**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, 2007**





**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 xNO
o
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, or a non- accelerated filer. See definition of “accelerated
        filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
        one)
 
 Large
        accelerated filer o Accelerated
        filer x Non-accelerated
        filer o
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). YES oNO x
 
 APPLICABLE
        ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
 PROCEEDING
        DURING THE PRECEDING FIVE YEARS:
 
 Indicate
        by check mark whether the registrant has filed all documents and reports
        required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange
        Act
        of 1934 subsequent to the distribution of securities under a plan confirmed
        by a
        court. YES xNO o
 
 APPLICABLE
        ONLY TO CORPORATE ISSUERS:
 
 Indicate
        the number of shares outstanding of each of the issuer's classes of common
        stock
        as of: February 11, 2008
 CLASS
                
                NUMBER
                    OF SHARES OUTSTANDINGCommon
                    Stock, par value
                  $0.001
                    per share
                
                226,156,958shares







**COMPOSITE
      TECHNOLOGY CORPORATION**


Form
      10-Q
      for the Quarter ended December 31, 2007


Table
      of
      Contents




PagePART
                  I - FINANCIAL INFORMATIONItem
                  1
              Financial
                  Statements
              3Item
                  2
              Management's
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              22Item
                  3
              Quantitative
                  and Qualitative Disclosures About Market Risk
              30Item
                  4
              Controls
                  and Procedures
              30PART
                  II - OTHER INFORMATIONItem
                  1
              Legal
                  Proceedings
              33Item
                  1A
              Risk
                  Factors
              33Item
                  2
              Unregistered
                  Sales of Equity Securities and the Use of Proceeds
              35Item
                  3
              Defaults
                  Upon Senior Securities
              35Item
                  4
              Submission
                  of Matters to a Vote of Security Holders
              35Item
                  5
              Other
                  Information
              35Item
                  6
              Exhibits
              36SIGNATURE
              39INDEX
                  TO EXHIBITS




2





**ITEM
      1**





**PART
      1 - FINANCIAL STATEMENTS**


**COMPOSITE
      TECHNOLOGY CORPORATION**


**AND
      SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**





December 31, 2007
            
            September 30, 2007(unaudited)ASSETSCURRENT
                ASSETSCash
                and Cash Equivalents
            
            $
            11,563,536
            
            $
            22,656,834Restricted
                Cash
            
            
            200,000
            
            
            —Accounts
                Receivable, current, net
            
            
            10,652,526
            
            
            7,808,986Inventory,
                net
            
            
            35,335,652
            
            
            25,701,855Advanced
                Payments on Inventory
            
            
            10,333,017
            
            
            12,893,507Prepaid
                Expenses and Other Current Assets
            
            
            3,900,287
            
            
            3,242,234Total
                Current Assets
            
            
            71,985,018
            
            
            72,303,416Long
                Term Trade Receivables
            
            
            2,904,940
            
            
            2,809,558Investment
                in Unconsolidated Subsidiary
            
            
            2,114,252
            
            
            2,109,394Property
                and Equipment, net
            
            
            8,670,399
            
            
            7,942,677Goodwill
                and Intangible Assets
            
            
            46,366,095
            
            
            46,777,139Other
                Assets
            
            
            230,980
            
            
            305,466TOTAL
                ASSETS
            
            $
            132,271,684
            
            $
            132,247,650LIABILITIES
                AND SHAREHOLDERS’ EQUITYCURRENT
                LIABILITIESAccounts
                Payable and Other Accrued Liabilities
            
            $
            22,040,065
            
            $
            20,645,794Deferred
                Revenues and Customer Advances
            
            
            36,437,556
            
            
            35,581,067Warranty
                Provision
            
            
            13,710,001
            
            
            12,522,837Lease
                Obligation - Current
            
            
            70,305
            
            
            109,021Total
                Current Liabilities
            
            
            72,257,927
            
            
            68,858,719LONG
                TERM LIABILITIESLong
                Term Portion of Deferred Revenues
            
            
            942,984
            
            
            1,136,404Long-Term
                Portion of Warranty Provision
            
            
            3,040,261
            
            
            3,292,628Convertible
                Notes - Long-Term
            
            
            8,203,985
            
            
            9,247,453Total
                Long-Term Liabilities
            
            
            12,187,230
            
            
            13,676,485Total
                Liabilities
            
            
            84,445,157
            
            
            82,535,204COMMITMENTS
                AND CONTINGENCIESSHAREHOLDERS’
                EQUITYCommon
                Stock, $.001 par value 300,000,000 shares authorized 226,156,958
                (unaudited) and 221,308,530 issued and outstanding
            
            
            226,156
            
            
            221,308Additional
                Paid-in Capital
            
            
            195,276,577
            
            
            189,604,754Accumulated
                Deficit
            
            
            (146,980,261
            )
            
            (139,609,437
            )Accumulated
                Other Comprehensive Loss
            
            
            (695,945
            )
            
            (504,179
            )Total
                Shareholders’ Equity
            
            
            47,826,527
            
            
            49,712,446TOTAL
                LIABILITIES AND SHAREHOLDERS’ EQUITY
            
            $
            132,271,684
            
            $
            132,247,650




The
      accompanying notes are an integral part of these financial statements





3




**COMPOSITE
      TECHNOLOGY CORPORATION**


**AND
      SUBSIDIARIES**


**CONDENSED,
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**FOR
      THE THREE MONTHS ENDED DECEMBER 31, 2007 AND 2006**




Three
                Months ended December 31, 2007
            
            Three
                Months ended December 31, 2006(unaudited)
            
            (unaudited)Revenue:Product
                Revenue
            
            $
            17,591,308
            
            $
            8,038,533Service
                Revenue
            
            
            594,726
            
            
            4,994,195Total
                Revenue
            
            
            18,186,034
            
            
            13,032,728Cost
                of Product Revenue
            
            
            13,624,536
            
            
            7,497,416Cost
                of Service Revenue
            
            
            1,917,418
            
            
            5,313,514Gross
                Profit
            
            
            2,644,080
            
            
            221,798OPERATING
                EXPENSESOfficer
                compensation
            
            
            254,423
            
            
            247,694General
                and administrative
            
            
            3,267,467
            
            
            3,711,047Research
                and development
            
            
            3,146,529
            
            
            1,427,749Sales
                and Marketing
            
            
            1,177,050
            
            
            861,505Depreciation
                & Amortization
            
            
            879,715
            
            
            772,306Total
                operating expenses
            
            
            8,725,184
            
            
            7,020,301LOSS
                FROM OPERATIONS
            
            
            (6,081,104
            )
            
            (6,798,503
            )OTHER
                INCOME /(EXPENSE)Interest
                expense
            
            
            (968,107
            )
            
            (391,582
            )Interest
                income
            
            
            84,673
            
            
            70,803Other
                income
            
            
            —
            
            
            210,072Litigation
                expense related to acquired entity
            
            
            (342,346
            )
            
            —Loss
                in Unconsolidated Subsidiary
            
            
            (56,514
            )
            
            —Total
                other income/(expense)
            
            
            (1,282,294
            )
            
            (110,707
            )Loss
                before Income Taxes and Minority Interest
            
            
            (7,363,398
            )
            
            (6,909,210
            )Income
                Taxes
            
            
            7,426
            
            
            50,833NET
                LOSS BEFORE MINORITY INTEREST
            
            
            (7,370,824
            )
            
            (6,960,043
            )Minority
                Interest in Consolidated Subsidiary
            
            
            —
            
            
            (10,719
            )NET
                LOSS
            
            
            (7,370,824
            )
            
            (6,949,324
            )OTHER
                COMPREHENSIVE INCOME/(LOSS)Foreign
                Currency Translation Adjustment, net of tax of $0 and $0
            
            
            (191,766
            )
            
            76,656COMPREHENSIVE
                LOSS
            
            $
            (7,562,590
            )
            $
            (6,872,668
            )BASIC
                AND DILUTED LOSS PER SHARE
            
            $
            (0.03
            )
            $
            (0.04
            )TOTAL
                BASIC AND DILUTED LOSS PER SHARE AVAILABLE TO COMMON
                SHAREHOLDERS
            
            $
            (0.03
            )
            $
            (0.04
            )WEIGHT-AVERAGE
                COMMON SHARES OUTSTANDING
            
            
            **223,566,431**
            
            
            **178,769,958**




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, 2007 AND 2006**





For
                the Three Months ending
              Dec.
                31, 2007
            
            For
                the Three Months ending
              Dec.
                31, 2006(unaudited)
            
            (unaudited)CASH
                FLOWS FROM OPERATING ACTIVITIESNET
                LOSS
            
            $
            (7,370,824
            )
            $
            (6,949,324
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Interest
                amortization related to detachable warrants and fixed conversion
                features
            
            
            684,032
            
            
            —Depreciation
                & Amortization
            
            
            879,715
            
            
            772,306Expense
                related to fair value of vested options
            
            
            216,269
            
            
            132,418Amortization
                of prepaid expenses paid in stock
            
            
            129,030
            
            
            129,369Imputed
                Interest Expense - unissued warrants
            
            
            —
            
            
            95,115Issuance
                of common stock for services
            
            
            —
            
            
            248,500Issuance
                of warrants for interest
            
            
            —
            
            
            164,208Minority
                interest portion of net loss
            
            
            —
            
            
            (10,719
            )Loss
                in unconsolidated subsidiary
            
            
            56,514
            
            
            —CHANGES
                IN ASSETS / LIABILITIESInventory
            
            
            (10,296,740
            )
            
            1,100,557Advanced
                payments for turbine inventory
            
            
            3,072,345
            
            
            —Accounts
                receivable
            
            
            (3,215,524
            )
            
            (2,162,045
            )Restricted
                cash
            
            
            (200,000
            )
            
            —Prepaids
                and other current assets
            
            
            (716,195
            )
            
            (1,266,981
            )Other
                assets
            
            
            74,486
            
            
            190,717Accounts
                payable and other accruals
            
            
            1,262,147
            
            
            4,336,683Deferred
                revenue
            
            
            809,448
            
            
            (1,048,766
            )Accrued
                warranty liability
            
            
            895,859
            
            
            (373,899
            )Net
                cash used in operating activities
            
            
            (13,719,438
            )
            
            (4,641,861
            )CASH
                FLOW FROM INVESTING ACTIVITIESPurchase
                of property and equipment
            
            
            (1,133,227
            )
            
            (340,411
            )Net
                cash used in investing activities
            
            
            (1,133,227
            )
            
            (340,411
            )CASH
                FLOW FROM FINANCING ACTIVITIESPayments
                on capital leased assets
            
            
            (38,716
            )
            
            (99,162
            )Proceeds
                from exercise of warrants
            
            
            3,721,301
            
            
            —Proceeds
                from exercise of options
            
            
            11,600
            
            
            —Proceeds
                from partial sale of subsidiary
            
            
            —
            
            
            1,554,280Proceeds
                from Factoring Arrangements
            
            
            —
            
            
            1,800,000Proceeds
                from Notes Payable
            
            
            —
            
            
            500,000Net
                cash provided by financing activities
            
            
            3,694,185
            
            
            3,755,118Effect
                of exchange rate changes on cash
            
            
            65,182
            
            
            5,890Net
                decrease in cash and cash equivalents
            
            $
            (11,093,298
            )
            $
            (1,221,264
            )CASH
                AND CASH EQUIVALENTS, BEGINNING OF PERIOD
            
            $
            22,656,834
            
            $
            2,578,347CASH
                AND CASH EQUIVALENTS, END OF PERIOD
            
            $
            11,563,536
            
            $
            1,357,083SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATIONINTEREST
                PAID
            
            $
            330,490
            
            $
            105,387INCOME
                TAX PAID
            
            $
            —
            
            $
            —





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





5





**Supplemental
      Schedule for Non Cash Financing Activities**





In
      October 2007, the Company issued 1,677,185 shares of Common Stock for the
      conversion of $1,727,500 of Convertible Debt at a conversion price of $1.03
      per
      share.





