 140
      “Accounting for Transfers and Servicing of Financial Assets and Extinguishments
      of Liabilities.” We evaluated the agreement and the underlying receivables and
      determined that an asset transfer had not occurred. Accordingly, we have
      retained any assets subject to this arrangement in our balance sheet as of
      December 31, 2006 and we have recorded a liability for the balance due under
      the
      arrangement. As of December 31, 2006 we have receivables recorded on our balance
      sheet totaling $1,384,868 that provide security for this agreement. Additional
      security is provided by un-invoiced orders that are expected to ship during
      the
      quarter ended March 31, 2007. We
      evaluated this arrangement under SFAS 133 and determined that it is not a
      derivative financial instrument.




**NOTE
      2 BANKRUPTCY**





We
      emerged from Chapter 11 bankruptcy on November 18, 2005. We received a formal
      decree that we were no longer subject to Bankruptcy Court supervision on August
      2, 2006.





For
      financial reporting purposes, the consolidated financial statements have been
      prepared on a going concern basis. For that portion of fiscal 2006 through
      the
      end of the bankruptcy exit, the Company applied the provisions of the AICPA
      SOP
      90-7, Accounting for Bankruptcies. We reviewed the guidelines and determined
      that the following applied during the quarter ending December 31, 2005:





-
      During
      the quarter ending December 31, 2005, we incurred $283,369 in bankruptcy related
      legal and professional fees. We have segregated these fees in our Statement
      of
      Operations.





-Interest
      expense recorded related to the bankruptcy filing consists of 3% annual interest
      on our pre-petition liabilities and totaled $3,100 for the quarter ending
      December 31, 2005.




9




-We
      issued $6.0 million of convertible debt in October, 2005 with detachable
      warrants and a conversion feature. The combined value of the conversion feature
      and the warrants was $2,622,240 which was recorded as a discount to the debt
      principal. Under SOP 90-7 we immediately expensed this balance to other
      expense.





-We
      have
      disclosed the cash payments for reorganization costs as a supplemental
      disclosure to our Statement of Cash Flows.





-We
      did
      not qualify for Fresh-Start reporting upon emergence from bankruptcy.





-We
      issued 7,781,215 shares of common stock during the quarter ending December
      31,
      2005 in settlement of certain bankruptcy claims and litigation settlements
      as
      Section 1145 stock as follows:





Shares
                issuable at September 30, 2005Litigation
                settlements
            
            
            7,175,000Bankruptcy
                claim settlements
            
            
            287,301Debenture
                interest payable
            
            
            259,790Pre-petition
                liabilities
            
            
            59,124Total
            
            
            7,781,215





The
      shares issuable as of September 30, 2005 were issued in November, 2005 and
      are
      described in greater detail on form 10-K for the fiscal year ending September
      30, 2006.





**NOTE
      3 - GOING CONCERN**





The
      Company has received a report from its independent auditors for the year ended
      September 30, 2006 that includes an explanatory paragraph describing the
      uncertainty as to the Company's ability to continue as a going concern. These
      consolidated financial statements contemplate the ability to continue as such
      and do not include any adjustments that might result from this uncertainty.





During
      the year ended September 30, 2006, the Company incurred a net loss of
      $(28,523,192) and negative cash flows from operations of $(6,263,703). In
      addition, the Company had an accumulated deficit of $(95,125,955) at September
      30, 2006. For the quarter ended December 31, 2006, the Company incurred a net
      loss of $(6,949,324) and had an accumulated deficit of $(102,075,283). The
      Company's ability to continue as a going concern is dependent upon its ability
      to generate profitable operations in the future and/or to obtain the necessary
      financing to meet its obligations and repay its liabilities arising from normal
      business operations when they come due. The outcome of these matters cannot
      be
      predicted with any certainty at this time.




10




Commercial
      orders - cable: At the end of January, 2007 we had firm orders totaling $11.1
      million of cable orders for shipment through April, 2007. In January, 2007
      we
      announced a minimum stocking order from Jiang-su Far East in China for 600
      kilometers of cable valued between $7 million and $12 million per calendar
      quarter for twelve months at the minimum order levels. The initial order of
      242
      kilometers valued at $4.1 million is expected to ship by March 31, 2007 and
      an
      additional order for $2.9 million for delivery in April, 2007 has been placed.
      Including the $4.1 million China order, our current order backlog includes
      approximately $6.4 million expected to ship in the March 31, 2007 quarter.
      At
      the minimum order quantities anticipated from China under the stocking order,
      we
      anticipate that our sales under this contract alone at the minimum order levels
      will generate positive cash flows during the quarter ending June 30, 2007 and
      thereafter.





Commercial
      orders - wind turbines: Through February 2, 2007, we have received firm orders
      totaling 13.4 million Euros ($17.4 million US) for expected delivery of wind
      turbines in 2007. Due to the capital required to produce our wind turbines
      related to required advance payments on turbine parts, we have attempted to
      provide for cash advances from our customers in our turbine supply agreements
      upon reaching certain milestones prior to delivery of the turbines to the
      customer. We may, however, require additional investment capital or use cash
      provided by our other business segments to source our turbine parts and produce
      the turbines.





Due
      to
      the increased demand for working capital in our turbine division, we believe
      our
      cash position as of December 31, 2006 of $1.3 million and expected cash flows
      from revenue orders may not be sufficient to fund operations for the next four
      calendar quarters. To the extent required the Company may issue 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.




Subsequent
        to year end, on February 12, 2007, the Company closed a convertible debt
        offering as described in Note 13 in the amount of $15,650,000.





**NOTE
      4 - BALANCE SHEET DETAILS**





*Accounts
      Receivable*




Accounts
      receivable consisted of the following at December 31, 2006:




Turbine
                products and service receivables
            
            $
            12,180,552Cable
                products receivables
            
            
            4,165,674Reserves
            
            
            (2,500,000
            )Net
                Receivables
            
            $
            13,846,226




11




*Inventories*




Inventories
      consisted of the following at December 31, 2006 :




Raw
                Materials and Turbine Parts
            
            $
            5,991,412Work-in-Progress
            
            
            15,306,220ACCC
                Finished Core, Cable, & Related Hardware
            
            
            2,357,940Gross
                Inventory
            
            
            23,655,572Reserves
            
            
            (265,632
            )Net
                Inventory
            
            $
            23,389,940







*Deferred
      Revenues and Customer Deposits*




Deferred
      Revenues and Customer Deposits represent balances billed or cash advanced to
      the
      Company in advance of completion of the revenue cycle.




The
      following table sets forth an analysis of deferred revenues and customer
      deposits as of December 31, 2006:




Customer
                advances on turbines and turbine parts sales
            
            $
            9,044,607Deferred
                revenues - Turbine license fees
            
            
            4,626,859Deferred
                revenues - Turbine maintenance and service advances
            
            
            4,080,900Deferred
                revenues - Cable Sales
            
            
            1,801,746Total,
                Deferred revenues & customer advances at December 31,
                2006
            
            $
            19,554,112Balance
                included in current liabilities
            
            
            (17,961,262
            )Long
                Term Deferred Revenues at December 31, 2006
            
            $
            1,592,850







*Warranty
      Reserve*




Warranties
      relate to the product warranty, retrofit accruals, and availability guarantees
      for our wind turbines. We accrue for our product warranty costs at the time
      of
      shipment. These product warranty costs are estimated based upon our historical
      experience and specific identification of product requirements.




The
      following table sets forth an analysis of warranty reserve activity




Balance
                at September 30, 2006
            
            $
            14,654,204Additional
                reserves recorded to expense
            
            
            1,663,929Reserves
                utilized
            
            
            (1,552,751
            )Balance
                at December 31, 2006
            
            $
            14,765,382Less
                Amount classified as current liabilities
            
            
            (10,162,053
            )Long
                Term Warranty Liability at December 31, 2006
            
            $
            4,603,329




12




*Convertible
      Debt, Notes Payable, and Capital Leases*




The
      following table sets forth an analysis of the Company’s debt structure as of
      December 31, 2006:




Convertible
                Debentures due August, 2007
            
            $
            6,023,250Notes
                payable due March, 2007
            
            
            500,000Factored
                receivables, net of imputed discount
            
            
            1,800,000Capital
                Leases
            
            
            298,526Total,
                Debt
            
            
            8,621,776Less
                Balance included in current liabilities
            
            
            (8,549,417
            )Long
                Term Debt at December 31, 2006
            
            $
            72,359






In
      November, 2006 we converted a $500,000 cash advance received on a cable order
      to
      a short term note payable due on and outstanding at December 31, 2006. The
      note
      had no cash interest component. We issued 220,000 warrants in lieu of interest
      paid and recorded the fair value of the warrants to interest expense as
      described in Note 8.




In
      November, 2006 we entered into a receivable and cable order factoring
      relationship where we sold the rights to certain future payments on qualified
      cable related accounts receivable and orders sold under letters of credit (The
      “Factored Receivables Note”). We received $1,800,000 under this relationship
      during the quarter ending December 31, 2006 and which calls for a 10% annual
      interest rate and a 2% fee upon repayment. We have recorded these advances
      as
      short term debt. We do not expect any future cash advances from this agreement.
      The arrangement calls for an issuance of 900,000 warrants in the event that
      repayment is made after December 31, 2006 and an additional 900,000 warrants
      if
      the repayment is not made by February 1, 2007. On December 22, 2006 management
      determined that the Factored Receivables Note would not be repaid by December
      31
      and estimated a discount to the debt for the fair value of 900,000 warrants,
      as
      if issued on December 22, 2006. The value of the warrants if issued on December
      22, 2006 were estimated at $0.4697 per warrant using the Black Scholes option
      pricing model with a 2 year life, an exercise price of $1.06 per warrant, a
      volatility of 93% and a risk free rate of 4.7% for a total estimated value
      of
      $422,735. We imputed interest expense of $95,115, representing the amortization
      of the estimated discount from December 22 to December 31, 2006. The note is
      due
      March 31, 2007. We did not repay this note by December 31, 2006 or February
      1,
      2007 and expect to issue the additional warrants subsequent to year end. See
      also Note 8.




**5.
      GOODWILL AND OTHER ACQUISITION-RELATED INTANGIBLE ASSETS**




All
      of our goodwill and intangibles is related to our DeWind segment. Information
      regarding our goodwill is as follows:




****
            
            **Dewind**
                **Segment**Balance
                as of September 30, 2006
            
            $
            25,469,000Adjustment
                to DeWind pre-acquisition inventory
            
            
            242,940Balance
                as of December 31, 2006
            
            $
            25,711,940





13




We
      recorded an adjustment of $242,940 to goodwill to reflect a decrease in the
      recoverable value of the turbine inventory acquired during the EU acquisition
      dated July 3, 2006 and as appropriate under SFAS 141 acquisition accounting.
      As
      of September 30, 2006 we had made estimates of the liquidation value of the
      remaining turbine inventory. During the quarter ending December 31, 2006,
      certain turbines required additional costs to refurbish and we revalued the
      estimated recovery value of the remaining turbines. As of January 31, 2006,
      we
      have one turbine nacelle remaining in inventory that is not identified as sold.
      All remaining turbines are expected to be shipped by the end of our fiscal
      year
      ending September 30, 2007. We will continue to revalue the turbines acquired
      under SFAS 141 through our one year anniversary of the EU acquisition and to
      the
      extent that the values of these assets change, we intend to adjust goodwill
      accordingly through the quarter ending June 30, 2007.