6


**COMPOSITE
      TECHNOLOGY CORPORATION**


**AND
      SUBSIDIARIES**


**NOTES
      TO FINANCIAL STATEMENTS**





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





*Company*




Composite
        Technology Corporation, originally incorporated in Florida and reincorporated
        in
        Nevada, is an Irvine, CA based company operating in two segments CTC Cable
        (“Cable”) and DeWind, (“Wind”). The Cable segment sells high energy efficiency
        patented composite core conductors known as ("ACCC") for use in electric
        transmission and distribution lines. The Wind segment sells wind turbines
        under
        the brand name
        DeWind. ACCC conductor is commercially available in the United States and
        Canada
        through distribution and purchase agreements with General Cable Industries,
        Inc;
        in China through Jiangsu Far East; and directly through CTC Cable.
 
 In
        July
        2006 we acquired EU Energy, Ltd., which has been operated as DeWind since
        the
        acquisition. DeWind wind turbines are commercially available from our
        manufacturing facilities in Germany and our contract manufacturer in Texas
        for
        sale worldwide for our new D8.2 turbine models and worldwide outside of the
        US
        for our D6 and D8 turbine models.


*Accounting*





The
      accompanying unaudited consolidated financial statements of CTC 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, 2007 filed
      with the Securities and Exchange Commission on December 14, 2007.





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 was operated under joint control of both
      Enertrag and DeWind
      executives during the quarter ended December 31, 2006.





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





As
      further discussed in Note 8, on January 19, 2007, we agreed to amend our
      agreement with Enertrag AG, which formed our E Service venture. This
      resulted in a decrease of our E Service share capital to 24.9%. Upon
      review of the new arrangement, the Company determined that E Service no longer
      met the reporting requirements for Variable Interest Entities under FIN 46R.
      As
      a result, effective as of January 19, 2007, the Company has been recording
      its
      interest in E Service as an investment using the equity reporting method rather
      than consolidating the assets, liabilities, and operations of E Service with
      those of the Company.





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 assumptions upon which we rely are reasonably based
      upon information available to us at the time that these estimates, judgments
      and
      assumptions are made. These estimates, judgments and assumptions can affect
      the
      reported amounts of assets and liabilities as of the date of the financial
      statements as well as the reported amounts of revenues and expenses during
      the
      period presented. To the extent there are material differences between these
      estimates, judgments or assumptions and actual results, our financial statements
      will be affected. In many cases, the accounting treatment of a particular
      transaction is specifically dictated by GAAP and does not require management's
      judgment in its application. There are also many areas in which management's
      judgment in selecting among available alternatives would not produce a
      materially different result. The key estimates we use to rely upon
      management's judgment include:


-
            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 stock based compensation,
                primarily the volatility component of the Black-Scholes-Merton option
                pricing model used to value our warrants and our employee and non-employee
                options,-
            the
                warranty, retrofit and availability provisions for our wind turbines,
                and-
            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, 2007 is
      consistent with the estimates included in our Form 10-K filed on December 14,
      2007.





*Reclassifications*





Certain
      prior period balances were reclassified to conform with current period
      presentation.





During
      the current quarter ended December 31, 2007, due to its materiality, the Company
      reclassified advanced payments for turbine inventory, previously included in
      inventory, as a separate line item on the balance sheet. These balances
      represent payments
      made to suppliers in advance for inventory not, yet, received as of the balance
      sheet date.





Additionally,
      during the current quarter ended December 31, 2007, the Company recorded
      $200,000 of restricted cash as security to establish a standby letter of credit
      as required by a supplier for the purchase of inventory.





*Recent
      Pronouncements*




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




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





8




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




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




*Significant
      New Accounting Policies Adopted or Implemented During the
      Quarter*




**Statement
      No. 48, “Accounting for Uncertainty in Income Taxes” (FIN
      48)**




In
      July
      2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty
      in
      Income Taxes - an interpretation of FASB Statement No. 109" (“FIN 48”),
      which clarifies the accounting and disclosure for uncertainty in tax positions
      by prescribing a minimum probability threshold a tax position must meet to
      be
      recognized in the financial statements. FIN 48 requires an entity to recognize
      all or a portion of the financial statement benefit of an uncertain income
      tax
      position only if the position, based solely on its technical merits and on
      all
      relevant information as of the reporting date, would have a greater than 50%
      probability of being sustained were the relevant taxing authority to audit
      the
      applicable tax returns. If a tax position meets the threshold, then the entity
      will evaluate the benefits it would recognize at increasing levels of cumulative
      probabilities, and will record the largest amount of benefit that would have
      a
      greater than 50% probability of being sustained on audit (including resolution
      of any related appeals or litigation). An entity will not recognize any benefit
      of an uncertain income tax position that fails to meet the greater than 50%
      probability threshold.




The
      Company is subject to the provisions of FIN 48 as of October 1,
      2007, and has analyzed filing positions in all of the federal, state, and
      foreign jurisdictions where it is required to file income tax returns, as well
      as all open tax years in these jurisdictions. As a result of adoption, we
      have recorded no tax liability and have no unrecognized tax benefits as of
      the
      date of adoption.




The
      Company files consolidated tax returns in the United States federal jurisdiction
      and in California as well as foreign jurisdictions, including Germany and the
      United Kingdom. The Company is no longer subject to US federal income tax
      examinations for fiscal years before 2001, is no longer subject to state and
      local income tax examinations by tax authorities for fiscal years before 2001,
      and is no longer subject to foreign examinations before 2006.




During
      the current quarter ended December 31, 2007, the Company’s federal return was
      selected for examination by the Internal Revenue Service (IRS) for prior fiscals
      years ended September 30, 2001 through 2004, all years in which net losses
      were
      reported and filed.  As of December 31, 2007, the IRS has not proposed any
      significant adjustments to the Company’s tax positions. Currently, the Company
      is unable to reasonably estimate the amount by which the liability for
      unrecognized tax benefits may increase or decrease during the next 12 months
      as
      a result of the ongoing IRS audit. However, the Company does not anticipate
      any
      adjustments that would result in a material change to its financial position.




The
      Company recognizes potential accrued interest and penalties related to uncertain
      tax positions in income tax expense. During the three months ended December
      31,
      2007, the Company did not recognize any amount in potential interest and
      penalties associated with uncertain tax positions. To the extent interest and
      penalties are not assessed with respect to uncertain tax positions, amounts
      accrued will be reduced and reflected as a reduction of the overall income
      tax
      provision.





The
      Company does not anticipate that total unrecognized tax benefits will
      significantly change due to the settlement of audits and the expiration of
      the statute of limitations prior to September 30, 2008.





9





**NOTE
      2 - GOING CONCERN**





The
      Company has received a report from its independent auditors for the year ended
      September 30, 2007 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, 2007, the Company incurred a net loss of
      $44,483,482 and negative cash flows from operations of $21,839,550. In addition,
      the Company had an accumulated deficit of $139,609,437 at September 30, 2007.
      The Company's ability to continue as a going concern is dependent upon its
      ability to generate profitable operations in the future and/or to obtain the
      necessary financing to meet its obligations and repay its liabilities arising
      from normal business operations when they come due. The outcome of these matters
      cannot be predicted with any certainty at this time.





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




Commercial
      orders: To date, since inception for our Cable products and since the
      acquisition of DeWind, we have received orders for approximately $39 million
      in
      ACCC conductor products ($31 million sold and recognized, and $8 million in
      backlog) and $167 million of Wind turbines ($27 million sold and recognized,
      and
      $140 million in backlog). We will require a significant increase in customer
      orders at sufficient profit margin levels to cover our expenses and generate
      sufficient cash from operations.




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





We
      believe our cash position as of December 31, 2007 of $11.6 million and expected
      cash flows from revenue orders may not be sufficient to fund operations for
      the
      next four calendar quarters. We anticipate that additional cash is needed to
      fund operations beyond June, 2008 and to the extent required the Company intends
      to continue the practice of issuing stock, debt or other financial instruments
      for cash or for payment of services until our cash flows from the sales of
      our
      primary products is sufficient to provide cash from operations or if we believe
      such a financing event would be a sound business strategy.


**NOTE
        3 - BALANCE SHEET DETAILS**
  *Accounts
          Receivable*
  Accounts
          Receivable consisted of the following at December 31, 2007 and September
          30,
          2007:
  December
                    31, 2007
                
                
                September
                    30, 2007(unaudited)Turbine
                    products and service receivables
                
                $
                9,260,820
                
                $
                8,148,472Unbilled
                    receivables
                
                
                1,941,780
                
                
                1,867,009Cable
                    products receivables
                
                
                2,937,023
                
                
                1,199,043Gross
                    receivables
                
                $
                14,139,623
                
                $
                11,214,524Reserves
                
                
                (582,157
                )
                
                (595,980
                )Net
                    receivables
                
                $
                13,557,466
                
                $
                10,618,544Portion
                    relating to greater than one year, net of reserves of $0 and
                    $0
                
                
                2,904,940
                
                
                2,809,558Net
                    current accounts receivables
                
                $
                10,652,526
                
                $
                7,808,986
 
 10




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


*Inventories
        and Advanced Payments on Inventory*
  Inventories
        and advanced payments on inventory consisted of the following at December
        31,
        200 7
        and
        September 30, 2007:
  December
                  31, 2007
              
              
              September
                  30, 2007(unaudited)Raw
                  Materials and Turbine Parts
              
              $
              26,052,333
              
              $
              12,590,808Work
                  in Progress
              
              
              8,593,624
              
              
              10,621,287Finished
                  Goods
              
              
              2,246,870
              
              
              3,984,804Gross
                  Inventory
              
              $
              36,892,827
              
              $
              27,196,899Reserves
              
              
              (1,557,175
              )
              
              (1,495,044
              )Net
                  Inventory
              
              $
              35,335,652
              
              $
              25,701,855Advanced
                  Payments on Inventory
              
              $
              10,333,017
              
              $
              12,893,507
 
 Advanced
        payments on inventory represents payments made to suppliers in advance for
        inventory not yet received as of the balance sheet date. These balances,
        which
        were previously included in inventory, were reclassified as a separate line
        item
        on the balance sheet due to its materiality.
  *Property
        and Equipment*
  Property
        and equipment consisted of the following at December 31, 2007 and September
        30,
        2007:
  Estimated
                  Useful Lives
              
              December
                  31, 2007
              
              September
                  30, 2007(unaudited)Office
                  furniture and equipment
              
              
              3-10
                  yrs
              
              $
              1,251,069
              
              $
              1,240,703Production
                  Equipment
              
              
              3-10
                  yrs
              
              
              10,172,434
              
              
              9,243,772Automobiles
              
              
              3-5
                  yrs
              
              
              30,742
              
              
              26,301Leasehold
                  improvements
              
              
              7
                  yrs
              
              
              677,108
              
              
              424,184Total
                  Property
              
              
              
              
              $
              12,131,353
              
              $
              10,934,960Accumulated
                  Depreciation
              
              
              
              
              
              (3,460,954
              )
              
              (2,992,283
              )Property,
                  net
              
              
              
              
              $
              8,670,399
              
              $
              7,942,677
  *Accounts
        Payable and Accrued Liabilities*
  Accounts
        Payable and Accrued Liabilities consisted of the following at December 31,
        2007
        and September 30, 2007:
  December
                  31, 2007
              
              
              September
                  30, 2007(unaudited)Trade
                  Payables
              
              $
              17,609,728
              
              $
              15,161,739Legal
                  Provision
              
              
              1,382,796
              
              
              2,072,434Accrued
                  Acquisition Costs
              
              
              250,000
              
              
              318,502Accrued
                  Payroll
              
              
              943,020
              
              
              1,014,702Accrued
                  Interest
              
              
              208,899
              
              
              --Due
                  to Affilliates
              
              
              1,418,563
              
              
              1,848,521Deferred
                  Rents
              
              
              227,059
              
              
              227,059Other
                  Accruals
              
              
              --
              
              
              2,837Total
                  Accounts Payable and Accrued Liabilities
              
              $
              22,040,065
              
              $
              20,645,794


11


*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, 2007 and
        September 30, 2007 :
  December31,
                  2007
              
              September
                  30, 2007(unaudited)Customer
                  advances on turbines and turbine parts sales
              
              $
              32,335,821
              
              $
              30,352,975Deferred
                  revenues - Other turbine related
              
              
              3,648,241
              
              
              4,030,602Deferred
                  revenues - Cable Sales
              
              
              1,396,478
              
              
              2,333,894Total,
                  Deferred revenues & customer advances
              
              $
              37,380,540
              
              $
              36,717,471Balance
                  included in current liabilities
              
              
              36,437,556
              
              
              35,581,067Long
                  Term Deferred Revenues
              
              $
              942,984
              
              $
              1,136,404
  *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 as of
        December 31, 2007 and
        September 30, 2007:
  December31,
                  2007
              
              September
                  30, 2007(unaudited)Beginning
                  balance
              
              $
              15,815,465
              
              $
              14,654,204Additional
                  reserves recorded to expense
              
              
              2,641,701
              
              
              8,648,542Reserves
                  utilized
              
              
              (2,170,659
              )
              
              (9,220,625
              )Impact
                  of foreign currency translation
              
              
              463,755
              
              
              1,733,344Ending
                  balance
              
              $
              16,750,262
              
              $
              15,815,465Less
                  Amount classified as current liabilities
              
              
              13,710,001
              
              
              12,522,837Long
                  Term Warranty Liability
              
              $
              3,040,261
              
              $
              3,292,628
  **NOTE
        4 – 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. See also the analysis in Item 2 Management Discussion and
      Analysis.




12




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, 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 operations in Dallas, Texas, The DeWind Division produces, services,
      and sells DeWind wind powered electricity generating turbines in the 1.25 and
      2.0 Megawatt range.





Segment
      information for the three months ended December 31, 2007 and 2006 is as
      follows:





**Corporate**
            
            **Cable**
            
            **Turbine**
            
            **Total****Three
                Months Ended:****December
                31, 2007**Revenues
            
            $
            —
            
            $
            10,993,963
            
            $
            7,192,071
            
            $
            18,186,034Operating
                income (loss)
            
            
            (1,346,925
            )
            
            2,173,079
            
            
            (6,907,258
            )
            
            (6,081,104
            )Total
                assets
            
            
            6,720,247
            
            
            11,196,973
            
            
            114,354,464
            
            
            132,271,684Goodwill
            
            
            —
            
            
            —
            
            
            46,366,095
            
            
            46,366,095Capital
                expenditures
            
            
            —
            
            
            (385,257
            )
            
            (747,970
            )
            
            (1,133,227
            )Depreciation
                & amortization
            
            
            —
            
            
            205,899
            
            
            673,816
            
            
            879,715**December
                31, 2006**Revenues
            
            $
            —
            
            $
            1,643,908
            
            $
            11,388,820
            
            $
            13,032,728Operating
                loss
            
            
            (1,470,616
            )
            
            (1,657,363
            )
            
            (3,670,524
            )
            
            (6,798,503
            )Total
                assets
            
            
            739,305
            
            
            8,210,777
            
            
            88,923,718
            
            
            97,873,800Goodwill
            
            
            —
            
            
            —
            
            
            49,532,940
            
            
            49,532,940Capital
                expenditures
            
            
            —
            
            
            (340,411
            )
            
            —
            
            
            (340,411
            )Depreciation
                & amortization
            
            
            —
            
            
            202,685
            
            
            569,621
            
            
            772,306





See
      also
      Item 2 Management Discussion and analysis for additional segment
      information.




**NOTE
      5 – STOCK BASED COMPENSATION**





The
      Company issues stock 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.




13




The
      value
      of the stock based compensation is estimated using the Black-Scholes-Merton
      (Black-Scholes) option pricing model. Key assumptions used during
      the quarter ended December 31, 2007 and 2006 to value options and warrants
      granted are as follows:





**Three Months Ended****December 31,****2007**
            
            **2006**Risk
                Free Rate of Return
            
            
            3.28-4.29
            %
            
            4.7
            %Volatility
            
            
            88.0
            %
            
            98.4
            %Dividend
                yield
            
            
            0
            %
            
            0
            %





Our
      computation of expected volatility for the quarter ended December 31, 2007
      is
      based on historical volatility and volatility over the expected life of the
      options and warrants granted. Our computation of expected life is based on
      historical exercise patterns. The interest rate for periods within the
      contractual life of the award is based on the U.S. Treasury yield curve in
      effect at the time of grant.




On
      March
      29, 2006, the Securities and Exchange Commission published Staff Accounting
      Bulletin No. 107 (SAB 107), which provides the Staff’s views on a variety of
      matters relating to stock-based payments. 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, 2007 and 2006 is as follows:





**Three Months**
              **Ended**
            
            **Three Months**
              **Ended****December 31**
            
            **December 31****2007**
            
            **2006**Cost
                of Product Revenue
            
            $
            14,818
            
            $
            31,033Selling
                and marketing
            
            
            41,508
            
            
            48,837Research
                and development
            
            
            76,711
            
            
            33,891General
                and administrative
            
            
            83,232
            
            
            18,657Totals
            
            $
            216,269
            
            $
            132,418





As
      of
      December 31, 2007, there was $9.7 million of total unrecognized compensation
      cost related to non-vested stock based compensation arrangements related to
      stock options. The costs are expected to be recognized over a weighted-average
      period of 2.7 years.





Significantly
      all of our existing options are subject to time of service vesting. Our stock
      options vest either on an annual or a quarterly basis for options subject to
      time of service vesting or for specific performance for option vesting tied
      to
      performance criteria. For the remainder of fiscal 2008, we expect stock based
      compensation expense related to employee stock options of approximately
      $2,770,000 before income taxes. 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, 2007.





Number
              of Options
            
            Average
              Exercise
              PriceOutstanding,
                September 30, 2007
            
            
            15,019,870
            
            $
            0.91Granted
            
            
            3,745,000
            
            $
            1.79Exercised
            
            
            (10,000
            )
            $
            1.16Cancelled
            
            
            (106,600
            )
            $
            1.47OUTSTANDING,
                December 31, 2007
            
            
            18,648,270
            
            $
            1.09EXERCISABLE,
                December 31, 2007
            
            
            7,586,686
            
            $
            0.75




14




The
      weighted-average remaining contractual life of the options outstanding at
      December 31, 2007 was 4 years. The exercise prices of the options outstanding
      at
      December 31, 2007 ranged from $0.25 to $2.09, 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
            
            
            1,613,216
            
            
            1,563,216
            
            
            4.0
            
            $
            0.29
            
            $
            0.29$0.50-$0.99
            
            
            2,775,000
            
            
            2,530,833
            
            
            4.0
            
            $
            0.59
            
            $
            0.58$1.00-$1.49
            
            
            10,315,054
            
            
            3,292,637
            
            
            4.0
            
            $
            1.07
            
            $
            1.02$1.50-$2.09
            
            
            3,945,000
            
            
            200,000
            
            
            4.0
            
            $
            1.79
            
            $
            1.89Total
            
            
            18,648,270
            
            
            7,586,686




**NOTE
      6 – EQUITY**




**COMMON
      STOCK**





During
      the three months ended December 31, 2007 the Company issued a total of 4,848,608
      shares for the exercise of options and warrants and for the conversion of
      convertible debt as follows:





In
      October 2007, the Company issued 1,677,183 shares of common stock for the
      conversion of $1,727,500 of convertible debt at a conversion price of $1.03
      per
      share.





In
      November 2007, the Company issued 10,000 shares of common stock for the cash
      exercise of 10,000 options at an exercise price of $1.16. The Company received
      $11,600 in cash for this exercise.





In
      December, 2007, the Company issued 2,403,847 shares of common stock for the
      cash
      exercise of a similar number of warrants at an exercise price of $1.11 per
      warrant, and the Company issued 757,576 shares of common stock for the cash
      exercise of a similar number of warrants at an exercise price of $1.39 per
      warrant. Cash proceeds from these warrant exercises totaled
      $3,721,301.