There
      were no additions to our acquisition-related intangible assets during the
      quarter ending December 31, 2006. Information regarding our other
      acquisition-related intangible assets is as follows:




**Gross
                Carrying Amount**
            
            **Accumulated
                Amortization**
            
            **Net
                Carrying Amount****December
                31,**
            
            **Sept 30,**
            
            ****
            
            **December
                31,**
            
            **December
                31,******
            
            **2006**
            
            **2006**
            
            **Additions**
            
            **2006**
            
            **2006**Supply
                Agreements
            
            $
            12,347,000
            
            $
            --
            
            $
            --
            
            $
            --
            
            $
            12,347,000Tech
                Transfer Agreements
            
            
            3,131,000
            
            
            --
            
            
            --
            
            
            --
            
            
            3,131,000Tradename
            
            
            7,553,000
            
            
            (94,400
            )
            
            (94,400
            )
            
            (188,800
            )
            
            7,364,200Service
                Contracts
            
            
            1,442,000
            
            
            (231,600
            )
            
            (231,600
            )
            
            (463,200
            )
            
            978,800$
            24,473,000
            
            $
            (326,000
            )
            $
            (326,000
            )
            $
            (652,000
            )
            $
            23,821,000







Amortization
      expense of other acquisition-related intangible assets was $326,000 and $0
      for
      the three months ended December 31, 2006 and 2005, respectively. Our
      acquisition-related intangible assets are amortized on a per turbine unit
      shipped basis for the Supply and Technology Transfer Agreements, over the life
      of the underlying service contracts expiring through 2009, and on a 20 year
      straight line basis for the tradename.




Estimated
      amortization expense for other acquisition-related intangible assets on our
      December 31, 2006 balance sheet for the fiscal years ending September 30,
      is as follows:




Remainder
                of 2007
            
            $
            1,859,0002008
            
            
            3,872,0002009
            
            
            4,379,0002010
            
            
            4,546,0002011
            
            
            3,595,000Thereafter
            
            
            5,570,000$
            23,821,000




14





**6.
      OPERATING SEGMENTS**




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




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




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




ACCC
      Cable Division


Located
      in Irvine, California with sales operations in Dallas, Atlanta, Lubeck, Germany,
      and Shanghai, China, the CTC Cable Division produces and sells ACCC electrical
      transmission cable and related ACCC hardware products. ACCC cable production
      is
      a two step process. The Irvine operations produce the high strength, light
      weight, low sag composite “core” (ACCC core) which is then shipped to one of
      three cable wrapping partners in Canada, Belgium, or Bahrain where the core
      is
      wrapped with conductive aluminum to become ACCC cable. ACCC cable and core
      is
      sold through a distribution agreement with General Cable in the US and ACCC
      cable is sold outside the US directly to utilities. ACCC cable has been sold
      commercially since 2005 and is currently marketed worldwide to electrical
      utilities and transmission companies.




DeWind
      Turbine Division


The
      Wind
      division operates under the brand name DeWind. Located in Lubeck, Germany with
      sales operations in Dallas, TX, the DeWind Division produces, services, and
      sells DeWind turbines in the 1.25 and 2.0 Megawatt range. Prior to the
      acquisition of EU Energy on July 3, 2006, the DeWind Division had been inactive
      with no fiscal 2005 operating activity. The E Service entity described in Note
      9
      operations are consolidated with the DeWind division balances for all periods
      presented.





The
      following table presents revenues, interdivision revenues and operating income
      (loss) for our segments.:





****
            
            **Cable**
                **Segment**
            
            **Wind**
                **Segment**
            
            **Total****Three
                Months Ended:********December
                31, 2006**Revenues
            
            $
            1,643,908
            
            $
            11,388,820
            
            $
            13,032,728Interdivision
                revenues
            
            
            --
            
            
            --
            
            
            --Operating
                loss
            
            
            (3,127,979
            )
            
            (3,606,729
            )
            
            (6,734,708
            )**December
                31, 2005**Revenues
            
            $
            572,892
            
            $
            --
            
            $
            572,892Interdivision
                revenues
            
            
            --
            
            
            --
            
            
            --Operating loss
            
            
            (4,021,208
            )
            
            --
            
            
            (4,021,208
            )




The
        following table presents the consolidated results of continuing operations
        for
        the quarter ended December 31, 2005 on an unaudited pro forma basis as if
        the
        July, 2006 acquisition of EUE had taken place at the beginning of fiscal
        quarter
        ending December 31, 2005 and is issued for comparative purposes to the December
        31, 2006 quarter.
 
 **Cable**
                **Segment**
              
              **Wind**
                **Segment**
              
              **Total**Revenues
              
              $
              572,892
              
              $
              17,103,224
              
              $
              17,676,116Interdivision
                  revenues
              
              
              --
              
              
              --
              
              
              --Operating
                  loss
              
              
              (4,021,208
              )
              
              (5,544,019
              )
              
              (9,565,227
              )


15




**NOTE
      7.  EQUITY BASED COMPENSATION**





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





The
      values of the derivative financial instruments are estimated using the
      Black-Scholes-Merton (Black-Scholes) option pricing model. Key assumptions
      used
      to value options and warrants granted are as follows:




**Three
                Months Ended****December
                31,****2006**
            
            **2005**Risk
                Free Rate of Return
            
            
            4.7
            %
            
            3.97
            %Volatility
            
            
            98.4
            %
            
            100
            %Dividend
                yield
            
            
            0
            %
            
            0
            %


There
      have been no fiscal 2007 employee or non-employee option grants through December
      31, 2006.





Our
      computation of expected volatility for the quarter ended December 31, 2006
      is based on historical and volatility over the expected life of the options
      granted. Our computation of expected life is based on historical exercise
      patterns. The interest rate for periods within the contractual life of the
      award
      is based on the U.S. Treasury yield curve in effect at the time of grant.




On
      March
      29, 2005, the Securities and Exchange Commission published Staff Accounting
      Bulletin No. 107 (SAB 107), which provides the Staff’s views on a variety of
      matters relating to stock-based payments. SAB 107 requires stock-based
      compensation to be classified in the same expense line items as cash
      compensation. Information about stock-based compensation included in the results
      of operations for the quarters ending December 31, 2006 and 2005 is as
      follows:




**Three
                Months Ended**
            
            **Three
                Months Ended****December
                31**
            
            **December
                31****2006**
            
            **2005**Cost
                of Product Sold
            
            $
            31,033
            
            $
            --Officer
                Compensation
            
            
            --
            
            
            36,848Legal,
                Professional and Consulting
            
            
            --
            
            
            180,416Selling
                and marketing
            
            
            48,837
            
            
            3,158Research
                and development
            
            
            33,891
            
            
            38,103General
                and administrative
            
            
            18,657
            
            
            66,920Totals
            
            $
            132,418
            
            $
            325,445





As
      of
      December 31, 2006, there was $7.1 million of total unrecognized compensation
      cost related to non-vested share-based compensation arrangements related to
      stock options consisting of $4.9 million related to employee grants and $2.2
      million related to consultant and director grants. The costs are expected to
      be
      recognized over a weighted-average period of 2.6 years.




16




Our
      stock
      options vest on an annual or a quarterly basis. For the remainder of fiscal
      2007, we expect stock based compensation expense related to employee stock
      options of approximately $1,420,000 before income taxes. We expect stock based
      compensation related to non-employee stock options to be approximately $800,000
      before income taxes for the year ending September 30, 2007. Such amounts may
      change as a result of additional grants, forfeitures, modifications in
      assumptions and other factors.





The
      following table summarizes the Stock Plan stock option activity as of December
      31, 2006.





Number
              of
                Options
            
            Average
              Exercise
              PriceOutstanding,
                September 30, 2006
            
            
            15,965,336
            
            $
            0.82Granted
            
            
            --
            
            $
            --Exercised
            
            
            --
            
            $
            --Cancelled
            
            
            (270,000
            )
            $
            1.61OUTSTANDING,
                December 31, 2006
            
            
            15,695,336
            
            $
            0.82EXERCISABLE,
                December 31, 2006
            
            
            4,984,950
            
            $
            0.55








The
      weighted-average remaining contractual life of the options outstanding at
      December 31, 2006 was 5 years. The exercise prices of the options outstanding
      at
      December 31, 2006 ranged from $0.25 to $1.16, and information relating to these
      options is as follows:





Range
                of Exercise Prices
            
            Stock
                Options Outstanding
            
            Stock
                Options Exercisable
            
            Weighted
                Average Remaining Contractual Life in years
            
            Weighted
                Average Exercise Price of Options Outstanding
            
            Weighted
                Average Exercise Price of Options Exercisable$0.25-0.49
            
            
            2,720,432
            
            
            2,520,432
            
            
            5.0
            
            $
            0.30
            
            $
            0.30$0.50-$0.99
            
            
            2,775,000
            
            
            2,006,666
            
            
            5.0
            
            $
            0.59
            
            $
            0.54$1.00-$1.49
            
            
            10,199,904
            
            
            457,852
            
            
            5.0
            
            $
            1.02
            
            $
            1.03Total
            
            
            15,695,336
            
            
            4,984,950






**NOTE
      8 EQUITY**




**COMMON
      STOCK**





During
      the three months ended December 31, 2006 the Company issued a total of 227,523
      shares for payment of accounts payable of $248,500 consisting of $55,000 of
      marketing related services valued at the fair value of the services provided
      and
      $193,500 of product development services valued at the fair value of the
      services provided. All of these shares carry piggyback registration
      rights.




17




**WARRANTS**





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





The
      following table summarizes the warrant activity for the quarter ended December
      31 ,
      2006:


Number
              of
                Warrants
            
            Weighted-Average
                Exercise PriceOutstanding,
                September 30, 2006
            
            
            11,488,393
            
            $
            1.58Granted
            
            
            220,000
            
            $
            1.10Exercised
            
            
            --
            
            $
            --Cancelled
            
            
            --
            
            $
            --OUTSTANDING,
                December 31, 2006
            
            
            11,708,393
            
            $
            1.57EXERCISABLE,
                December 31, 2006
            
            
            11,708,393
            
            $
            1.57





During
      the three months ended December 31, 2006 we issued the following warrants
      exercisable to purchase an equal number of shares of common stock of the
      Company:





In
      November, 2006 we issued 220,000 warrants in lieu of interest on a $500,000
      non
      interest bearing note due December 31, 2006. The warrants were valued at
      $164,208 and were recorded to interest expense during the quarter ending
      December 31, 2006. We valued the warrants using the Black Scholes option pricing
      model with a volatility of 98.4%, a risk free rate of 4.7%, a life of 3 years,
      a
      0% dividend rate and a market price of $1.16 at $0.7464 per warrant.





18




The
      following table summarizes the warrants issued, outstanding, and exercisable
      as
      of December 31, 2006:





Warrant
                Series
            Grant
                Date
            Strike
                Price
            
            Expiration
                Date
            Warrants
                remaining
            Proceeds
                if Exercised
            Call
                feature“December
                2003”
            Dec.,
                2003
            $2.04
            
            December,
                2008
            120,000
            $244,800
            (5)Debenture
                $1.75
            Aug,
                2004
            $1.55
            (1)
            August,
                2008
            1,496,710
            2,319,901
            NoneDebenture
                $1.82
            Aug,
                2004
            $1.55
            (1)
            August,
                2008
            1,726,973
            2,676,808
            NoneSeries
                S
            Sept,
                2004
            $1.00
            
            July,
                2007
            1,127,000
            1,127,000
            (6)Series
                T
            Sept,
                2004
            $1.00
            
            July,
                2008
            160,000
            160,000
            NoneSeries
                U
            Sept,
                2004
            $1.83
            
            August,
                2008
            512,362
            937,622
            (7)Debenture
                Amend
            Nov,
                2004
            $1.55
            (1)
            November,
                2008
            1,083,592
            1,679,568
            NoneOctober,
                2005 $1.78
            Oct,
                2005
            $1.22
            (2)
            October,
                2008
            677,419
            826,451
            NoneOctober,
                2005 $1.94
            Oct,
                2005
            $1.33
            (3)
            October,
                2008
            677,419
            900,967
            None2006
                Series A1
            Mar,
                2006
            $1.55
            
            March,
                2009
            433,929
            672,590
            None2006
                Series A2
            Mar,
                2006
            $1.06
            (4)
            March,
                2009
            681,523
            722,415
            None2006
                Series B
            Various
                2006
            $2.00
            
            May,
                2009
            2,191,466
            4,382,932
            (8)2006
                Series C
            May,
                2006
            $2.00
            
            December,
                2008
            200,000
            400,000
            None2006
                Series D
            May,
                2006
            $2.50
            
            December,
                2008
            200,000
            500,000
            None2006
                Series E
            May,
                2006
            $3.00
            
            December,
                2008
            200,000
            600,000
            None2007
                Series F
            Nov,
                2006
            $1.10
            
            November,
                2009
            220,000
            242,000
            NoneTotal
            
            
            
            
            11,708,393
            $18,393,053




(1)
      Subject to anti-dilution provisions. Price reset under a 100% of “new issue
      price” price reset in October, 2005 that converted to a weighted average formula
      in August, 2006. Future equity or equity equivalent issuances below $1.55 per
      share may result in additional price resets.