**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 ending December
      31 ,
      2007:





Number
              of Warrants
            
            Weighted-Average
              Exercise PriceOutstanding,
                September 30, 2007
            
            
            32,449,107
            
            $
            1.30Granted
            
            
            —
            
            $
            —Exercised
            
            
            3,161,423
            
            $
            1.18Cancelled
            
            
            —
            
            $
            —OUTSTANDING,
                December 31, 2007
            
            
            29,287,684
            
            $
            1.31EXERCISABLE,
                December 31, 2007
            
            
            29,287,684
            
            $
            1.31




15




The
      following table summarizes the warrants issued, outstanding, and exercisable
      as
      of September 30, 2007:





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
            
            
            (F)August,
                2004 Debenture warrants
            
            
            Aug,
                2004
            
            $
            1.40
            
            
            (A)
            
            
            August, 2008
            
            
            3,221,471
            
            
            4,510,059
            
            
            NoneDebenture
                Amend
            
            
            Nov,
                2004
            
            $
            1.40
            
            
            (A)
            
            
            November, 2008
            
            
            1,083,592
            
            
            1,517,029
            
            
            NoneSeries
                T
            
            
            Sept,
                2004
            
            $
            1.00
            
            
            
            
            
            July, 2008
            
            
            160,000
            
            
            160,000
            
            
            NoneSeries
                U
            
            
            Sept,
                2004
            
            $
            1.83
            
            
            
            
            
            August, 2008
            
            
            512,362
            
            
            937,622
            
            
            (H)October,
                2005 DIP Series 1
            
            
            Oct,
                2005
            
            $
            1.21
            
            
            (B)
            
            
            October, 2008
            
            
            996,538
            
            
            1,205,811
            
            
            NoneOctober,
                2005 DIP Series 2
            
            
            Oct,
                2005
            
            $
            1.31
            
            
            (C)
            
            
            October, 2008
            
            
            1,003,207
            
            
            1,314,201
            
            
            None2006
                Series A1
            
            
            Mar,
                2006
            
            $
            1.55
            
            
            
            
            
            March, 2009
            
            
            150,000
            
            
            232,500
            
            
            None2006
                Series A2
            
            
            Mar,
                2006
            
            $
            0.99
            
            
            (D)
            
            
            March, 2009
            
            
            1,489,399
            
            
            1,474,505
            
            
            None2006
                Series B
            
            
            Various 2006
            
            $
            2.00
            
            
            
            
            
            May, 2009
            
            
            2,191,466
            
            
            4,382,932
            
            
            (I)2006
                Series C
            
            
            May,
                2006
            
            $
            1.25
            
            
            
            
            
            December, 2009
            
            
            200,000
            
            
            250,000
            
            
            None2006
                Series D
            
            
            May,
                2006
            
            $
            1.50
            
            
            
            
            
            December, 2009
            
            
            200,000
            
            
            300,000
            
            
            None2006
                Series E
            
            
            May,
                2006
            
            $
            1.75
            
            
            
            
            
            December, 2009
            
            
            200,000
            
            
            350,000
            
            
            None2007
                Series F
            
            
            Nov,
                2006
            
            $
            1.10
            
            
            
            
            
            November, 2009
            
            
            220,000
            
            
            242,000
            
            
            None2007
                Convertible Debt
            
            
            Feb,
                2007
            
            $
            1.11
            
            
            (E)
            
            
            February, 2010
            
            
            7,367,815
            
            
            8,178,275
            
            
            None2007
                Convertible Debt Fees
            
            
            Mar,
                2007
            
            $
            1.03
            
            
            (E)
            
            
            February, 2010
            
            
            1,316,833
            
            
            1,356,338
            
            
            None2007
                Factoring
            
            
            Mar,
                2007
            
            $
            1.06
            
            
            
            
            
            February, 2009
            
            
            1,800,000
            
            
            1,908,000
            
            
            NoneJune
                PIPE Series 1
            
            
            Jun,
                2007
            
            $
            1.39
            
            
            (E)
            
            
            June, 2010
            
            
            5,490,100
            
            
            7,631,239
            
            
            NoneJune
                PIPE Series 2
            
            
            Jun,
                2007
            
            $
            1.40
            
            
            (E)
            
            
            June, 2010
            
            
            1,564,901
            
            
            2,190,862
            
            
            NoneTotal
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            29,287,684
            
            $
            38,386,173




(A)
      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. Certain future equity or equity equivalent issuances below
      $1.40
      per share may result in additional price resets.





(B)
      Subject to anti-dilution provisions. Price reset under a weighted average 115%
      of “new issue price” reset in June 2007. Certain future warrant issuances with
      exercise prices below $1.05 per warrant may result in weighted average price
      re-set and additional issuances of warrants.





(C)
      Subject to anti-dilution provisions. Price reset under a weighted average 125%
      of “new issue price” reset in February 2007. Certain future warrant issuances
      with exercise prices below $1.05 per warrant may result in weighted average
      price re-set and additional issuances of warrants.




(D)
      Subject to anti-dilution provisions. Certain future equity or equity
      equivalent issuances below $0.99 per share may result in a price reset of 100%
      of the new issue price and additional issuances of warrants.




16




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





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





(G)
      Callable if closing market price is 300% of strike price for 5 consecutive
      trading days.





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





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





**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, 2007 and 2006 since
      their
      effect would have been anti-dilutive:





December
                31 (unaudited)2007
            
            2006Options
                for common stock
            
            
            18,648,270
            
            
            15,965,336Warrants
            
            
            29,287,684
            
            
            11,708,393Convertible
                Debentures, if converted
            
            
            10,140,754
            
            
            3,885,96858,076,708
            
            
            31,559,697




**NOTE
      7 – DEBT
      AND NOTES PAYABLE**





In
      October 2007, $1,727,500 of principal of the February 2007 convertible debt
      was
      converted into 1,677,185 shares of common stock of the Company at a conversion
      price of $1.03. A total of $10,444,973 of principal of the February 2007
      convertible debt remained at December 31, 2007 convertible at a current
      conversion price of $1.03 per share into 10,140,754 shares, if fully converted.




The
      following table summarizes the company’s debt structure as of December 31, 2007
      and September
      30, 2007:




December 31, 2007
            
            September 30, 2007(unaudited)Senior
                Convertible 8% Notes due January, 2010 net discount of $2,240,988
                and
                $2,925,020
            
            $
            8,203,985
            
            $
            9,247,453Capital
                Leases
            
            
            70,305
            
            
            109,021Total
                Debt
            
            $
            8,274,290
            
            $
            9,356,474Less
                balance included in current liabilities
            
            
            (70,305
            )
            
            (109,021
            )Long
                Term Debt
            
            $
            8,203,985
            
            $
            9,247,453





17




**NOTE
      8 –
      VARIABLE INTEREST ENTITY**





On
      October 1, 2006, the Company’s wholly owned subsidiary, EU Energy Service GmbH
      (EUES) entered into a recapitalization arrangement whereby 50% of the voting
      stock of EUES was sold to Enertrag Ag, a turbine service customer of EUES,
      and a
      new entity was created, called E Service. The new entity 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 operation increased the number of turbines serviced
      by
      EUES prior to the agreement to over 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 operated under joint control of
      both Enertrag and DeWind executives during
      the quarter ended December 31, 2006. Since the Company was considered to be
      the
      primary beneficiary of the Variable Interest Entity (“VIE”),
      during the
      quarter ended December 31, 2006, we consolidated the assets and liabilities
      in our December 31, 2006 balance sheet and included the revenues and expenses
      in
      our statement of operations from October 1, 2006 through January 19, 2007.
      We
      allocated $931,695 of our acquired goodwill to the service
      organization.





On
      January 19, 2007, an amendment was ratified on the original agreement dated
      October 1, 2006. The January 19, 2007 amendment called for an immediate need
      to
      invest additional cash into E Service of 4,950,000 Euros ($6,600,000 at June
      30,
      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
      January 2007 amendment, we were required to invest 1,232,550 Euros ($1,595,782
      at January 19, 2007 exchange rates). Subsequent to January 25, 2007, we amended
      the recapitalization agreement to require only the investment of 224,000 Euros
      ($290,013 at January 19, 2007 exchange rates). The Company has concluded that
      accounting for E Service as a VIE is no longer required since the Company is
      no
      longer the primary beneficiary. As a result, for the period beginning January
      19, 2007 through our fiscal year ending September 30, 2007, we have not included
      the revenues and expenses in our statement of operations, and we have not
      included the assets and liabilities in our balance sheet. Likewise, the same
      treatment continues to be taken through our first 2008 fiscal quarter ending
      December 31, 2007. The Company has accounted for our investment in E Service
      for
      the quarter ended December 31, 2007 under the equity method of accounting,
      which
      requires us to adjust our investment each quarter to reflect our ownership
      share
      of the operating income or loss of the investment. We have eliminated all inter
      company profits related to our investment in this entity for the quarter ended
      December 31, 2007, and we have shown the carrying value of our investment of
      $2,114,252 as an asset on our balance sheet as of December 31,
      2007.





As
      of
      December 31, 2007, the Company’s maximum exposure to loss is limited to the
      investment balance of $2,114,252. We have amounts payable to the entity of
      approximately $1,408,843, and which are included in Accounts Payable in the
      December 31, 2007 balance sheet and disclosed under Due to Affiliates within
      Accounts Payable under Note 3. Excluding the December 2007 balance due to the
      entity, no creditors or beneficial interest holders have any recourse to the
      general credit of the Company as a result of this VIE.





**NOTE
      9 –
      COMMITMENT AND CONTINGENCIES**





Please
      refer to the Commitment and Contingencies Note number 16 on page 79 of our
      Form 10-K filed on December 14, 2007 for a detailed listing of our commitments
      and contingencies. There were no material changes other than in the ordinary
      course of business described below, and as updated in the Off Balance Sheet
      disclosure in Item 2 below.





During
      the quarter ended December 31, 2007, our purchasing efforts increased after
      having negotiated supply contracts during the prior fiscal year 2007 with
      numerous vendors for the purchase of wind turbine components for delivery
      beginning in fiscal year 2008. These contracts are considered to be in the
      ordinary course of business under ordinary payment terms. Material purchase
      commitments as of December 31, 2007 are estimated at $5.5 million. Advanced
      payments made for turbine inventory under these contracts are included as a
      separate line item on our balance sheet, which totaled $10,333,017 as of
      December 31, 2007.