(2)
      Subject to anti-dilution provisions. Price reset under a 115% of “new issue
      price” reset in September, 2006. Future warrant issuances below $1.06 per
      warrant will result in price reset.





(3)
      Subject to anti-dilution provisions. Price reset under a 125% of “new issue
      price” reset in September, 2006. Future warrant issuances below $1.06 per
      warrant will result in price reset.




19




(4)
      Subject to “full ratchet” anti-dilution provisions. Price reset in September.
      Certain future equity or equity equivalent issuances below $1.06 per share
      will
      result in a price reset of 100% of the new issue price and additional issuances
      of warrants.





(5)
      Callable if closing market price is 200% of strike price for 20 consecutive
      trading days





(6)
      Callable if closing market price is 200% of strike price for 5 consecutive
      trading days





(7)
      Callable if closing market price is 200% of strike price for one trading day





(8)
      Callable if trading price is greater than $2.50 for 10 consecutive
      days





On
        January 1, 2007 under the terms of our receivable factoring arrangement,
        we were
        required to issue 900,000 warrants with an exercise price of $1.06 per warrant
        when we failed to repay the factoring arrangement by December 31, 2006. We
        also
        were required to issue 900,000 warrants with an exercise price of $1.06 on
        February 2, 2007. When issued, we will record the value of the warrants as
        additional discount to the $1,800,000 principal and amortize the discount
        to
        interest expense over the remaining life of the debt, expected to be March
        31,
        2007. The value of the warrants has not been set since they are valued on
        the
        date of issuance. We estimated the value of 900,000 of these warrants as
        if
        issued on December 22, 2006 at $0.4697 for the purposes of imputing interest
        expense of $95,115 as described in Note 4.
  On
          February 12, 2007 in conjunction with the issuance of $15,650,000 in Convertible
          Debt as described in Note 13, we reset the exercise prices of the following
          warrants:
 
 Debenture
          $1.75 exercise price reduced from $1.55 to $1.49 per warrant
 Debenture
          $1.82 exercise price reduced from $1.55 to $1.49 per warrant
 Debenture
          Amendment exercise price reduced from $1.55 to $1.49 per warrant
 October,
          2005 $1.78 exercise price reduced from $1.22 to $1.20 per warrant
 October,
          2005 $1.94 exercise price reduced from $1.33 to $1.30 per warrant
 2006
          Series A2 exercise price reduced from $1.06 to $1.04 per warrant.
 
 In
          addition, we issued 13,106 additional 2006 Series A2 warrants at an exercise
          price of $1.04. See also Note 13 for the valuation of these issuances and
          price
          resets.




**LOSS
      PER SHARE**





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





The
      following common stock equivalents were excluded from the calculation of diluted
      loss per share for the three months ended December 31, 2006 and 2005 since
      their
      effect would have been anti-dilutive:




December
                312006
            2005Options
                for common stock
            15,965,336
            6,167,936Warrants
            11,708,393
            9,862,468Convertible
                Debentures, if converted
            3,885,968
            7,987,25831,559,697
            24,017,662




20




**NOTE
      9- VARIABLE INTEREST ENTITY**





On
      October 1, 2006 and as described in the Form 8-K filed on October 3, 2006 the
      Company’s wholly owned subsidiary, EU Energy Service GmbH (EUES) entered into a
      recapitalization arrangement whereby 50% of the voting stock of EUES was sold
      to
      Enertrag Ag, a turbine service customer of EUES and a new entity was created,
      called E Service. The new entity will function to service and maintain the
      combined installed turbines of DeWind in Europe and the turbine farms operated
      by Enertrag in Europe, primarily in Germany and Austria. The resulting combined
      operations doubled the number of turbines serviced by EUES prior to the
      agreement to approximately 900 turbines and was undertaken to increase the
      profitability of the turbine servicing of EUES and reduce the turbine service
      costs of Enertrag. The new entity was operated under joint control of both
      Enertrag and DeWind executives during the quarter ended December 31,
      2006.





The
      key
      provisions of the agreement were that effective on October 1, 2006 i) Enertrag
      invested 1,225,000 Euros ($1,554,280 at December 31, 2006 exchange rates) ii)
      all of EUES’ assets were transferred into the new entity including goodwill
      acquired during the July 3, 2006 EU Acquisition of $1,171,276, and iii) an
      intercompany loan payable to another of the Company’s wholly owned subsidiaries
      for 1,417,000 Euros ($1,870,865 at December 31, 2006 exchange rates) out of
      a
      total loan of 4,168,000 Euros was forgiven by the Company and considered to
      be a
      capital contribution.





We
      evaluated the new entity under FIN 46R and we determined that the new entity
      is
      required to be accounted for as a variable interest entity (VIE) under GAAP
      since the Company shares in the future profits of E Service. We further
      determined that this new business did not qualify for a business scope
      exemption, as defined in FIN 46R, and that we determined the Company did qualify
      as the primary beneficiary of the VIE since the Company had operational control
      over E Service and also had a greater risk of economic loss than Enertrag.
      Under
      the guidelines of FIN 46R, we have consolidated the balances and operations
      of E
      Service with the balances and operations of the remainder of the
      Company.





On
      the
      date of formation, the consideration paid, was equal to the net assets of the
      newly formed entity.




21




The
      following summary, unaudited balance sheet and statement of operations reflect
      the financial position of E Service as of and for the quarter ended December
      31,
      2006.





E
                ServiceVIEThree
                Months Ended December 31, 2006:Revenues
                to external customers
            
            $
            4,762,581Intercompany
                revenues
            
            
            560,947Operating
                income (loss)
            
            
            (21,434
            )Balance
                sheet informationCash
            
            $
            186,608Receivables,
                net
            
            
            2,093,678Inventory
            
            
            3,174,255Fixed
                Assets, net
            
            
            986,943Payable
                to DeWind
            
            
            (4,055,632
            )Accounts
                Payable and other Accrued Liabilities
            
            
            (2,587,087
            )Net
                Assets
            
            
            (201,235
            )





Subsequent
      to quarter end, on January 19, 2007 and as described in a Form 8-K filed on
      January 25, 2007, an amendment was ratified on the original agreement dated
      October 1, 2006. The amendment called for an immediate need to invest additional
      cash into E Service of 4,950,000 Euros ($6,409,000 at January 19, 2007 exchange
      rates). During this recapitalization, the share capital of the Company’s
      investment in E Service decreased from 50% to 24.9% and under the amendment
      we
      are required to invest 1,232,550 Euros ($1,595,782 at January 19, 2007 exchange
      rates). We made this investment by borrowing these funds from Enertrag on a
      non-interest bearing note secured by certain assets of DeWind and due March
      31,
      2007. We have not completed our evaluation of the accounting impact of this
      amendment under FIN 46R for E Service for any fiscal periods after December
      31,
      2006.





As
      of
      December 31, 2006, the Company’s maximum exposure to loss is limited to the
      amounts payable to DeWind, listed above at $4,055,632. With the amendment of
      January 19, 2007 we incurred an additional requirement to provide the required
      investment, recorded as a liability subsequent to the December 31, 2006 balance
      sheet as a loan payable to Enertrag. Excluding the January, 2007 loan to
      Enertrag, no creditors or beneficial interest holders have any recourse to
      the
      general credit of the Company as a result of this variable interest
      entity.





**NOTE
      10- COMMITMENT AND CONTINGENCIES**





Please
      refer to the Commitment and Contingencies Note number 17 on page 87 of our
      Form
      10-K filed on December 26, 2006 for a detailed listing of our commitments and
      contingencies. There were no material changes other than in the ordinary course
      of business and as updated in the Off Balance Sheet disclosure in Item 2
      below.





During
      the quarter ended December 31, 2006, except as described in Note 9 Variable
      Interest Entities and Note 11, Litigation, we made no material commitments
      and
      incurred no material contingencies.




22




**NOTE
      11 - LITIGATION**




**DeWind
      Litigation:**





**A.**  **FKI
      Engineering Ltd. and FKI plc. (the FKI Companies”) v. Dewind Holdings Ltd and
      Dewind GmbH; and DeWind GmbH v. FKI Engineering Ltd.**





There
      are
      two related legal actions against subsidiaries of the Company: the first action
      is by FKI Engineering and FKI plc commenced in England against Dewind Holdings
      Ltd and Dewind GmbH (“first action”) and the second action is by DeWind GmbH
      against FKI Engineering Ltd commenced in Germany (“second action”).





1.
      FKI
      Engineering Ltd. and FKI plc. v. DeWind Holdings Ltd and DeWind
      GmbH





On
      July
      6, 2006 FKI Engineering Ltd. and FKI plc. (the “FKI Companies”) filed a suit
      with the High Court of Justice, Queen’s Bench Division, Commercial Court, Royal
      Court of Justice   in England against both DeWind Holdings Ltd. and DeWind
      GmbH claiming as follows:


a.
      FKI
      Engineering Ltd. claims against DeWind Holdings Ltd.: (1) $2,092,900, further
      or
      alternatively damages for breach of contract; and (2) Interest in the amount
      of
      $112,355;


b.
      FKI
      Engineering Ltd. and FKI plc claim against DeWind GmbH: (1) a declaration that
      neither FKI Engineering Ltd. nor FKI plc is liable to DeWind GmbH as set out
      in
      the Draft Proceedings or at all; (2) damages; (3) a declaration that FKI Ltd.
      and/or FKI plc would be entitled to repayment upon demand from DeWind GmbH
      of
      any amount which they may be ordered to pay to DeWind GmbH by reason of the
      matters set out in the second action commenced by DeWind GmbH in Germany as
      described below) or otherwise; and finally,


c.
      FKI
      Engineering Ltd. further claims against DeWind Holdings Ltd.: (1) damages,
      alternatively payment of $72,095,285; and (2) interest to be
      assessed.


d.
      On
      September 22, 2006 DeWind Holdings Ltd. filed a counterclaim claiming against
      FKI Engineering Ltd. as follows: (1) payment of $430,000; alternatively damages
      for breach of contract; (2) contractual interest; alternatively statutory
      interest to be assessed.





In
      respect of this claim the Company has accrued 100% of the FKI Engineering Ltd.
      claim for $1,662,900 or $2,092,900, net of the $430,000 counterclaim, against
      receipt of deferred purchase consideration of $2,537,300.





In
      formulating the claims mentioned under letter “b.” above, the FKI Companies are
      seeking a negative declaratory judgment against DeWind GmbH in connection with
      the claims delivered by DeWind GmbH against FKI Engineering Ltd, that are now
      the subject of the second action filed by DeWind GmbH against FKI Engineering
      Ltd in Lübeck Germany. This action is further described below. The FKI Companies
      are seeking declaration that DeWind GmbH has no claims against them out of
      capital reserve agreements or unlawful repayments. Furthermore, the FKI
      Companies seek declaration that any payment obligations towards DeWind GmbH
      would result in a claim of repayment of the FKI Companies against DeWind GmbH
      in
      the same amount. In this connection, the Company has contested the
      jurisdictional competency of the English court since it is not apparent that
      it
      does have jurisdiction according to Art. 2 et seqq. and Art. 6 Nr. 1 of the
      European Council Regulation (EC) No. 44/2001.





The
      claims mentioned under letter “c.” above are contingent on the finding that the
      claims that are now the subject of the above mentioned second action filed
      by
      DeWind GmbH against FKI Engineering Ltd in Lübeck, Germany for payment of $95.8
      million, as further described below, are valid.




23




The
      counterclaim mentioned under letter “d.” above is based on the argument that FKI
      Engineering Ltd. has failed to pay DeWind Holdings Ltd. the sum of $430,000
      although it was obliged to do so under the SSA, by reason whereof DeWind
      Holdings Ltd. has suffered loss and damage in such sum.





In
      respect of all claims mentioned, Dewind GmbH and DeWind Holdings Ltd. have
      filed
      their defense. The FKI Companies, in turn, have filed and served a Reply to
      Defense and a Defense to the counterclaim. From December 11, 2006 until December
      13, 2006, an oral hearing was held in front of the English High Court regarding
      the competency of the English court to hear the cases. On January 25, 2007
      the
      High Court rendered a judgment holding that it had competence to hear also
      the
      claim against DeWind GmbH. DeWind GmbH sought leave to appeal this decision
      and
      will have to put its submissions in writing by February 8, 2007. If the leave
      of
      appeal is approved, we intend to file a formal appeal on the initial judgment.
      The High Court furthermore held that DeWind GmbH had to pay a maximum of 90
      % of
      FKI's costs of the application contesting jurisdiction. In addition, given
      that
      the assessment process takes time, the Judge ordered that De Wind GmbH is to
      make an interim payment on account of costs to FKI in the sum of 66,000 pounds
      sterling ($129,700 at January 31, 2007 exchange rates) paid in February,
      2007. Wehave not
      recorded a liability for either of these actions under SFAS 5 due to the
      uncertainty of the outcome.





2.
      DeWind GmbH v. FKI Engineering Ltd.





On
      July
      20, 2006 DeWind GmbH filed a claim against FKI Engineering Ltd. (with FKI plc
      being a “third party noticed”) at the District Court of Lübeck, Germany seeking
      that: a. FKI Engineering Ltd. shall be ordered to pay to DeWind GmbH the sum
      of
      $72,525,350; b. FKI Engineering Ltd. shall be ordered to pay to DeWind GmbH
      interest on the above mentioned sum of a value of 5 per cent point above the
      respective base lending rate since the pending of the action; and c. it shall
      be
      declared that FKI Engineering Ltd. has the obligation to refund possible taxes
      to DeWind GmbH, which may be evaluated against DeWind GmbH, if the tax
      authorities deem the aforementioned claim for payment as extraordinary gains
      liable to tax, which cannot be settled with DeWind’s accumulated
      deficit.





The
      claim
      was filed based on a review of DeWind GmbH’s March 31, 2006 year end audit which
      indicated that FKI Engineering Ltd. as a former shareholder of DeWind GmbH
      had
      not duly paid capital reserves in the amount of the claim. The Company asserts
      that FKI either did not pay the capital reserves as in accordance with the
      Capital Reserve Agreement signed pursuant to the acquisition of DeWind by EU
      Energy in July, 2005 or had, after receipt of money by DeWind GmbH, immediately
      claimed the funds back on the grounds of undefined loans. Such practices are
      illegal under German law. The Company further asserts that loan contracts of
      this magnitude were never concluded between DeWind GmbH and FKI Engineering
      Ltd.
      On September 12, 2006 FKI Engineering Ltd. filed its acknowledgement of defense,
      and has time until January 2, 2007 to file its detailed statement of defense.
      There has been no oral court hearing so far. In respect of this claim, the
      court
      costs of $347,600 have been accrued as of September 30, 2006. We have not
      recorded a contingent asset for any of these actions as of September 30,
      2006.





On
      September 12, 2006 FKI Engineering Ltd. filed its acknowledgement of defense
      and
      on January 3, 2007 its detailed statement of defense applying for dismissal
      of
      the claim. There has been no oral court hearing to date.




24




On
      December 27, 2006 DeWind increased the claimed amount by 15 million Euros to
      a
      total amount of 72.6 million Euros (approximately $ 95.8 million at December
      31,
      2006 exchange rates) based on statements made by the Finance Director of FKI
      plc
      in a Witness Statement in the UK trial (see A. above).





On
      January 18, 2007 the court informed DeWind that according to the European
      Council Regulation (EC) No. 44/2001., the lawsuit will be put on hold until
      the
      High Court in England has decided upon the question whether it is competent
      to
      hear the UK trial (see A. above). We intend to appeal this
      decision.





We
      have
      not recorded a contingent asset for this proceeding.





**B.**  **Brush
      Electrical Machines Ltd. v. Dewind GmbH**





On
      October 6, 2006, Brush Electrical Machines Ltd., an FKI Engineering Ltd.
      affiliate, served a notice of an action with the High Court of Justice, Queen’s
      Bench Division, Commercial Court, Royal Court of Justice   in England on
      DeWind GmbH. According to this notice of action, Brush is claiming payment
      of an
      amount of GBP 692,438 (approximately $1.36 million at December 31, 2006 exchange
      rates) from DeWind GmbH. The claim is based on an alleged breach of contract
      with regard to an agreement between the parties dated 30 June 2005 concerning
      the asset transfer to DeWind GmbH resulting from the sale of DeWind UK by
      agreement dated July 4, 2005 and/or a further agreement concluded on 13 July
      2005. The Company received the particulars of this claim on November 24, 2006.
      An accrual of $871,555 has been included in the December 31, 2006 balance sheet
      in accounts payable and other accrued liabilities. On January 11, 2007 DeWind
      GmbH filed its defense and a contingent counterclaim for damages. In the
      defense, DeWind GmbH admitted to owe an amount of at least € 143,000 ($184,755)
      to Brush and paid this sum in January, 2007.




**C.**  **Zephyr
      GmbH & Co. KG v. DeWind GmbH**





On
      January 06, 2006 Zephyr filed a suit against DeWind GmbH with the District
      Court
      of Düsseldorf, Germany for payment of an amount of $1,300,533 plus interest
      based on the argument that DeWind GmbH had allegedly failed to comply with
      a
      guarantee of availability under a turbine sales contract. Furthermore, Zephyr
      sought a declarative judgment that DeWind GmbH had to come up for a potential
      purchase tax obligation in an amount of $208,085. On August 08, 2006, the
      District Court rendered a judgment by default against Zephyr dismissing the
      case. Zephyr filed an objection against this judgment on August 29, 2006. DeWind
      GmbH responded by filing a written pleading on October 04, 2006. Further court
      orders have not been rendered to date. The Company has fully reserved net
      receivables of $914,690 in respect of this dispute and has assumed that the
      $720,590 cash paid to Zephyr as a result of their calling of performance bonds
      will not be recovered.




25




**NOTE
      12 - RELATED PARTIES**





The
      Company currently has contracts with two companies owned by one of the
      members of its Board of Directors, Michael McIntosh: including a legal services
      agreement with The McIntosh Group (TMG) for legal and intellectual property
      services and a consulting agreement with Technology Management Advisors, LLC
      (TMA) for strategic business advisory services related to technology and
      international patent and intellectual property filings.





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





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





For
      the
      quarter ended December 31, 2006, we recorded a total of $187,500 in fees related
      to these transactions and out of pocket patent fees and expenses of $17,964.
      All
      balances were expensed to Research and Development expenses. As of December
      31,
      2006 we had a balance due of $352,696 to TMA and TMG combined.





**NOTE
      13 - SUBSEQUENT EVENTS**





On
      January 19, 2007 we agreed to amend our agreement between Enertrag AG that
      formed our E Services venture. This resulted in a decrease in our share of
      E
      Services share capital to 24.9% and will require us to invest $1,232,550
      ($1,595,782 at January 19, 2007 exchange rates) into E Services. We have agreed
      to borrow these funds from Enertrag on a non-interest bearing note secured
      by
      certain of our Dewind subidiaries’ assets due March 31, 2007. See also note
      9.





On
      January 30, we entered into a distribution agreement with Far East Composite
      Technology Company, a subsidiary of a subsidiary of Jiangsu New Far East Cable
      Corporation (Far East). The agreement calls for a non-returnable minimum
      quarterly sale for 600 kilometers (360 miles) of our ACCC cable for the first
      twelve months of the agreement increasing to 900 (540 miles) and 1,200 (720
      miles) for the second and third years thereafter. The value of the minimum
      quarterly shipment will vary depending on the size of the cable ordered but
      is
      expected to be between $7 million and $12 million per quarter.




On
        February 12, 2007, the Company closed a financing transaction in which it
        sold
        8% Senior Convertible Debentures to select institutional accredited investors
        in
        order to raise a total of $15,650,000. The Debentures will mature on January
        31,
        2010. The investors may convert the Debentures into our common stock for
        $1.04
        per share, subject to adjustment. In addition, in conjunction with this
        transaction we issued 6,924,779 warrants with an exercise price of $1.13
        per
        warrant and which expire three years from their issuance date.
 
 Our
        preliminary estimate of the fair value of the conversion feature and the
        warrants issued was approximately $3,505,000. We will record this value as
        a
        discount to the convertible debt and we will amortize this to interest expense
        over the remaining life of the debt.
 
 As
        a
        result of this transaction, we triggered certain anti-dilution provisions
        of
        previously issued securities as follows:
 
 We
        reset
        the conversion price of our $6,023,250 remaining on our 6% 2004 convertible
        debt
        due August, 2004 from $1.55 to $1.49 per share. If converted, the effect
        of the
        reset price will be to increase the shares issuable from 3,885,968 prior
        to the
        price reset to 4,042,450. The fair value of the 156,482 additional shares
        issuable was $140,834 at February 9, 2006 market prices. We will record this
        balance as additional debt discount which will be amortized to interest expense
        beginning on February 12, 2007 over the approximately 6 month remaining life
        of
        the August, 2004 Debentures due August, 2007.
 
 We
        recorded warrant modification expense into other expenses during the quarter
        ending March 31, 2007 in the amount of $56,484 for the following warrant
        related
        issuances and price resets:
 
 We
        reset
        the exercise price of 4,307,275 warrants associated with the 2004 convertible
        debt from $1.55 per warrant to $1.49 per warrant. The difference in fair
        value
        for these warrants immediately before and after the price reset was $40,467.
 
 We
        reset
        the exercise price of 1,354,838 warrants related to our October, 2005
        Debtor-in-Possession financing. 50% of these warrants were reset from $1.33
        per
        warrant to $1.30 per warrant and 50% of these warrants were reset from $1.22
        per
        warrant to $1.20 per warrant. The combined difference in fair value for these
        warrants immediately before and after the price reset was $6,504.
 
 We
        triggered the “full ratchet” protection of 681,523 “2006 Series A2” warrants
        issued in conjunction with our March, 2006 Bridge financing. We reset the
        exercise price of the 681,523 warrants outstanding from $1.06 per warrant
        to
        $1.04 per warrant. We also issued 13,106 additional warrants at an exercise
        price of $1.04 per warrant. The difference in fair value of the warrants
        outstanding immediately before and after the price reset was $3,009 and the
        fair
        value of the additional warrants issued was $5,598.
 
 The
        fair
        values of the warrants issued and for the fair value calculations used to
        determine the additional expense due to the price reset used the Black Scholes
        option pricing model and the following assumptions. The market price was
        $0.90,
        the closing price on the day prior to the price reset, volatility was based
        on
        the remaining life of the warrants, between 87% and 91%, the remaining life
        of
        the warrants was between 1.5 and 2.1 years, the risk free rate was 4.94%,
        and a
        dividend yield of 0%.




26




**ITEM
      2- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
      OF
      OPERATIONS**





You
      should read the following discussion and analysis of our financial condition
      and
      results of operations together with our interim financial statements and the
      related notes appearing at the beginning of this report. The interim financial
      statements and this Management's Discussion and Analysis of Financial Condition
      and Results of Operations should be read in conjunction with the financial
      statements and notes thereto for the year ended September 30, 2006 and the
      related Management's Discussion and Analysis of Financial Condition and Results
      of Operations, both of which are contained in our Annual Report on Form 10-K
      filed with the Securities and Exchange Commission on December 26, 2006.