18




**NOTE
      10 - LITIGATION**


Please
        refer to the Form 10-K filed on December 14, 2007 for detailed descriptions
        of
        the following litigation cases. The following updates to our litigation cases
        occurred between October 1, 2007 and February 8, 2008:
 
 **A.
        Enable Growth Partners, Enable Opportunity Partners, and Pierce Diversified
        Strategy Master Fund (collectively “Enable”)
        v. Composite
        Technology Corporation:**
 
 On
        November 7, 2007 oral arguments were heard on Composite Technology Corporation’s
        motion to dismiss and the presiding judge reserved decision on the motion,
        extended our stay of discovery, and did not provide guidance on the timing
        of
        his decision regarding the motion to dismiss. No additional hearings are
        scheduled in this matter at this time.
 
 **B.
        FKI Engineering Ltd., FKI plc, and Brush Electrical Machines Ltd (collectively
        “FKI”)
        v. the Company
        and certain of its wind segment subsidiaries (here referred to as “DeWind”)**
 
 Between
        May, 2007 and November, 2007 work was performed on the statutory audits
        underlying the claim between DeWind and FKI and which have not been completed
        pending resolution of the capital accounts issue. During these audits, the
        auditors have identified issues relating to the capital reserve accounts
        and
        what DeWind claims were improper loan repayments of the German subsidiary
        prior
        to the sale of DeWind by FKI. DeWind believes these issues provide additional
        support to the Company’s claims.
 
 The
        resolution of the capital reserve accounts issues is not reasonably estimable
        at
        this time and no contingent asset has been recorded to date for any future
        funds
        potentially receivable from FKI, if any, to resolve the capital reserve account
        issues.   In the event that the auditors cannot complete their audit
        due to issues relating to the capital account of the German subsidiary or
        in the
        event that no statement as referred to above, and if required, is forthcoming,
        then the German subsidiary will have to pursue litigation to correct
        discrepancies in its capital reserve accounts.
 
 On
        December, 7, 2007 a hearing was conducted to hear arguments on FKI’s motion for
        summary judgment of their claims for the FKI bond calls and the Brush claim.
        FKI
        received approval of a summary judgment on their positions consisting of
        a net
        judgment of 1,415,000 Euros plus interest and costs estimated at approximately
        164,000 Euros on the FKI bond call claim and 650,000 Euros plus interest
        and
        costs of approximately 115,000 Euros for a total judgment of approximately
        2,344,000 Euros ($3,422,000 at December 31, 2007 exchange rates) which is
        recorded in accrued liabilities at December 31, 2007. During
        the quarter ended December 31, 2007 DeWind recorded an additional 234,435
        Euros
        ($342,346 at December 31, 2007 exchange rates) to properly accrue for the
        balances approved at the summary judgment hearing.


19




Subsequent
          to the December 7, 2007 hearing, FKI and DeWind agreed to meet in January,
          2008
          to resolve all differences related to the FKI bond claim, the Brush Claim,
          and
          the Capital Accounts claim. We conducted settlement talks in January, 2008
          without reaching agreement on all issues. Subsequent to these talks, the
          Company
          agreed to make a 153,000 Euro ($219,000 at December 31, 2007 exchange rates)
          progress payment on the FKI claims in exchange for additional time to prepare
          a
          revised settlement proposal that will be provided to FKI on or prior to
          February
          15, 2008. In exchange, FKI agreed to delay the enforcement of the collection
          of
          the amounts due to FKI under their adjudicated claims.
  **C.**  **Zephyr
          GmbH & Co. KG v. DeWind GmbH**
 
 There
          were no changes to the Zephyr case between October 1, 2007 and February
          8,
          2008.
 
 20




**NOTE
      11 – RELATED PARTIES**





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





·
            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, 2007, we recorded a total of $125,000 in fees related
      to these transactions and out of pocket patent fees and expenses of $73,714.
      All
      balances were expensed to Research and Development expenses. As of December
      31,
      2007, we had a balance due of $57,885 to TMA and TMG combined.





**NOTE
      12 - SUBSEQUENT EVENTS**





On
      January 31, 2008, the Company’s wholly owned subsidiary, DeWind, entered into a
      turbine purchase agreement with S&M CZ s.r.o. to buy a total of 40 DeWind
      turbines without towers for 61,440,000 Euros ($90,624,000 at January 31, 2008
      exchange rates) for shipment in fiscal 2009. Subject to the terms and conditions
      of the agreement, the entire purchase price is guaranteed by the customer’s
      bank.





21





**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, 2007 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 14, 2007.





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 our Annual Report on Form 10-K for the fiscal year ended September
      30, 2007. All forward-looking statements are based on information currently
      available to the Company, 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 TM conductors and related ACCC hardware products for electrical transmission
        lines.
        ACCC conductor 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 four cable manufacturers in Canada, Belgium, China or Bahrain
        where the core is stranded with conductive aluminum to become ACCC conductor.
        ACCC conductor is sold both through distribution agreements with General
        Cable
        in the US and Canada, Midal in the Middle East, and Jiang-su New Far East
        in
        China as well as directly by CTC Cable to utility customers. ACCC conductor
        has
        been sold commercially since 2005 and is currently marketed worldwide to
        electrical utilities and transmission companies.





**DEVELOPMENTS
      THIS QUARTER**





The
      Cable
      Division returned to profitability during the quarter with operating income
      of
      $2.2 million for operating margins of 20% on a record $11 million in ACCC
      product related sales, which represents delivery of over 1,100 kilometers of
      ACCC product shipped. Gross margins improved to 38% or $4.2 million, which
      was
      the result of an increased proportion of sales of higher margin ACCC core as
      compared to prior periods, which were primarily wrapped ACCC conductor products.
      Cable revenues increased 670% from $1.6 million in the December 2006 quarter,
      operating income increased $3.8 million from a loss of $1.6 million and on
      a
      non-GAAP basis, earnings before interest, taxes, depreciation &
amortization, and SFAS 123r stock compensation charges (EBITDAS) increased
      $3.8
      million from a $1.3 million EBITDAS loss in the prior year’s quarter to $2.5
      million, or 23% of revenues in the December 2007 quarter. Sequentially, revenues
      increased 257% from $4.3 million in the September 2007 quarter, operating income
      increased $3.7 million from a $1.5 million operating loss, and EBITDAS increased
      $3.5 million from a $1.0 million EBITDAS loss in the September 2007 quarter.
      Management believes that the results of the Cable division during the quarter
      represent continued support of the viability of the CTC Cable business model
      demonstrating that this business has the capacity to generate substantial gross
      profit margins on a relatively fixed expense structure.




22




Management’s
      focus of the cable operations during the quarter was to execute on our revenues
      and earnings growth strategy by continuing to fulfill our existing customer
      backlog, to expand our customer base beyond our existing U.S. and China
      customers, and to help facilitate the certification of Jiang-su Far East
      to strand our ACCC core product.




Our
        December 2007 quarterly revenues and profitability results are due to the
        successful execution of the fulfillment of the orders under our January 2007
        agreement with Jiang-su New Far East. During the quarter, we continued to
        develop this relationship by granting Jiang-su New Far East preliminary
        certification to strand our ACCC core with aluminum to produce ACCC conductor.
        The expectation of this preliminary certification resulted in our allowing
        Jiang-su New Far East to purchase ACCC core products beginning with orders
        placed in September 2007 for deliveries within the December 2007 quarter.
        Final
        certification is contingent upon the successful review of Jiang-su New Far
        East’s operations in China, which is currently underway. The granting of their
        stranding certification is an important milestone in that it provides economic
        advantages for both CTC Cable and Jiang-su New Far East by transitioning
        the
        sales relationship to a purchase of ACCC core as compared to the stranded
        ACCC
        conductor sales of past reporting periods. While it results in a lower average
        sales price per kilometer sold, sales of ACCC core have much greater gross
        profit percentage margins, have significantly reduced shipping time and costs
        and result in a much faster order to cash cycle for CTC Cable. This in turn
        allows for a much greater utilization of working capital. To date, Jiang-su
        New
        Far East has ordered in excess of their contracted minimum order levels of
        600
        kilometers per quarter. Beginning with the quarter ending March 31, 2008,
        the
        order minimums increase to 900 kilometers per quarter, expected to be primarily
        higher margin ACCC core orders.
 
 We
        continued our efforts to expand our customer base beyond China during the
        quarter. In the US, in November 2007, we hired Tom Smith as our Chief Strategy
        and Business Development Officer to help our lagging US sales and marketing
        efforts and to help deploy our new marketing message developed at the end
        of
        fiscal 2007. Mr. Smith is a seasoned energy executive with extensive experience
        at large publicly traded electric utilities. His focus will be to refine
        the
        marketing message to focus on the inherent efficiency, line loss savings,
        and
        positive greenhouse gas benefits (gained through reduction in power generation)
        of our ACCC conductor product as compared to traditional ACSR and to push
        this
        message to the larger US utilities, utility regulators, and transmission
        companies.
 
 Until
        December 31, 2007, we had an exclusive manufacturing and distribution agreement
        with General Cable. In December 2007 and prior to the expiration date, we
        mutually agreed to extend the agreement for three months to allow for time
        to
        renegotiate the agreements. We value our relationship with General Cable,
        and we
        expect to continue to have General Cable provide manufacturing and distribution
        services for our ACCC products, but on a non-exclusive basis.
 
 Internationally,
        we had success in opening up two new markets in Chile and in Eastern Europe,
        and
        we accepted ACCC product orders from customers in both of these locations
        in
        January 2008. We are in the process of fulfilling and finalizing those orders,
        expected to be shipped in the March, 2008 quarter but which are not included
        in
        our backlog total due to a lack of customer payment history. We also continued
        the conductor type certification process in multiple additional geographical
        areas including the UK, France, Eastern Europe, Mexico, Indonesia, and the
        Middle East. We are seeing significantly increased inquiry levels from these
        and
        other potential markets.
 
 We
        currently have $8.2 million in confirmed order backlog for our CTC Cable
        segment, primarily for ACCC conductor and ACCC core sales to China, South
        America, and Eastern Europe. This figure is prior to the completion of the
        March
        2008 quarter’s minimum orders from Jiang-su New Far East. Under the terms of the
        2007 contract, for the March 2008 quarter, Jiang-su New Far East is expected
        to
        order an additional minimum of 500 kilometers of ACCC products with a value
        at
        core sales prices estimated between $3 million and $5 million depending on
        the
        ACCC core size ordered.


**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, Irvine, California 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.




23




**DEVELOPMENTS
      THIS QUARTER**





We
      continued to execute in our DeWind division during the December quarter on
      multiple fronts including turbine sales, certification of our D8.2 prototypes,
      and turbine production matters.





We
      made
      substantial progress towards the sales and marketing of our DeWind D8 and D8.2
      turbines. We recorded turbine revenues of $6.6 million during the quarter,
      consisting primarily of two D8 turbines sold to our customer in the Czech
      Republic and two D4 turbines remaining from inventory acquired during the EU
      Energy acquisition. With these sales, substantially all of the acquisition
      inventory has been sold. We elected to defer the recognition of revenues on
      approximately $3.3 million of revenue related to our first commercial D8.2
      unit
      delivered to our customer in Argentina. This turbine was fully commissioned
      in
      January 2008 and will be recognized as revenue in the March 2008
      quarter.