The
      following discussion and other parts of this Form 10-Q contain forward-looking
      statements that involve risks and uncertainties. Forward-looking statements
      can
      be identified by words such as "anticipates," "expects," "believes," "plans,"
      and similar terms. Our actual results could differ materially from any future
      performance suggested in this report as a result of factors, including those
      discussed in "Factors That May Affect Future Operating Results" and elsewhere
      in
      this report and in our Annual Report on Form 10-K for the fiscal year ended
      September 30, 2006. 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**





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




**CTC
      Cable Division**


Located
      in Irvine, California with sales operations in Dallas, Atlanta, Lubeck, Germany,
      and Shanghai, China, the CTC Cable Division produces and sells ACCC electrical
      transmission cable and related ACCC hardware products. ACCC cable production
      is
      a two step process. The Irvine operations produce the high strength, light
      weight composite “core” (ACCC core) which is then shipped to one of three cable
      manufacturers in Canada, Belgium, or Bahrain where the core is wrapped with
      conductive aluminum to become ACCC cable. ACCC cable is sold both through a
      distribution agreement with General Cable in the US and Canada as well as
      directly by CTC Cable to utility customers. ACCC cable is sold outside the
      US
      directly to utilities. ACCC cable has been sold commercially since 2005 and
      is
      currently marketed worldwide to electrical utilities and transmission
      companies.





**DEVELOPMENTS
      THIS QUARTER**





The
      focus
      of our cable operations during the quarter was to prepare our production
      facility to handle a rapid increase in expected sales, to identify process
      improvements, and line up redundant materials suppliers. To this extent, during
      the quarter we obtained ISO 9001:2000 certification for our Irvine, California
      manufacturing plant and we identified several additional key materials suppliers
      for our ACCC core product and related ACCC cable hardware. We continue to work
      with our key carbon supplier and actively improve our relationship with that
      supplier In addition, during the quarter we certified Lamifil in Belgium as
      a
      qualified wrapper of our ACCC core with aluminum wire. Lamifil shipped their
      initial commercial order in November. We now have two certified cable wrappers
      and expect Midal in Bahrain to be certified during the March, 2007 quarter
      as
      our third supplier.




27




We
      have
      refined our marketing message to focus on the inherent efficiency of our ACCC
      conductor product as compared to traditional ACSR. In particular, we learned
      that one of the key decision making factors was the ability to transmit more
      power with less “line losses” (electricity dissipated to the environment as
      heat), rather than some of our earlier messaging which focused on the high
      temperature capabilities. Additionally we increased our focus on the engineering
      and design firms often responsible for the overall line design and components
      for transmission and electrical distribution projects. These firms are usually
      engaged by smaller utilities and providers that do not possess extensive
      engineering groups. We believe their understanding of the uses and benefits
      of
      ACCC conductor will provide a number of design-in opportunities, some even
      before they are apparent to our sales team.





We
      believe that the December, 2006 quarter is the beginning of rapid revenue and
      cable order growth in the cable division. We entered the quarter with a backlog
      of $1.5 million, representing the orders shipped to China during the December,
      2006 quarter, we exited the quarter on December 31, 2006 with a non-cancelable
      order backlog of $6.3 million and we have booked orders for an additional $3.5
      million to date in the March, 2007 quarter.





The
      Cable
      division’s sales focus for the quarter was on obtaining repeat orders from our
      US cable customers and on finalizing and negotiating an MOU for a long term
      supply agreement with our Chinese cable distributor. We believe that our
      October, 2007 ISO 9001:2000 certification has opened new possibilities for
      our
      cable products and was a key factor in our increased business in China. In
      December, 2006 we announced a memorandum of understanding (MOU) for a three
      year
      distribution agreement with this partner where they outlined the terms for
      the
      purchase of a minimum of 600 kilometers of ACCC cable per quarter for year
      one
      with increases to 900 kilometers and 1,200 kilometers per quarter in years
      two
      and three. We expect the minimum value of this contract to be approximately
      $40.0 million for the first year beginning in February, 2007. In December,
      we
      received our initial order under this MOU for 242 kilometers of cable worth
      $4.1million for delivery in March and in January, 2007 we received an additional
      order for $2.9 million for delivery in April. Expected revenues per quarter
      under the contract are dependent on the size of the cable ordered but we expect
      revenues between $7 and 12 million per quarter for the first year of this
      arrangement. This MOU was finalized in contract form on January 30, 2007. The
      signing of this contract is a significant milestone for the Cable division
      in
      that the contract allows for more efficient planning and operations of our
      ACCC
      core manufacturing facilities and allows for longer production lead time
      commitments for our cable wrapping partners, in addition to providing us with
      a
      more reliable revenue stream and cash flows. The term of the agreement is for
      one year from January 30, 2007 with options to extend the agreement for an
      additional two years as described above so long as Far East meets certain
      conditions including the requirement for Far East to become qualified to strand
      ACCC Conductor cable. We expect gross margins to be approximately 28-30% for
      the
      initial orders on this contract with the opportunity for additional cost savings
      captured through operational efficiencies.





In
      the
      United States, during the quarter we received $2.2 million in orders during
      the
      quarter including two repeat orders from American Electric Power, a repeat
      order
      from Pacificorp, and an initial order from a new customer, Mohave Electric.
      We
      are encouraged by our US business due to the repeat orders of our two initial
      commercial US customers and we continue to aggressively sell and market our
      ACCC
      products in the US.




28




Elsewhere
      in the world, we are developing relationships that we expect will begin to
      turn
      into cable orders late in fiscal 2007. Midal, our wrapping partner in the Middle
      East, is nearing completion of their qualification to wrap ACCC core, which
      is
      expected in the March, 2007 quarter. Once this occurs, we believe that our
      product will be an ideal fit for transmission lines in Middle East climates
      due
      to its ability to operate efficiently and at much higher temperatures than
      the
      ACSR alternative. We are also actively marketing ACCC in France, the U.K.,
      India
      and Australia, with several projects quoted throughout the regions, as part
      of
      our strategy of partnering with key suppliers and engineering organizations
      that
      enjoy substantial market positions for bare overhead cable. We expect these
      quoted projects will be awarded during the next two quarters.





**DeWind
      Turbine Division**


The
      DeWind division operates under the brand name DeWind, which has manufactured
      and
      sold wind turbines since 1995. Located in Lubeck Germany with sales operations
      in Dallas, Texas and Lubeck, Germany, the DeWind Division produces, services,
      and sells DeWind turbines in the 1.25 and 2.0 Megawatt range worldwide. We
      acquired DeWind during the EU Energy acquisition on July 3, 2006. Accordingly,
      we have incorporated DeWind’s operations into our financial results since that
      date.





**DEVELOPMENTS
      THIS QUARTER**





Our
      operational focus for the DeWind division was to position ourselves to
      demonstrate and produce our next generation D8.2 wind turbine. The effort
      consisted of completing and installing our D8.2 prototype at the Cuxhaven,
      Germany test site of the DEWI-Offshore Certification Centre and identifying
      a
      suitable turbine assembly partner.





Our
      D8.2
      prototype was completed in mid-December and installed at the facility by the
      end
      of the quarter. Due to high winds, the commissioning of the prototype turbine
      was delayed into early January but our prototype turbine is now functioning
      and
      has passed all of the technical tests required to date. It is now undergoing
      the
      wind generation availability curve tests which are required prior to type
      certification. The certification is important since it is often required by
      the
      financial backers of our potential wind turbine customers prior to obtaining
      financing for their wind farms. The certification process takes approximately
      three months and is expected to be completed by the end of March, 2007.





In
      November, 2006, we announced an agreement with TECO Westinghouse Motor Company
      (TECO) in Round Rock, Texas to assist us in the assembly, supply, and servicing
      of our turbines. The agreement consists of three parts: a) TECO will assemble
      our turbine units at their plant in Texas. At full production, we expect that
      this plant will be able to produce two production lines of 4 turbine units
      per
      week for an estimated capacity of approximately 400 turbines per year; b) TECO
      will assist us in servicing our D8.2 units by leveraging their existing service
      teams. TECO services large electrical generators worldwide and already has
      the
      infrastructure to service similar wind generators in the US; c) TECO will assist
      us in developing and optimizing our turbine supply chain. TECO already has
      relationships with common parts suppliers and we expect that by the middle
      of
      2008, TECO will manage a significant portion of our supply chain requirements.
      We expect to leverage their in place infrastructure and that this will allow
      for
      turbine parts cost savings and improved purchasing terms. During the quarter,
      we
      worked actively to organize our supply chain to allow for an efficient hand-off
      to TECO once we receive our initial turbine orders.




29




Our
      sales
      focus was to renegotiate with our existing customers under our previously
      executed turbine framework agreements and to negotiate new turbine purchase
      contracts for our D8.2 model. While we have not executed any definitive
      turbine purchase agreements to date, we are currently in negotiation with
      several prospective customers which could represent near term sales greater
      than
      our expected production capacity through 2008. We believe that there were
      several barriers to initial sales in the United States during the December,
      2006
      quarter including: i) lack of a completed and certified D8.2 model; ii)
      insufficient financial resources of the company which could be perceived to
      put
      any cash down payments from customers at risk; and iii) inability to generate
      or
      provide sufficient working capital to accelerate production and build our
      turbine supply chain. We believe that the commissioning of our prototype in
      early January removed one barrier to obtaining customer orders and completing
      a
      financing would remove the second and third barriers. Further, and to address
      the third barrier, all of our turbine contracts under negotiation are being
      designed to allow for a “cash neutral” cash flow whereby we have specified
      advance payments of cash on these orders that should allow for us to make
      advance supplier payments without the need for significant levels of additional
      capital.





Our
      revenues during the quarter ended December 31, 2006 and expected revenues for
      the quarter ended March 31, 2007 consisted solely of sales of our turbine
      inventory acquired as part of the acquisition of EU Energy, now known as DeWind.
      Under US GAAP accounting rules, we are required to revalue this inventory to
      “liquidation” value which approximates sales value and which results in little
      or income statement profit margin. As of January 31, 2007, we have one turbine
      that remains unsold from this acquisition balance exclusive of the five turbines
      sold with revenue deferred pending delivery and installation. In January, 2007,
      we sold our first order that included five 1.25 megawatt D6 turbines
      representing 8.5 million Euros ($11.2 million US at current exchange rates)
      that
      we will produce after the acquisition and expect to deliver by October, 2007.
      We
      expect that significantly all turbine sales through the third fiscal quarter
      ending June 30, 2007 will therefore be sold at liquidation values and are not
      reflective of expected turbine profit margins for turbines produced after the
      acquisition.








**RESULTS
      OF OPERATIONS**





Revenues,
      Cost of Revenues, and Gross Margins:





During
      the quarter ended December 31, 2006, the geographical allocation of consolidated
      revenues was:


Europe 86.2%


China 12.6%


North
      America 1.2%





During
      the quarter, one customer represented 34.6% of revenues, one customer with
      12.6%
      of revenues, one customer with 9.0% of revenues and one customer with 8.8%
      of
      revenues. No other customer represented greater than 5% of consolidated
      revenues.




30




Our
      revenues and gross margin analysis are listed in the table below. All of the
      revenues and margins for the quarter ended December 31, 2005 relate to cable
      sales since our DeWind wind segment was acquired from EU Energy in July,
      2006.





(unaudited)
            Cable
                Segment
              QE
                12/31/06
            Wind
                Segment
              QE
                12/31/06
            Total
              QE
                12/31/06
            Total
              QE
                12/31/05Product
                Sales -Cable
            1,643,908
            --
            1,643,908
            22,892Product
                Sales - Turbines
            --
            6,602,392
            6,602,392
            --Turbine
                Service
            --
            4,786,428
            4,786,428
            --Consulting
            --
            --
            --
            550,000Total
                Revenues
            1,643,908
            11,388,820
            13,032,728
            572,892Cost
                of Sales - Cable
            1,344,558
            --
            1,344,558
            16,680Cost
                of Sales - Turbines
            --
            6,257,574
            6,257,574
            --Cost
                of Sales - Turbine Service
            --
            4,176,859
            4,176,859
            --Cost
                of Sales - Consulting
            --
            --
            --
            304,787Total
                Cost of Sales
            1,344,558
            10,434,433
            11,778,991
            321,467Gross
                Margin - Cable
            299,350
            --
            299,350
            6,212Gross
                Margin % - Cable
            18.2%
            --
            18.2%
            27.1%Gross
                Margin - Turbines
            --
            344,818
            344,818
            --Gross
                Margin % - Turbines
            --
            5.2%
            5.2%
            --Gross
                Margin - Turbine Service
            --
            609,569
            609,569
            --Gross
                Margin % - Turbine Service
            --
            14.6%
            14.6%
            --Gross
                Margin - Consulting
            --
            --
            --
            245,213Gross
                Margin % - Cable
            --
            --
            --
            44.6%Total
                Gross Margin
            299,350
            954,387
            1,253,737
            251,425Total
                Gross Margin %
            18.2%
            9.2%
            9.6%
            43.9%





CABLE
      REVENUES. Product revenues for the three months ended December 31, 2006 of
      $1.64
      million consisted substantially of two commercial sales to the Jiangsu New
      Far
      East Cable Company in China shipped in November and December consisting of
      100
      kilometers of ACCC cable and related ACCC hardware for $1.5 million and US
      orders totaling $140,000. The product sales for the three months ending December
      31, 2005 represented one small trial sale in the United States.





Cost
      of
      Sales and resultant Gross Margin on the China order were lower than our expected
      margin levels. The orders were rush orders which were required to be produced,
      wrapped, and shipped in a much shorter than normal time frame and the orders
      were wrapped by a newly qualified wrapping source in Belgium. In order to
      complete the order on time, we were required to purchase aluminum rod at a
      premium to market and outside of our normal supply chain. Further, production
      delays with the wrapping partner, due to this being their first commercial
      order, caused final product delivery delays and we were required to use costly
      air freight expediters to ensure that the ACCC product was delivered on time.
      We
      agreed to pay for this freight to ensure the delivery and to maintain our good
      delivery schedule history with the customer, Jiangsu New Far East Cable Co.
      We
      believe that accepting the lower margin on this order was a solid business
      decision and we have benefited from additional orders from China under with
      the
      distribution contract described above.





TURBINE
      REVENUES. Turbine sales for the three months ended December 31, 2006 of $6.6
      million consisted primarily of sales of 6.5 megawatts of turbine production
      consisting of 2 D8 turbines and 2 D6 turbines to three existing customers in
      Europe out of our acquired turbine stock and totaling $6.1 million. We also
      sold
      $500,000 of turbine parts during the quarter. The turbine units sold were
      refurbished and are not necessarily indicative of the current market price
      per
      megawatt for our 2 megawatt D8, 1.25 megawatt D6, or our next generation 2
      megawatt D8.2 wind turbines. For comparison, turbine sales for the three months
      ended September 30, 2006 of $3.1 million represented shipment of three D6 1.25
      megawatt turbines.




31




Cost
      of
      revenues for the turbines sold is determined under the guidance of SFAS 141
      acquisition accounting which requires us to record cost of sales at liquidation
      value less a nominal profit margin. As a result, our gross profit for the
      quarter is largely this nominal profit margin in addition to the margin
      generated by the $500,000 in other turbine parts. We do not believe that these
      margin percentages are necessarily indicative of future profit margins of
      turbines produced by DeWind subsequent to the acquisition.





We
      had no
      sales of turbines during the quarter ended December 31, 2005 since we acquired
      DeWind through the EU Energy acquisition in July, 2006.








TURBINE
      SERVICE REVENUES Turbine service revenues for the three months ended December
      31, 2006 of $4.8 million consisted of the turbine service and maintenance
      billings of our consolidated variable interest entity (VIE) E Service as
      described in Note 9 but which are consolidated into the DeWind segment. There
      were no turbine service revenues for the December 31, 2005 since we acquired
      DeWind in July, 2006. Sequentially, turbine service revenues increased over
      the
      prior fiscal quarter ending September 30, 2006 of $3.4 million due to the
      inclusion of the turbine billings of Enertrag and increased billings to DeWind
      turbine service customers.





Cost
      of
      revenues for turbine maintenance represents the labor, parts, supplies, and
      overhead related to the servicing of turbines and the net effect of changes
      in
      our turbine availability and warranty provisions. There were no margins for
      the
      quarter ended December 31, 2005. Sequentially, turbine service margins increased
      from the prior fiscal quarter ending September 30, 2006 of $1.2 million loss
      to
      gross profit of $0.6 million due to the $1.4 million revenue increase and
      reduced costs primarily due to operational efficiencies and the utilization
      of previously accrued warranty reserves acquired with the July, 2006 acquisition
      of DeWind.





CONSULTING
      REVENUES. Consulting revenues for the three months ended December 31, 2005
      consisted of consulting and technical services performed in fiscal 2004 and
      fiscal 2005 to the City of Kingman but which were recognized in November, 2005
      after the contract was modified in our Chapter 11 bankruptcy. We do not expect
      any significant future consulting revenues and there were no comparable revenues
      during the December 31, 2006 quarter.





OPERATING
      EXPENSES





Except
      for the fourth fiscal quarter of 2006 subsequent to the July 3, 2006 acquisition
      date of DeWind, we did not track our Cable and Corporate expenses as separate
      segments. Therefore, the Cable segment operating expense analysis below will
      include 2006 expenses of a corporate nature. Any references to Cable expenses
      below are intended to include expenses of a corporate nature that are consistent
      with the consolidated expense reporting of fiscal 2006 and which are
      representative of operations prior to the DeWind acquisition. To the extent
      available, we have identified below those expenses of a corporate nature to
      provide better clarity. The Cable segment expense analysis is intended to
      provide consistent comparisons with historical operating expenses for fiscal
      2006. We intend to provide separate corporate expense activity for future
      operating periods.





Overall,
      operating expenses increased $3.7 million from $4.3 million in the quarter
      ending December 31, 2005 to $8.0 million in the quarter ending December 31,
      2006. The increase was due to the addition of DeWind operating expenses of
      $4.6
      million offset by decreases in CTC Cable and Corporate expenses of $0.9 million,
      primarily relating to decreased legal expenses, decreased bankruptcy expenses,
      and decreased quality control consulting which is now conducted
      internally.




32




The
      following table provides a comparative analysis of operating expenses. All
      expenses for fiscal quarter ended December 31, 2005 represents the combined
      CTC
      Cable and Corporate expenses.




Dec
                  2006 QE
                Wind
                  Segment
            
            Dec
                  2006 QECable
                Segment andCorporate
            
            Dec
                  2006 QEConsolidated
            
            Dec
                  2005 QE
                ConsolidatedOPERATING
                EXPENSESOfficer
                Compensation
            
            --
            
            247,694
            
            247,694
            
            102,130General
                and administrative
            
            
            2,019,697
            
            
            1,405,270
            
            
            3,424,967
            
            
            907,164Legal,
                professional & consulting
            
            
            --
            
            
            243,090
            
            
            243,090
            
            
            1,060,621Research
                and development
            
            
            591,864
            
            
            845,207
            
            
            1,437,071
            
            
            1,211,255Sales
                and Marketing
            
            
            1,374,044
            
            
            483,383
            
            
            1,857,427
            
            
            516,449Depreciation
                and Amortization
            
            
            575,511
            
            
            202,685
            
            
            778,196
            
            
            191,645Reorganization
                Expense - Bankruptcy legal fees
            
            
            --
            
            
            --
            
            
            --
            
            
            283,369Total
                operating expenses
            
            
            4,561,116
            
            
            3,427,329
            
            
            7,988,445
            
            
            4,272,633





OFFICER
      COMPENSATION. Officer compensation expense consists of salaries and SFAS 123R
      option expenses for our Chief Executive Officer, our President, and Secretary.
      Officer compensation expenses increased 143% or $145,564 from $102,130 for
      the
      three months ended December 31, 2005 to $247,694 in the current quarter . The
      dollar increase was primarily due to cash compensation rate increases for our
      CEO and Secretary and the addition of the cash compensation for our President.
      There were no SFAS 123R expenses in Officer Compensation for the quarter ending
      December 31, 2006 vs. $37,000 in the quarter ending December 31, 2005. All
      officer compensation is considered to be corporate in nature.





GENERAL
      AND ADMINISTRATIVE EXPENSE. General and administrative expense consisted
      primarily of salaries and employee benefits for administrative personnel,
      facilities costs, stock exchange fees, audit and Sarbanes Oxley compliance
      fees,
      and insurance expenses. General and administrative increased 278% or
      approximately $2,518,000 from $907,164 for the three months ended December
      31,
      2005 to $3,424,967 for the current year period. The dollar increase was due
      to
      the inclusion of the DeWind general and administrative costs of $2,020,000
      and
      an increase of $500,000 for corporate related activities. The corporate increase
      was due to $296,000 increase in professional fees related to additional audit
      and Sarbanes Oxley fees associated with the audit of DeWind’s operations in
      Germany, a $126,000 increase in amortized public relations fees paid in stock,
      $54,000 increase in consulting fees, $29,000 in outside director costs, $40,000
      in increased insurance costs, and $45,000 in increased payroll costs offset
      by a
      decrease of $48,000 in SFAS 123R expenses. Approximately $1.0 million of General
      and Administrative expenses for the quarter ending December 31, 2006 is
      considered to be corporate in nature consisting primarily of audit fees and
      corporate employee and consultant salaries and related expenses.





LEGAL,
      PROFESSIONAL, AND CONSULTING EXPENSE. Legal, professional, and consulting
      expense consisted of professional legal or litigation related expenses,
      financing related expenses, and equity related non-cash expense charges but
      excludes bankruptcy related legal expenses which are captured in reorganization
      costs. Legal, professional, and consulting expense decreased $818,000 or 77%
      from $1,060,621 for the quarter ended December 31, 2005 to $243,090 for the
      December, 2006 quarter. The decrease was due to lower litigation related legal
      expenses due to a settlement of all Cable and Corporate related litigation
      in
      the December, 2005 quarter. All legal, professional, and consulting expense
      is
      considered to be corporate in nature.




33




RESEARCH
      AND DEVELOPMENT EXPENSE. Research and development expense consisted primarily
      of
      salaries for engineers, and expenses for consultants, recruiting, supplies,
      equipment, and facilities related to engineering projects to enhance and extend
      our composite materials intellectual property offerings, and our composite
      materials product technology and production processes.





Research
      and development expense increased $226,000 or 19% from $1,211,255 in 2005 to
      $1,437,071 in 2006. The increase was due to the inclusion of DeWind’s
      development of $591,864 offset by a decrease in CTC Cable R&D expense of
      $366,048, a 30% decrease from prior year. The CTC Cable decrease was due to
      a
      decrease of $504,000 in external quality testing expenses which are now
      substantially performed internally offset by an increase of $18,000 in SFAS
      123R
      expenses and an increase of $120,000 in cash headcount related
      expenses.





SALES
      AND
      MARKETING EXPENSE. Sales and marketing expense consisted primarily of salaries
      for sales and marketing personnel, expenses for consultants, equipment, travel,
      and printed marketing literature and sales materials. For the quarter ended
      December 31, Sales and Marketing expenses increased $1,341,000 or 260% from
      $516,449 in the 2005 quarter to $1,857,427 in the 2006 quarter. The increase
      was
      due to the inclusion of DeWind’s sales and marketing expenses of $1,374,044
      offset by a decrease in CTC Cable sales of $33,066. The decrease was due to
      $50,000 of cost savings resulting from replacing more expensive consultants
      with
      employees, a decrease in commissions of $25,000 and an increase in SFAS 123R
      expenses of $48,000.