Our
      order
      backlog at the end of January 2008 consisted of approximately $140 million
      of
      orders for 60 wind turbines representing nearly 115 megawatts of wind
      generation. Our backlog consists of 51 D8 units, seven D6 units, and two
      commercial D8.2 units including one 50 hertz D8.2 unit delivered to Argentina
      and one 60 hertz unit to be delivered to a wind farm site in the U.S. Our
      backlog increased significantly in January 2008 with the announcement of a
      40
      unit D8 order to an existing customer located in the Czech Republic worth 61.4
      million Euros ($90.9 million at January 30, 2008 exchange rates). The units
      are
      sold without towers at a price point of 1.55 million Euros each ($2.29 million
      at January 30, 2008 exchange rates). The cost of a turbine tower is
      approximately $450,000 for a comparable price point of $2.7 million per turbine
      with towers, or $1.35 million per megawatt of generation. This price point
      represents a significant increase in the contracted turbine prices and is
      reflective of the very tight market for wind turbines for 2008 and 2009. For
      comparative purposes, the equivalent average quoted sales price of the two
      D8
      units delivered in the December 2007 quarter was approximately $2.0 million
      each, including towers. The price increases are indicative of the prevailing
      market price for turbines and we believe the price increases are driven by
      the
      improving economics of wind farms as a result of the increased demand for clean
      alternative energy.





The
      January 2008 Czech order represents the largest single turbine order ever sold
      by DeWind in its twelve-year history. Delivery for these units is expected
      to
      begin in the December 2008 quarter. Management is currently evaluating the
      capital impact that this order will have on the current working capital levels.
      We expect that DeWind will need to commit significant capital resources for
      advance parts payments beginning in June 2008 for the fulfillment of this order,
      and we have established payment terms under a bank guaranty on the first 16
      units to allow for collection of 45% of the contracted price by June 30, 2008.
      The remaining 24 units will be funded through a similar bank guaranty
      arrangement that is required to be established by March 31, 2008. Management
      expects that, to the extent required, that the bank guaranty will allow for
      DeWind to enter into project financing to provide for additional working
      capital.





We
      continue to be in significant and ongoing negotiations with several parties
      regarding 2008 D8.2 turbine sales. We have received initial “hold fee” payments
      of $2.6 million to date on contracts under negotiation, which represent
      potential turbine sales in excess of $190 million. The deposit balance is
      included in our December 31, 2007 balance sheet under deferred revenues and
      customer deposits. We have not included any balances related to these
      negotiations in our backlog which by our internal policy is defined as an order
      documented under a purchase contract and where payment collectibility is
      reasonably assured through cash deposits, existing customer relationships,
      and/or bank or financing documents.




During
        the quarter, we continued to ramp up our supply chain and turbine fulfillment
        at
        the TECO Westinghouse facility in Round Rock, Texas. In October 2007, TECO
        received the D8.2 60 hertz prototype and completed final assembly of that
        unit
        prior to shipping the prototype to the National Renewable Energy Laboratory
        in
        Boulder, Colorado. In November 2007, TECO began commercial production of
        the
        D8.2 turbine, and we continue to work with TECO to transition the purchasing
        of
        wind turbine components so as to leverage TECO’s more robust supply chain
        control structure.
 
 Our
        turbine development efforts during the quarter consisted primarily of work
        begun
        to enhance and improve upon our blade design and our power train designs
        as well
        as work performed on our D8.2 60 hertz prototype. The prototype was delivered
        to
        the TECO facility in October and then shipped to the NREL facility in November.
        During November and December, the prototype was put through power curve modeling
        and load testing on the NREL test bed. We have received a favorable preliminary
        report of the test results, and a full report is expected to be completed
        shortly. In January, the unit was shipped to the Sweetwater, Texas site.
        Construction delays on the Sweetwater site due to wet weather in December
        and
        excessive winds in January caused a delay in the erection of the D8.2 60
        Hertz
        prototype until late January 2008. The prototype is now erected on the
        Sweetwater site. Due to the weather delays resulting in scheduling of contractor
        work, DeWind is awaiting completion of utility electrical connection and
        telephone internet connection before the turbine can be fully commissioned.
        Full
        commissioning is now expected to be completed in February 2008.




24




**RESULTS
      OF OPERATIONS**





Revenues,
      Cost of Revenues, and Gross Margins:





During
      the quarter ended December 31, 2007, the geographical allocation of consolidated
      revenues was:





Europe
            
            
            33.7
            %China
            
            
            66.3
            %





During
      the quarter, one customer represented 60.4% of revenues, one customer with
      17.9%
      of revenues, one customer with 12.6% of revenues and one customer with 5.1%
      of
      revenues. No other customer represented greater than 5% of consolidated
      revenues.





Our
      revenues and gross margin analysis are listed in the table below.





(unaudited)
            
            Cable
              Segment
              QE 12/31/07
            
            Wind
              Segment
              QE 12/31/07
            
            Total
              QE 12/31/07
            
            Cable
              Segment
              QE 12/31/06
            
            Wind
              Segment
              QE 12/31/06
            
            Total
              QE 12/31/06Product
                Sales –Cable
            
            $
            10,993,963
            
            $
            —
            
            $
            10,993,963
            
            $
            1,643,908
            
            $
            —
            
            $
            1,643,908Product
                Sales – Turbines
            
            
            —
            
            
            6,597,345
            
            
            6,597,345
            
            
            —
            
            
            6,394,625
            
            
            6,394,625Turbine
                Service
            
            
            —
            
            
            594,726
            
            
            594,726
            
            
            —
            
            
            4,994,195
            
            
            4,994,195Total
                Revenues
            
            $
            10,993,963
            
            $
            7,192,071
            
            $
            18,186,034
            
            $
            1,643,908
            
            $
            11,388,820
            
            $
            13,032,728Cost
                of Sales - Cable
            
            $
            6,820,838
            
            $
            —
            
            $
            6,820,838
            
            $
            1,344,558
            
            $
            —
            
            $
            1,344,558Cost
                of Sales – Turbines
            
            
            —
            
            
            6,803,698
            
            
            6,803,698
            
            
            —
            
            
            6,152,858
            
            
            6,152,858Cost
                of Sales – Turbine Service
            
            
            —
            
            
            1,917,418
            
            
            1,917,418
            
            
            —
            
            
            5,313,514
            
            
            5,313,514Total
                Cost of Sales
            
            $
            6,820,838
            
            $
            8,721,116
            
            $
            15,541,954
            
            $
            1,344,558
            
            $
            11,466,372
            
            $
            12,810,930Gross
                Margin - Cable
            
            $
            4,173,125
            
            $
            —
            
            $
            4,173,125
            
            $
            299,350
            
            $
            —
            
            $
            299,350Gross
                Margin % - Cable
            
            
            38.0
            %
            
            —
            
            
            38.0
            %
            
            18.2
            %
            
            —
            
            
            18.2
            %Gross
                Margin – Turbines
            
            
            —
            
            
            (206,353
            )
            
            (206,353
            )
            
            —
            
            
            241,767
            
            
            241,767Gross
                Margin % - Turbines
            
            
            —
            
            
            -3.1
            %
            
            -3.1
            %
            
            —
            
            
            3.8
            %
            
            3.8
            %Gross
                Margin – Turbine Service
            
            
            —
            
            
            (1,322,692
            )
            
            (1,322,692
            )
            
            —
            
            
            (319,319
            )
            
            (319,319
            )Gross
                Margin % - Turbine Service
            
            
            —
            
            
            -222.4
            %
            
            -222.4
            %
            
            —
            
            
            -6.4
            %
            
            -6.4
            %Total
                Gross Margin
            
            $
            4,173,125
            
            $
            (1,529,045
            )
            $
            2,644,080
            
            $
            299,350
            
            $
            (77,552
            )
            $
            221,798Total
                Gross Margin %
            
            
            38.0
            %
            
            -21.3
            %
            
            14.5
            %
            
            18.2
            %
            
            -0.7
            %
            
            1.7
            %





CABLE
      REVENUES. Product revenues for the three months ended December 31, 2007 of
      $11.0
      million consisted of over 1,100 kilometers of ACCC conductor, ACCC core, and
      related ACCC hardware products sold primarily to Jiangsu New Far East Cable
      Company in China. The product sales for the three months ending December 31,
      2006 of $1.6 million represented 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 conductor and related ACCC hardware for
      $1.5 million and US orders totaling $0.1 million.




25




Cost
      of
      Sales and resultant Gross Margin increased from the 2006 quarter to the 2007
      quarter due to the higher revenue levels in 2007. Gross Margin percentages
      increased from 2006 to 2007 due to the higher proportion of 2007 revenues
      resulting from the higher margin ACCC core product. In addition, the 2006
      conductor sales were rush orders which were required to be produced, wrapped,
      and shipped in a much shorter than normal time frame resulting in increased
      costs per unit shipped on a small sales volume.





TURBINE
      REVENUES. Turbine sales for the three months ended December 31, 2007 of $6.6
      million consisted primarily of the sale of 5 megawatts of turbine production
      consisting of two D8 turbines and two D4 turbines totaling $5.5 million and
      parts totaling $1.1 million. Turbine sales for the three months ended December
      31, 2006 of $6.4 million consisted primarily of sales of 5.5 megawatts of
      turbine production consisting of 2 D8 turbines and 2 D6 turbines. Both 2007
      and
      2006 sales were to existing customers in Europe out of our acquired turbine
      stock. 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.





All
      turbines sold for both the 2007 and 2006 quarters were acquired during the
      EU
      Energy Acquisition. Cost of revenues for the turbines sold was determined under
      the guidance of SFAS 141 acquisition accounting which required us to record
      cost
      of sales at liquidation value less a nominal profit margin and an estimate
      of
      these costs through the one year anniversary of the acquisition of July 2006.
      As
      a result, our gross profit for the two quarters is largely this nominal profit
      margin in addition to the margin generated by the other turbine parts and for
      the addition of additional costs required in excess of the estimate made. We
      do
      not believe that these margin percentages are necessarily indicative of future
      profit margins of turbines produced by DeWind subsequent to the
      acquisition.





TURBINE
      SERVICE REVENUES. Turbine service revenues for the three months ended December
      31, 2007 of $0.6 million consisted of amortized deferred service and maintenance
      revenues and service billings related to turbines that were not transferred
      to
      the E Services entity as described below. Turbine service revenues for the
      three
      months ended December 31, 2006 of $5.0 million consisted of the turbine service
      and maintenance billings of the variable interest entity (VIE), E Service.
      In
      the 2006 quarter, all revenues of the E Service VIE were consolidated into
      the
      operations of the Company. Effective January 2007, we no longer
      consolidated the operations into the consolidated financial statements, and
      the
      revenues for the quarter ended December 31, 2007 represent amortized
      deferred maintenance and warranty related revenues in addition to service
      billings for service customers not transferred to the VIE in 2006.




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. The costs in the December
      2006
      quarter represent the costs related to the servicing of the VIE customers.
      The
      costs in the December 2007 quarter represent the service costs for turbines
      under warranty in excess of the amortization of warranty accruals, service
      costs
      related to service billings, and additional availability and warranty accruals
      related to turbines under warranty. Additionally, two turbines under long-term
      warranty contracts had failures that occurred in the September 2007 quarter.
      Management made a strategic decision to delay replacing parts in lieu of
      completing turbines shipped to our customer in the Czech Republic in the
      December quarter. As a result of this decision, we incurred additional service
      costs and accrued availability penalties of approximately $1.0
      million.




OPERATING
      EXPENSES





Operating
      expenses that are specifically identifiable for a given segment are included
      in
      that segment and are describe in further detail below. Operating expenses that
      are related to corporate governance are included in the Corporate
      classification. Corporate expenses are generally expenses related to our
      corporate officers and related compensation, corporate finance and expenses
      related to our public company status including securities related legal expenses
      and settlements, audit fees, and also for general corporate business development
      expenses and strategic intellectual property consulting fees.





Consolidated
      operating expenses increased $1.7 million or 24.3% from $7,020,301 in the three
      month period ended December 31, 2006 to $8,725,184 for the current period.
      The
      increase was due primarily to increased R&D expenses of $1.9M in our DeWind
      segment, offset by a net decrease in other DeWind operating expenses of $0.1
      million and a decrease of $0.1 million in Corporate operating expenses.
      Variances by category are discussed further below.




26






The
      following table provides a comparative analysis of operating
      expenses.





December
                31, 2007
            
            December
                31, 2006Corporate
            
            Cable
            
            DeWind
            
            Total
            
            Corporate
            
            Cable
            
            DeWind
            
            TotalOfficer
                Compensation
            
            $
            254,423
            
            $
            —
            
            $
            —
            
            $
            254,423
            
            $
            247,694
            
            $
            —
            
            $
            —
            
            $
            247,694General
                and Administrative
            
            
            1,092,502
            
            
            403,627
            
            
            1,771,338
            
            
            3,267,467
            
            
            1,222,922
            
            
            425,438
            
            
            2,062,687
            
            
            3,711,047Research
                and Development
            
            
            —
            
            
            679,027
            
            
            2,467,502
            
            
            3,146,529
            
            
            —
            
            
            845,207
            
            
            582,542
            
            
            1,427,749Sales
                and Marketing
            
            
            —
            
            
            711,493
            
            
            465,557
            
            
            1,177,050
            
            
            —
            
            
            483,383
            
            
            378,122
            
            
            861,505Depreciation
                and Amortization
            
            
            —
            
            
            205,899
            
            
            673,816
            
            
            879,715
            
            
            —
            
            
            202,685
            
            
            569,621
            
            
            772,306Total
                Operating Expenses
            
            $
            1,346,925
            
            $
            2,000,046
            
            $
            5,378,213
            
            $
            8,725,184
            
            $
            1,470,616
            
            $
            1,956,713
            
            $
            3,592,972
            
            $
            7,020,301





OFFICER
      COMPENSATION. Officer Compensation represents CTC corporate expenses and
      consists primarily of salaries, consulting fees paid in cash, and the fair
      value
      of stock grants issued to officers of the Company. Officer compensation
      increased slightly by 2.7% or $6,729 from $247,694 for the three months ended
      December 31, 2006 to $254,423 in the current quarter. Current quarter expenses
      include costs for three officers at lower average salaries compared to the
      prior
      year which had two officers at higher average salaries.





GENERAL
      AND ADMINISTRATIVE EXPENSES. General and administrative expenses consisted
      primarily of salaries and employee benefits for administrative personnel,
      facilities costs, stock listing fees, insurance expenses, legal, professional
      and consulting expenses, and expenses related to reserves for uncollectible
      receivables. G&A expense decreased 12% or $443,580 from $3,711,047 for the
      three months ended December 31, 2006 to $3,267,467 for the current period.
      The
      decreases in G&A expenses were due to decreased legal and professional fees
      of approximately $146,000, offset by an increase of $16,000 from Corporate,
      a
      $22,000 decrease in Cable, and a $152,000 decrease from DeWind due primarily
      to
      decreased personnel costs and related overhead.





RESEARCH
      AND DEVELOPMENT EXPENSES. Research and development expenses consisted primarily
      of salaries for engineers, and expenses for consultants, recruiting, supplies,
      equipment, and facilities related to engineering projects to enhance and extend
      our composite materials intellectual property offerings, to complete our DeWind
      D8.2 development and prototypes, and our composite materials product technology
      and production processes.





Research
      and development expenses increased approximately $1,719,000 or 120% from
      $1,427,749 for the three months ended December 31, 2006, to $3,146,529 for
      the
      current period. The increase is attributable to our DeWind segment increase
      of
      $1.9 million, offset by a decrease in our Cable segment of $166,000. The
      increase in DeWind R&D expenses is primarily related to consulting and
      outside engineering costs related to the 60 Hertz US D8.2 prototype including
      testing fees and shipping to the National Renewable Energy Laboratory and
      for site preparation and other costs related to the Sweetwater, Texas prototype
      site.





SALES
      AND
      MARKETING EXPENSE. Sales and marketing expense consisted primarily of salaries
      and commissions for sales and marketing personnel, expenses for consultants,
      equipment, travel, and printed marketing literature and sales materials. For
      the
      quarter ended December 31, 2007, Sales and Marketing expenses increased $315,545
      or 37% from $861,505 in the 2006 quarter to $1,177,050 in the 2007 quarter.
      The
      increase was primarily due to higher expenses in our Cable segment of
      approximately $228,000 as a direct result of increased sales and marketing
      efforts, in line with our increased sales volume, primarily for outside sales
      consultant fees and commissions.





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 $107,409 or 14%, from $772,306 in 2006 to $879,715 in 2007. The
      increase was due primarily to the increased amortization of intangible assets
      from $326,000 in 2006 to $411,044 in 2007.


27


INTEREST
      EXPENSE. Interest expense consists of interest paid and payable on the Company's
      capital lease obligations, the cash interest payable on Company’s Debentures and
      Notes and the amortization of the Convertible Note discount recorded for the
      value of the warrants and conversion features issued in conjunction with the
      Convertible Notes. The increase of 147% or $576,525 from $391,582 in fiscal
      2006
      to $968,107 in fiscal 2007 was primarily due to $684,032 in non-cash
      amortization of debt discount, offset by a decrease of approximately $95,000
      for
      interest payable in cash. As of December 31, 2007, our debt balance consisted
      of
      approximately $10.4 million of principal at 6% interest, with $2.2 million
      of
      unamortized debt discounts, for a net debt balance of $8.2 million.


LITIGATION
        EXPENSE RELATED TO ACQUIRED ENTITY. Litigation expense related to acquired
        entity for the quarter ended December 31, 2007 consists of additional court
        mandated payment accruals required under the FKI litigation case with
        DeWind.


INCOME
      TAXES. We made no provision for income taxes in the three months ending December
      31, 2007 due to net losses incurred. We have determined that due to our
      continuing operating losses as well as the uncertainty of the timing of
      profitability in future periods, we should fully reserve our deferred tax
      assets. As of December 31, 2007, our deferred tax assets continued to be fully
      reserved. We will continue to evaluate, on a quarterly basis, the positive
      and
      negative evidence affecting the realization of our deferred tax assets.




**Net
      Loss**





Our
      net
      income (losses) may be summarized as follows:





**Three months Ended December 31,****2007**
            
            **2006**Corporate
            
            $
            (2,159,695
            )
            $
            (1,857,030
            )Cable
            
            
            2,173,079
            
            
            (1,657,363
            )DeWind
            
            
            (7,384,208
            )
            
            (3,434,931
            )Total
            
            $
            (7,370,824
            )
            $
            (6,949,324
            )





Our
      net
      loss increased $421,500 from $6,949,324 for the three months ended December
      31
      2006 to $7,370,824 for the current period. The increase was due entirely to
      our
      DeWind segment, which had an increased net loss of $3.9 million, offset by
      a
      $303,000 net loss increase in Corporate and a positive $3.8 million increase
      in
      Cable net income to $2.2 million from a $1.7 million net loss recorded in the
      prior year.





The
      Cable
      segment improvement was due to a combination of increased sales volume and
      gross
      margin of $4.2 million at 38.0%, compared to $299,000 at 18.2% for the three
      months ended December 31, 2007 and 2006, respectively. This coupled with
      maintaining consistent operating expenses of approximately $2.0 million over
      both years, resulted in a record quarter for Cable net income.




**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, 2007, we had a net loss of $7.4 million. At
      December 31, 2007, we had $11.6 million of cash and cash equivalents, which
      represented a decrease of $11.6 million from September 30, 2007. The decrease
      was due to cash used by operations of $13.6 million, cash used in investing
      activities for the purchase of property, plant and equipment of $1.1 million,
      offset by $3.7 million provided by financing activities, primarily net proceeds
      of $3.7 million from the exercise of warrants issued in conjunction with our
      convertible note offering in February 2007.





Cash
      used
      by operations during the three months ended December 31, 2007 of $13,642,656
      was
      the result of operating losses, offset by depreciation, amortization, and
      non-cash compensation expenses and working capital requirements, most
      significantly related to the purchase of turbine inventory
      parts.


28


We
      anticipate that sales of our ACCC cable will be insufficient 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, 2007:





Contractual
                Obligations
            
            Total
            
            Less
                than 1year
            
            1-3
                years
            
            3-5
                years
            
            More
                than 5
              YearsDebt
                Obligations
            
            $
            11,966,531
            
            $
            730,348
            
            $
            11,236,183
            
            $
            —
            
            $
            —Capital
                Lease Obligations
            
            $
            72,451
            
            $
            72,451
            
            
            —
            
            
            —
            
            
            —Operating
                Lease Obligations
            
            $
            3,839,850
            
            $
            1,552,584
            
            $
            2,285,610
            
            $
            1,656
            
            
            —Purchase
                Commitments
            
            $
            5,500,000
            
            $
            5,500,000
            
            
            —
            
            
            —
            
            
            —


29


**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, 2007, 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, 2007, we had $11.8 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.