DEPRECIATION
      & AMORTIZATION EXPENSE. Depreciation expense consisted of depreciation on
      capitalized equipment, leasehold improvements, and other capital assets and
      amortization of acquired intangibles. The depreciation and amortization expense
      increased by $586,000 or 306%, from $191,645 in 2005 to $778,196 in 2006. The
      increase was due to the inclusion of DeWind depreciation of $249,511 and the
      amortization of acquired intangibles of $326,000.





REORGANIZATION
      EXPENSE - BANKRUPTCY LEGAL FEES: Bankruptcy legal fees consist of legal and
      professional fees and costs associated with the preparation for our bankruptcy
      confirmation hearings, our bankruptcy financing hearings, and work performed
      subsequent to our bankruptcy confirmation. The balance was $0 for 2006 due
      to
      our exiting bankruptcy in November, 2005.





INTEREST
      INCOME. Interest income increased 132% or $18,805 to $33,050 in 2006 from
      $14,245 in 2005. The increase was due to the inclusion of $32,916 from DeWind
      and lower cash interest on CTC Cable cash balances.





INTEREST
      EXPENSE. Interest expense increased $197,000 or 47% from $218,666 in 2005 to
      $415,553 in 2006. The increase was due to $24,000 of interest expense related
      to
      DeWind and $259,000 of non-cash interest expense related to warrants issued
      as
      described in Note 8 and the imputed interest described in Note 4. Cash interest
      for CTC Corporate decreased $66,000 due to lower debt balances, primarily the
      10% $6.0 million DIP financing that closed in October, 2005 and was converted
      in
      January, 2006.





INCOME
      TAXES. We made no provision for income taxes in the three months ending December
      31, 2006 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. Tax expense represents statutory minimum tax payments, primarily in
      Europe for DeWind. As of December 31, 2006, our deferred tax assets continued
      to
      be fully reserved. We will continue to evaluate, on a quarterly basis, the
      positive and negative evidence affecting the realization of our deferred tax
      assets.




34




**Net
      Loss**





Our
      net
      loss improved to $6.9 million for the three months ended December 31, 2006
      compared to $7.2 million during the corresponding period in 2005. The
      improvement of $0.3 million from the quarter ended December 31, 2005 to 2006
      was
      due to the reduction in the CTC Cable and Corporate loss of $3.8 million from
      $7.2 million to $3.4 million and the addition of the DeWind net loss of $3.5
      million.





The
      CTC
      Cable and Corporate loss decrease was due to an operating loss decrease of
      $0.9
      million, primarily due to $0.1 million increase in gross margin, operating
      expense decreases related to bankruptcy and legal expenses and cost savings
      and
      due to the in-sourcing our quality control processes and a decrease of $2.9
      million other expenses, primarily due to the large non-cash charges in 2005
      consisting of a $2.6 million carrying value adjustment and a $0.4 million
      warrant modification expense offset by net interest expense increase.





Consolidated
      gross margin increased by $1.0 million in the current quarter due to DeWind
      margins of $0.9 million and Cable margin increases of $0.1 million.






**LIQUIDITY
      AND CAPITAL RESOURCES**





Since
      inception, our principal sources of working capital have been private debt
      issuances and equity financings.





For
      the
      three months ended December 31, 2006, we had a net loss of $6.9 million. At
      December 31, 2006, we had $1.4 million of cash and cash equivalents, which
      represented a decrease of $1.2 million from September 30, 2006. The decrease
      was
      due to cash used by operations of $4.9 million offset by $1.8 million provided
      by a receivable factoring arrangement, proceeds of $0.5 million from short
      term
      notes payable, and $1.6 million from a cash investment in our E Service VIE
      as
      described in note 9.





Cash
      used
      by operations during the three months ended December 31, 2006 of $4,942,530
      was
      the result of operating losses, offset by depreciation, amortization, and
      non-cash compensation expenses and working capital requirements. In addition,
      we
      continued to liquidate our pre-acquisition turbines which contributed $1.7
      million to partially offset the quarterly loss. Cash provided by investing
      activities of $1,520,363 was primarily the result of the proceeds received
      into
      our consolidated VIE, E Service offset by fixed asset purchases . Cash provided
      by financing of $2,200,838 was primarily due to the cash proceeds from the
      factoring of cable orders and receivables totaling $1,800,000 and notes payable
      of $500,000 offset by capital lease repayments.




35




On
      January 30, 2007 we signed a long term distribution agreement with a Chinese
      distributor that calls for minimum order quantities of our ACCC conductor cable.
      Based on this agreement alone, we expect that the profits generated by this
      contract will be sufficient to generate positive cash flows from our Cable
      segment beginning in the quarter ending June 30, 2007.




On
        February 12, 2007, CTC closed a financing transaction in which it sold 8%
        Senior
        Convertible Debentures and Warrants to select institutional accredited
        investors in order to raise a total of $15,650,000. These debentures may
        convert
        into our common stock at $1.04 per share.  In addition, we granted these
        investors warrants to purchase our common stock at $1.13 per share.


We
      anticipate that sales of our ACCC cable will not be sufficient to sustain our
      newly combined operations including the DeWind segment without sufficient wind
      turbine orders with sizable customer advance payments of cash and further
      anticipate that we will continue to incur consolidated net losses due to our
      costs exceeding our revenues for an indefinite period of time. Further, our
      cash
      flows are reliant upon the payment of several large invoices from international
      customers. If existing cash and cash generated from operations are insufficient
      to satisfy our liquidity requirements, we may seek to raise additional capital
      through issuances of equity or debt securities. Any additional financing may
      not
      be available in amounts or on terms acceptable to us, or at all.




**CAPITAL
      EXPENDITURES**





The
      Company does not have any material commitments for capital expenditures.





**EFFECTS
      OF INFLATION**





We
      are
      subject to inflation and other price risks arising from price fluctuations
      in
      the market prices of the various raw materials that we use to produce our
      products including the price of aluminum. Price risks are managed through
      cost-containment measures. Since we anticipate passing through the risk of
      market fluctuations of the price of aluminum to our customers, as is the
      practice in the cable industry, 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.








**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 December 31, 2006:





Contractual
                Obligations
            
            Total
            
            Less
                than 1 year
            
            1-3
                years
            
            3-5
                years
            
            More
                than 5 YearsDebt
                Obligations
            
            $
            8,323,250
            
            $
            8,323,250
            
            $
            --
            
            $
            --
            
            $
            --Capital
                Lease Obligations
            
            $
            310,627
            
            
            237,475
            
            
            73,152
            
            
            --
            
            
            --Operating
                Lease Obligations
            
            $
            5,255,510
            
            $
            1,688,538
            
            $
            3,566,972
            
            
            --
            
            $
            --





36




**ITEM
      3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**





Our
      exposure to market risk relates primarily to our cash balances and the effect
      that changes in interest rates have on the interest earned on that portfolio.
      Our convertible notes and debentures bear a fixed rate of interest.





As
      of
      December 31, 2006 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 December 31, 2006, we had $1.3 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.




The
        Company is also exposed to foreign currency exchange rate risks since a large
        proportion of the assets and operations are denominated in the Euro while
        the
        Company’s reporting currency is in US Dollars. The Company does not currently
        hedge against exchange rate risk.





**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 acting Chief Operating
      Officer, the Company's principal executive officer and principal financial
      officer have concluded that the Company's disclosure controls and procedures
      (as
      defined under the Securities Exchange Act of 1934, as amended (Exchange Act))
      were not effective as of December 31, 2006 to ensure that information required
      to be disclosed by the Company in reports that it files or submits under the
      Exchange Act is recorded, processed, summarized and reported


within
      the time periods specified in Securities and Exchange Commission rules and
      forms.





During
      management's review of our internal control structure under Sarbanes-Oxley
      section 404, for the fiscal year ending September 30, 2006, we determined the
      following to be material weaknesses:





Entity
      level Processes and weaknesses. As of September 30, 2006, the following material
      weaknesses existed related to general processes and weaknesses for the entity
      taken as a whole:





o
      Proper
      segregation of duties and inadequate training did not exist as well as an
      inadequate number of accounting and finance personnel staff at fiscal year
      end.





o
      The
      Company had one member Audit Committee, a one member Compensation Committee,
      and
      had a designated financial expert on the Board of Directors since January of
      2006. Until December, 2005 we only had a two person non-independent Board of
      Directors and from January, 2006 through November, 2006 we had one independent
      director and two non-independent directors comprising our Board of
      Directors.





o
      The
      Company did not have an independent internal audit function due to the small
      size of the organization.





These
      material weaknesses related to the entity as a whole affect all of our
      significant accounts and could result in a material misstatement to our annual
      or interim consolidated financial statements that would not be prevented or
      detected.




37




Information
      Technology Controls (ITCs) . ITCs are policies and procedures that relate to
      many applications and support the effective functioning of application controls
      by helping to ensure the continued proper operation of information systems.
      ITGCs include four basic information technology (IT) areas relevant to internal
      control over financial reporting: program development, program changes, computer
      operations, and access to programs and data. As of September 30, 2006, a
      material weakness existed relating to our information technology general
      controls, including ineffective controls relating to:





o
      Access
      to programs and data including (1) user administration, (2) application and
      system configurations, and (3) periodic user access validation





Inventory
      Processes. As of September 30, 2006, the following material weaknesses existed
      related to ineffective controls over our inventory processes:





o
      Perpetual Inventory records: Ineffective controls to (a) accurately record
      the
      raw materials inventory moved out of inventory stores and into manufacturing
      production and later into finished goods and, (b) accurately record
      manufacturing variances.





Procure
      to Pay process. During our fiscal 2006 assessment of the Company’s procure to
      pay (cash payments and disbursements) cycle, we determined that there were
      numerous significant control deficiencies relating primarily to inventory
      purchasing and related purchasing and payable system control deficiencies.
      If
      assessed on an individual basis, none of these deficiencies were determined
      to
      be material weaknesses. However, taken in the aggregate we believe the following
      constitute a material weakness:





i)
            An
                effective purchasing function did not exist during the entire fiscal
                year.ii)
            There
                were inadequate system driven matching controls over the receiving
                function for inventory parts and supplies. Receiving tolerances for
                inventory related pricing and quantities received are not established
                systematically.iii)
            There
              was a lack of segregation of duties between the purchasing and payable
              processing functions.iv)
            There
              were inadequate vendor management duties and responsibilities during
              the
              yearv)
            There
              was a lack of sufficient purchasing reports for management
              review.




During
      the three months ended December 31, 2006 the Company improved the internal
      control structure and addressed the identified material weaknesses as
      follows:





During
      the quarter, the Company began the documentation, identification, testing,
      and
      remediation of the DeWind internal control structure that was previously
      excluded from the scope of fiscal 2006 testing.





In
      January, 2007, the Company hired a Chief Financial Officer who will be tasked
      with further section 404 compliance responsibility and provide additional
      oversight to financial transactions.




38




During
      the quarter ending December 31, 2006, the Company's management has identified
      the steps necessary to address the material weaknesses existing in 2006
      described above, as follows:





(1)
      Hiring additional accounting and operations personnel and engaging outside
      contractors with technical accounting expertise, as needed, and reorganizing
      the
      accounting and finance department to ensure that accounting personnel with
      adequate experience, skills and knowledge relating to complex, non-routine
      transactions are directly involved in the review and accounting evaluation
      of
      our complex, non-routine transactions;





(2)
      Involving both internal accounting and operations personnel and outside
      contractors with technical accounting expertise, as needed, early in the
      evaluation of a complex, non-routine transaction to obtain additional guidance
      as to the application of generally accepted accounting principles to such a
      proposed transaction;





(3)
      Documenting to standards established by senior accounting personnel and the
      principal accounting officer the review, analysis and related conclusions with
      respect to complex, non-routine transactions; and





(4)
      Requiring senior accounting personnel and the principal accounting officer
      to
      review complex, non-routine transactions to evaluate and approve the accounting
      treatment for such transactions.