We
      are
      subject to price risks arising from exchange rate fluctuations in the functional
      currency of our European subsidiaries, primarily the Euro and the UK Sterling.
      We currently do not hedge the exchange rate risk related to our assets and
      liabilities and do not hedge the exchange rate risk related to expected future
      operating expenses. For our future sales, we do inherently hedge against the
      exchange rate risk for that portion of our turbine supply chain purchased in
      Euros through a banding process in our turbine supply agreements (TSAs). In
      our
      TSAs with prices denominated in US Dollars, we typically set an exchange rate
      for the Euro. For exchange rate changes greater than approximately a 5% trading
      range, price adjustments are made for the final turbine purchase price when
      the
      closing exchange rate falls outside of the trading band.




**ITEM
      4: CONTROLS AND PROCEDURES**





Based
      on
      an evaluation under the supervision and with the participation of the Company's
      management, including the Chief Executive Officer, the Chief Operating Officer,
      and the Chief Financial 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, 2007 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 quarter ending December 31, 2007, we determined the
      following to be material weaknesses:





Entity
      level Processes and weaknesses. As of December 31, 2007, 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 quarter end.





o
      The
      Company had a one member Audit Committee, and a one member
      Compensation Committee.





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.


30


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.
      ITCs
      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 December 31, 2007, a material
      weakness existed relating to our information technology 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 December 31, 2007, 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.





o
      During
      our assessment, we noted that there were insufficient cycle counts of Turbine
      related parts for our Interim Reporting Periods.





Procure
      to Pay process. During our 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
                quarter.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
                quarterv)
            There
                was a lack of sufficient purchasing reports for management
                review.




Weaknesses
      specific to our DeWind subsidiary:


During
        our assessment, we determined that we did not have a sufficient number of
        accounting personnel trained in US Generally Accepted Accounting Principles
        working in our DeWind subsidiary.
 
 We
        also
        determined that there were several instances during fiscal 2007 where
        information relating to key turbine warranty and turbine service related
        accounting information and operations issues were not communicated to management
        and finance staff on a timely basis, in a consistent report format, or
        incorrectly that resulted in the over reliance on high level detective controls
        and which may result in future material misstatements or a delay in timely
        financial reporting if not remedied. The issues primarily related to the
        turbine
        service and related operations personnel and the service personnel employed
        by
        the E Services entity.




During
      the three months ended December 31, 2007, the Company improved the internal
      control structure and addressed the identified material weaknesses as
      follows:





o
      Added
      two additional accounting and finance personnel to address proper segregation
      of
      duties and inadequate training, including an Accounting Manager at our DeWind
      subsidiary and a Corporate Senior Financial Analyst, both with several years
      of
      finance and accounting experience and graduate level degrees.





o
      The
      Company increased the number of independent members on the Board of Directors
      by
      one with the appointment of John P. Mitola, and now has a two member Audit
      Committee, a two member Compensation Committee, and has had a designated
      financial expert on the Board of Directors since January of 2006.





o
      The
      Company improved its Information Technology Controls with the
      continued implementation of a fully integrated ERP system expected to go live
      in
      the third quarter of the current fiscal year.


31


There
      were no changes in our internal control over financial reporting during the
      quarter ended December 31, 2007 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.




32




**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 14, 2007. See also Note 10 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 14, 2007.
      The
      following should be read in conjunction with the risk factors listed in Form
      10-K filed December 14, 2007.





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 $31.5 million
      in
      ACCC product sales since inception, and we have $37.7 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, 2007 WITH RESPECT TO OUR ABILITY TO CONTINUE AS A GOING CONCERN,
      AND WE MAY NEVER ACHIEVE PROFITABILITY.





Since
      inception, our auditors 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, 2007, we had
      a
      net loss of $7,370,824 and negative cash flows from operations of $13,642,656.
      For the year ended September 30, 2007, we had a net loss of $44,483,482 and
      negative cash flows from operations of $21,839,550. For the fiscal 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
      $12,449,211. 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, 2007, our accumulated deficit was $146,980,261.




33




**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 $2.15 to a low of $0.83. 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
        7 ,
        2008,
        36,657,606 COMMON SHARES ARE ISSUABLE UPON EXERCISE OF ALL OUTSTANDING OPTIONS,
        WARRANTS AND CONVERSION OF CONVERTIBLE NOTES FOR LESS THAN THE MARKET PRICE
        OF
        $1.29 PER SHARE. CASH PROCEEDS RESULTING FROM THE FULL EXERCISE AND CONVERSION
        OF THESE SECURITIES WOULD BE APPROXIMATELY $25,634,196. 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 16.2% TO APPROXIMATELY 262,815,000
        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 7, 2008 market price of $1.29 per share, 36,657,606 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 $125,634,196 and would increase the outstanding common shares
        by
        16.2% to approximately 262,815,000 shares.


34




**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




35





**ITEM
      6 - EXHIBITS**




**EXHIBIT
      INDEX**


Number
              
              Description3.1(1)
              
              Articles
                  of Incorporation of the Company3.2(2)
              
              Certificate
                  of Amendment to Articles of Incorporation3.2(3)
              
              Bylaws
                  of Composite Technology Corporation, as modified January 6,
                  200610.1(4)
              
              Agreement
                  by and among Enertrag AG and EU Energy Ltd. dated as of September
                  27,
                  200610.2(5)
              
              Agreement
                  by and among EU Energy Inc., GE Infrastructure Technology, LLC
                  and GE
                  Infrastructure Technology International Inc. dated as of October
                  6,
                  200610.3(6)
              
              Strategic
                  Alliance Agreement by and between the Registrant and TECO-Westinghouse
                  Motor Company dated as of November 27, 200610.4(7)
              
              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 (English translation)10.5(8)
              
              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, 200710.6(9)
              
              Securities
                  Purchase Agreement dated as of February 12, 2007 by and among the
                  Registrant and the investors set forth therein10.7(9)
              
              Form
                  of Senior Convertible Debenture10.8(9)
              
              Form
                  of Warrant10.9(9)
              
              Registration
                  Rights Agreement dated as of February 12, 2007 by and among the
                  Registrant
                  and the investors set forth therein10.10(10)
              
              Consulting
                  Agreement dated as of April 1, 2007 between the Registrant and
                  Michael Porter. Appointment of Officers10.11(11)
              
              Settlement
                  agreement dated as of May 3, 2007 between DeWind GmbH and De Wind
                  Holdings Limited, each subsidiaries of EU Energy Ltd. which was
                  acquired
                  by the Registrant in July 2006 and FKI plc, FKI Engineering Limited,
                  and
                  Brush Electrical Machines Limited10.12(12)
              
              Securities
                  Purchase Agreement dated as of June 11, 2007 by and among the Registrant
                  and the investors set forth therein10.13(12)
              
              Form
                  of Warrant10.14(12)
              
              Registration
                  Rights Agreement dated as of June 11, 2007 by and among the Registrant
                  and
                  the investors set forth therein10.15(13)
              
              Securities
                  Purchase Agreement dated as of June 18, 2007 by and among the Registrant
                  and the other parties listed therein10.16(13)
              
              Form
                  of Warrant10.17(13)
              
              Registration
                  Rights Agreement dated as of June 18, 2007 by and among the Registrant
                  and
                  the other parties listed therein10.18(13)
              
              Wind
                  Turbine Agreement, dated as of June 15, 2007, by and between DeWind,
                  Inc.
                  and Enerserve Limited10.19(14)
              
              Letter
                  Agreement dated as of October 31, 2007 between the Registrant and
                  John P
                  Mitola10.20(14)
              
              Option
                  Agreement dated as of October 31, 2007 between the Registrant and
                  John P
                  Mitola10.21(15)
              
              Factoring
                  agreement by and between the Registrant and Bradley Rotter dated as
                  of December 31, 2006


36




10.22(16)
              
              Sales
                  Agreement, effective as of January 30, 2008 by and between S&M CZ
                  s.r.o. and DeWind Ltd. (English translation)31.1(17)
              
              Rule
                  13a-14(a) / 15d-14(a)(4) Certification of Chief Executive
                  Officer31.2(17)
              
              Rule
                  13a-14(a) / 15d-14(a)(4) Certification of Chief Financial
                  Officer32.1(17)
              
              Section
                  1350 Certification of Chief Executive Officer32.2(17)
              
              Section
                  1350 Certification of Chief Financial
                  Officer


37




(1)
        Incorporated herein by reference to Form 10-KSB filed as a Form 10-KT with
        the
        U. S. Securities and Exchange Commission on February 14, 2002.
 
 (2)
        Incorporated herein by reference to Form 8-K filed with the U.S. Securities
        and
        Exchange Commission on December 18, 2007.
 
 (3)
        Incorporated herein by reference to Form 8-K filed with the U.S. Securities
        and
        Exchange Commission on January 12, 2006.
 
 (4)
        Incorporated herein by reference to Form 8-K filed with the U.S. Securities
        and
        Exchange Commission on September 27, 2006.
 
 (5)
        Incorporated herein by reference to Form 8-K filed with the U.S. Securities
        and
        Exchange Commission on October 6, 2006.
 
 (6)
        Incorporated herein by reference to Form 8-K filed with the U.S. Securities
        and
        Exchange Commission on November 30, 2006.
 
 (7)
        Incorporated herein by reference to Form 8-K filed with the U.S. Securities
        and
        Exchange Commission on January 25, 2007.
 
 (8)
        Incorporated herein by reference to Form 8-K filed with the U.S. Securities
        and
        Exchange Commission on February 2, 2007.
 
 (9)
        Incorporated herein by reference to Form 8-K filed with the U.S. Securities
        and
        Exchange Commission on February 13, 2007.
 
 (10)
        Incorporated herein by reference to Form 8-K filed with the U.S. Securities
        and
        Exchange Commission on April 10, 2007.
 
 (11)
        Incorporated herein by reference to Form 8-K filed with the U.S. Securities
        and
        Exchange Commission on May 9, 2007.
 
 (12)
        Incorporated herein by reference to Form 8-K filed with the U.S. Securities
        and
        Exchange Commission on June 14, 2007.
 
 (13)
        Incorporated herein by reference to Form 8-K filed with the U.S. Securities
        and
        Exchange Commission on June 21, 2007.
 
 (14)
        Incorporated herein by reference to Form 8-K filed with the U.S. Securities
        and
        Exchange Commission on November 6, 2007.
 
 (15)
        Incorporated herein by reference to Form 10-Q filed with the U.S. Securities
        and
        Exchange Commission on February 14, 2007.
 
 (16)
        Incorporated herein by reference to Form 8-K filed with the U.S. Securities
        and
        Exchange Commission on February 5, 2008.
 
 (17)
        Filed herewith.


38





**SIGNATURE**





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





**COMPOSITE
      TECHNOLOGY CORPORATION**


(Registrant)


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




*February
      11, 2008*




39