(5)
      Interviewing prospective new independent Directors for our Board including
      members willing to serve on the Audit and Compensation committees.





(6)
      Evaluating the internal audit function in relation to the Company's financial
      resources and requirements. We expect to pursue a strategy of outsourcing our
      internal audit function in fiscal 2007.





(7)
      Continue the evaluation of the DeWind accounting and financial systems including
      documentation and implementation of accounting policies and
      procedures.





All
      of
      these steps are in process and plans are in place to hire additional staff
      to
      help remediate the control weaknesses identified as of September 30, 2006 and
      for those weaknesses identified in the DeWind accounting and financial control
      structure.





Therre
      were no changes in our internal control over financial reporting during the
      quarter ended December 31, 2006 that has materially affected, or is reasonably
      likely to materially affect, our internal control over financial reporting,
      other than the remediation measures which are described above.





Singer
      Lewak Greenbaum & Goldstein LLP, our independent registered public
      accounting firm, has audited management's assessment of the effectiveness of
      the
      Company's internal control over financial reporting as of September 30, 2005
      and
      2006 as stated in their report which appears in this Annual Report on Form
      10-K.




39




**PART
      II - OTHER INFORMATION**


**ITEM
      1 - LEGAL PROCEEDINGS**





There
      have been no material changes to the Legal Proceedings described in Form 10-K
      filed December 26, 2006. See also footnote 11 to the financial statements in
      this document.




**ITEM
      1A. RISK FACTORS**





Our
      business is subject to a number of risks. You should carefully consider the
      following risk factors, together with all of the other information included
      or
      incorporated by reference in this report, before you decide whether to purchase
      our common stock. The risks set out below are not the only risks we face. If
      any
      of the following risks occur, our business, financial condition and results
      of
      operations could be materially adversely affected. In such case, the trading
      price of our common stock could decline, and you may lose all or part of your
      investment.





The
      following risk factors have changed or have been updated for recent information
      as compared to the Risk Factors listed in Form 10-K filed December 26, 2006.
      The
      following should be read in conjunction with the risk factors listed in Form
      10-K filed December 26, 2006.





WE
      EXPECT
      FUTURE LOSSES AND OUR FUTURE PROFITABILITY IS UNCERTAIN.


Prior
      to
      acquiring Transmission Technology Corporation, or TTC, in November 2001, we
      were
      a shell corporation having no operating history, revenues from operations,
      or
      assets since December 31, 1989. We have recorded approximately $5.6 million
      in
      ACCC product sales since inception and we have $17.8 million in Turbine and
      related services revenues since the acquisition of DeWind on July 3, 2006.
      Historically, we have incurred substantial losses and we may experience
      significant quarterly and annual losses for the foreseeable future. We may
      never
      become profitable. If we do achieve profitability, we may not be able to sustain
      or increase profitability on a quarterly or annual basis. We expect the need
      to
      significantly increase our general administrative and product prototype and
      equipment prototype production expenses, as necessary. As a result, we will
      need
      to generate significant revenues and earnings to achieve and maintain
      profitability.




OUR
      INDEPENDENT AUDITORS HAVE ISSUED A QUALIFIED REPORT AS OF AND FOR THE YEAR
      ENDED
      SEPTEMBER 30, 2006 WITH RESPECT TO OUR ABILITY TO CONTINUE AS A GOING CONCERN,
      AND WE MAY NEVER ACHIEVE PROFITABILITY.


Since
      inception, our accountants have issued a report relating to our audited
      financial statements which contains a qualification with respect to our ability
      to continue as a going concern because, among other things, our ability to
      continue as a going concern is dependent upon our ability to generate profitable
      operations in the future or to obtain the necessary financing to meet our
      obligations and repay our liabilities from normal business operations when
      they
      come due. There is no guarantee that the products will be accepted or provide
      a
      marketable advantage, and therefore, no guarantee that the commercialization
      will ever be profitable. For the three months ended December 31, 2006 we had
      a
      net loss of $6,949,324 and negative cash flows from operations of $4,635,971.
      For the year ended September 30, 2006, we had a net loss of $28,523,192 and
      negative cash flows from operations of $6,263,703. For the fiscal year ended
      September 30, 2005, we had a net loss of $40,163,407 and negative cash flows
      from operations of $2,439,151. For the fiscal year ended September 30, 2004,
      we
      had net losses of $14,687,875 and negative cash flows from operations of
      $18,735,430. As of December 31, 2006, our accumulated deficit was
      $101,990,887.




40




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


As
      of
      January 31, 2007, Benton H Wilcoxon, our Chairman of the Board and Chief
      Executive Officer, and Michael Porter, CTC President and former majority
      shareholder of EU Energy in the aggregate beneficially own or control
      approximately 21% of the outstanding common stock. As a result, these persons
      have controlling influence in determining the outcome of any corporate matters
      submitted to our shareholders 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 shareholders may differ from
      the interests of the other shareholders, and may limit the ability of other
      shareholders to affect our management and affairs.





**Risks
      Related To Our Securities**





THE
      PRICE
      OF OUR COMMON STOCK IS VOLATILE. VOLATILITY MAY INCREASE IN THE FUTURE, WHICH
      COULD AFFECT OUR ABILITY TO RAISE CAPITAL IN THE FUTURE OR MAKE IT DIFFICULT
      FOR
      INVESTORS TO SELL THEIR SHARES.


The
      market price of our common stock may be subject to significant fluctuations
      in
      response to our operating results, announcements of new products or market
      expansions by us or our competitors, changes in general conditions in the
      economy, the financial markets, the electrical power transmission and
      distribution industry, or other developments and activities affecting us, our
      customers, or our competitors, some of which may be unrelated to our
      performance. The sale or attempted sale of a large amount of common stock into
      the market may also have a significant impact on the trading price of our common
      stock. During the last 12 months, the closing bid prices for our common stock
      have fluctuated from a high of $1.61 to a low of $0.72. Fluctuations in the
      trading price or liquidity of our common stock may adversely affect our ability
      to raise capital through future equity financings.





AS
      OF FEBRUARY
      1 ,
      2007
      4,544,598 COMMON SHARES ARE ISSUABLE UPON EXERCISE OF ALL OUTSTANDING OPTIONS,
      WARRANTS AND CONVERSION OF CONVERTIBLE NOTES FOR LESS THAN THE MARKET PRICE
      OF
      $0.97 PER SHARE. CASH PROCEEDS RESULTING FROM THE FULL EXERCISE AND CONVERSION
      OF THESE SECURITIES WOULD BE APPROXIMATELY $1,877,851. 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 2.5% TO APPROXIMATELY 183,407,000
      SHARES.


The
      exercise price or conversion price of outstanding options, warrants and
      convertible notes may be less than the current market price for our common
      shares. In the event of the exercise of these securities, a shareholder could
      suffer substantial dilution of his, her or its investment in terms of the
      percentage ownership in us as well as the book value of the common shares held.
      At the February 1, 2007 market price of $0.97 per share, 4,544,595 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 $1,877,851 and would increase the outstanding common shares by
      2.5%
      to approximately 183,407,000 shares.




41





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





None





**ITEM
      3 - DEFAULTS ON SENIOR SECURITIES**





None





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





None





**ITEM
      5 - OTHER INFORMATION**


None




42




**ITEM
      6 - EXHIBITS**





**EXHIBIT
      INDEX**




Number
            Description2.1(1)
            Articles
                of Merger of ElDorado Financial Group, Inc., a Florida corporation,
                into
                ElDorado Financial Group, Inc., a Nevada corporation.2.2(2)
            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(3)
            Third
                Amended Chapter 11 Plan of Reorganization with non-material modifications
                of Composite Technology Corporation.2.4(3)
            Order
                confirming Debtor's Third Amended Chapter 11 Plan of Reorganization
                with
                Non-material Modifications.3.1(1)
            Articles
                of Incorporation of the Company.3.2(4)
            Bylaws
                of Composite Technology Corporation, as modified January 6,
                200610.1(5)
            Agreement
                by and among Enertrag AG and EU Energy Ltd. dated as of September
                27,
                2006.10.2(6)
            Agreement
                by and among EU Energy Inc., GE Infrastructure Technology, LLC and
                GE
                Infrastructure Technology International Inc. dated as of October
                6,
                2006.10.3(7)
            Strategic
                Alliance Agreement by and between the Registrant and TECO-Westinghouse
                Motor Company dated as of November 27, 2006.10.4(9)
            Employment
                agreement by and between the Registrant and Kevin Smith dated as
                of
                January 8, 2002.10.5(10)
            Modification
                of Agreement dated September 27, 2006 by and among Enertrag and the
                Registrant’s wholly owned subsidiary DeWind Turbines regarding E. Service
                GmbH dated as of January 19, 2007.10.6(11)
            Distribution
                Agreement by and between the Registrant’s wholly owned subsidiary CTC
                Cable Corporation and Far East Composite Technology Company dated
                as of
                January 30, 200710.7(13)
            Factoring
                Agreement by and between the Registrant and Bradley Rotter dated as
                of December 31, 2006.10.8
            Securities
                Purchase Agreement dated as of February 12, 2007 by and among the
                Registrant and the investors set forth therein (14)10.9
            Form
              of Senior Convertible Debenture (14)10.10
            Form
              of Warrant (14)10.11
            Registration
              Rights Agreement dated as of February 12, 2007 by and among the Registrant
              and the investors set forth therein (14)31.1(13)
            Rule
                13a-14(a) / 15d-14(a)(4) Certification31.2(13)
            Rule
                13a-14(a) / 15d-14(a)(4) Certification32.1(13)
            Section
                1350 Certification32.2(13)
            Section
                  1350 Certification





43




(1)
      Incorporated herein by reference to Form 10-KSB filed as a Form 10-KT with
      the
      U. S. Securities and Exchange Commission on February 14, 2002.





(2)
      Incorporated herein by reference to Form 8-K filed with the U. S. Securities
      and
      Exchange Commission on November 20, 2001.





(3)
      Incorporated herein by reference to the Form 8-K filed with the U. S. Securities
      and Exchange Commission on November 25, 2005.





(4)
      Incorporated herein by reference to Form 8-K filed with the U.S. Securities
      and
      Exchange Commission on January 12, 2006.





(5)
      Incorporated herein by reference to Form 8-K filed with the U.S. Securities
      and
      Exchange Commission on September 27, 2006.





(6)
      Incorporated herein by reference to Form 8-K filed with the U.S. Securities
      and
      Exchange Commission on October 6, 2006.





(7)
      Incorporated herein by reference to Form 8-K filed with the U.S. Securities
      and
      Exchange Commission on November 30, 2006.





(8)
      Incorporated herein by reference to Form 10-K filed with the U.S. Securities
      and
      Exchange Commission on December 13, 2005.





(9)
      Incorporated herein by reference to Form 8-K filed with the U.S. Securities
      and
      Exchange Commission on January 12, 2007.





(10)
      Incorporated herein by reference to Form 8-K filed with the U.S. Securities
      and
      Exchange Commission on January 25, 2007.





(11)
      Incorporated herein by reference to Form 8-K filed with the U.S. Securities
      and
      Exchange Commission on February 2, 2007.





(12)
      Incorporated herein by reference to Form 10-K filed with the U.S. Securities
      and
      Exchange Commission on December 26, 2006.





(13)
      Filed herewith.




(14)
      Incorporated herein by reference to Form 10-K filed
      with the U.S. Securities and Exchange Commission on February 13,
      2007.




44




**SIGNATURE**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, the Registrant
      has
      duly caused this Form 10-Q to be signed on its behalf by the undersigned,
      thereunto duly authorized.




**COMPOSITE
                TECHNOLOGY CORPORATION**
              (Registrant)*By*:
            /s/ *Benton
              H Wilcoxon**Benton
              H Wilcoxon**Chief
              Executive Officer**February 14, 2007*





45