**UNITED
        STATES**
 **SECURITIES
        AND EXCHANGE COMMISSION**
 Washington,
        D.C. 20549
 
 **FORM
        10-Q**
 
 **x QUARTERLY
        REPORT
        PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**
 **EXCHANGE
        ACT OF 1934**
 
 **FOR
        THE QUARTERLY PERIOD ENDED MARCH 31, 2008**
 
 **o TRANSITION
        REPORT
        PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**
 **EXCHANGE
        ACT** **OF
        1934**
 
 *COMMISSION
        FILE NUMBER 0-10999*
 
 **COMPOSITE
        TECHNOLOGY CORPORATION**
 (Exact
        Name of Registrant as Specified in Its Charter)
 
 NEVADA
              
              59-2025386State
                  or Other Jurisdiction of
                Incorporation
                  or Organization)
              
              (I.R.S.
                  Employer Identification No.)
 
 2026
                  McGaw Avenue, Irvine, CA
              
              92614(Address
                  of Principal Executive Offices)
              
              (Zip
                  Code)
  (949)
        428-8500
 (Registrant's
        Telephone Number, Including Area Code)
 
 Indicate
        by check mark whether the registrant (1) has filed all reports required to
        be
        filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
        the
        preceding 12 months (or for such shorter period that the registrant was required
        to file such reports), and (2) has been subject to such filing requirements
        for
        the past 90 days. YES xNO o
 
 Indicate
        by check mark whether the registrant is a large accelerated filer, an
        accelerated filer, a non-accelerated filer or a smaller reporting company.
        See definition of “large accelerated filer”, “accelerated filer” and “smaller
        reporting company” in Rule 12b-2 of the Exchange Act. (Check one)
 
 Large
                  accelerated filer o
              Accelerated
                  filer xNon-accelerated
                  filer o(Do not
                  check if a smaller
                  reporting company)
              Smaller
                reporting
                company o
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). YES 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: May 9, 2008
 
 CLASS
              
              NUMBER
                  OF SHARES OUTSTANDINGCommon
                  Stock, par value $0.001 per share
              
              239,886,110
                  shares
 
  
 
 **COMPOSITE
        TECHNOLOGY CORPORATION**
 Form
        10-Q
        for the Quarter ended March 31, 2008
 Table
        of
        Contents
 
 PagePART
                  I – FINANCIAL INFORMATIONItem
                  1  
                  Financial Statements
              3Item
                  2    Management's Discussion and Analysis of Financial
                  Condition and Results of Operations
              27Item
                  3    Quantitative and Qualitative Disclosures About Market
                  Risk
              37Item
                  4    Controls and Procedures
              37PART
                  II – OTHER INFORMATIONItem
                  1    Legal Proceedings
              41Item
                  1A Risk Factors
              41Item
                  2    Unregistered Sales of Equity Securities and the Use of
                  Proceeds
              44Item
                  3    Defaults Upon Senior Securities
              44Item
                  4    Submission of Matters to a Vote of Security
                  Holders
              44Item
                  5    Other Information
              44Item
                  6    Exhibits
              45SIGNATURE
              47INDEX
                  TO EXHIBITS
              45
  2
  **ITEM
        1**
 
 **PART
        1 - FINANCIAL STATEMENTS**
 **COMPOSITE
        TECHNOLOGY CORPORATION**
 **AND
        SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**
 
 March 31, 2008
              
              September 30, 2007(unaudited)ASSETSCURRENT
                  ASSETSCash
                  and Cash Equivalents
              
              $
              3,909,784
              
              $
              22,656,834Restricted
                  Cash
              
              
              200,000
              
              
              —Accounts
                  Receivable, current, net of reserve of $582,157 and
                  $595,980
              
              
              14,252,740
              
              
              7,808,986Inventory,
                  net
              
              
              48,370,597
              
              
              25,701,855Advanced
                  Payments for Turbine Inventory
              
              
              11,327,594
              
              
              12,893,507Assets
                  of Discontinued Operations
              
              
              790,250
              
              
              2,109,394Prepaid
                  expenses and Other Current Assets
              
              
              3,790,634
              
              
              3,499,510Total
                  Current Assets
              
              
              82,641,599
              
              
              74,670,086Long
                  Term Trade Receivables
              
              
              3,371,865
              
              
              2,809,558Property
                  and Equipment, net
              
              
              9,426,616
              
              
              7,942,677Goodwill
              
              
              24,218,539
              
              
              24,218,539Intangible
                  Assets, net
              
              
              22,028,025
              
              
              22,558,600Other
                  Assets
              
              
              571,733
              
              
              635,554TOTAL
                  ASSETS
              
              $
              142,258,377
              
              $
              132,835,014LIABILITIES
                  AND SHAREHOLDERS’ EQUITYCURRENT
                  LIABILITIESAccounts
                  Payable and Other Accrued Liabilities
              
              $
              41,037,871
              
              $
              20,645,794Deferred
                  Revenues and Customer Advances
              
              
              37,533,047
              
              
              35,581,067Warranty
                  Provision
              
              
              14,268,851
              
              
              12,522,837Lease
                  Obligation – Current
              
              
              31,838
              
              
              109,021Total
                  Current Liabilities
              
              
              92,871,607
              
              
              68,858,719LONG
                  TERM LIABILITIESLong
                  Term Portion of Deferred Revenues
              
              
              854,758
              
              
              1,136,404Long-Term
                  Portion of Warranty Provision
              
              
              3,040,261
              
              
              3,292,628Convertible
                  Notes – Long-Term
              
              
              8,571,721
              
              
              9,834,817Total
                  Long-Term Liabilities
              
              
              12,466,740
              
              
              14,263,849Total
                  Liabilities
              
              
              105,338,347
              
              
              83,122,568COMMITMENTS
                  AND CONTINGENCIESSHAREHOLDERS’
                  EQUITYCommon
                  Stock, $.001 par value 600,000,000 shares authorized 226,496,764
                  and
                  221,308,530 issued and outstanding
              
              
              226,496
              
              
              221,308Additional
                  Paid-in Capital
              
              
              196,287,694
              
              
              189,604,754Accumulated
                  Deficit
              
              
              (158,417,255
              )
              
              (139,609,437
              )Accumulated
                  Other Comprehensive Loss
              
              
              (1,176,905
              )
              
              (504,179
              )Total
                  Shareholders’ Equity
              
              
              36,920,030
              
              
              49,712,446TOTAL
                  LIABILITIES AND SHAREHOLDERS’ EQUITY
              
              $
              142,258,377
              
              $
              132,835,014
 
 The
        accompanying notes are an integral part of these financial statements
  3
  **COMPOSITE
        TECHNOLOGY CORPORATION**
 **AND
        SUBSIDIARIES**
 CONSOLIDATED
        STATEMENTS OF OPERATIONS
 FOR
        THE
        THREE MONTHS ENDED MARCH 31, 2008 AND 2007
 (UNAUDITED)
 AND
        FOR
        THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007
 (UNAUDITED)
  Three Months ended
                March 31, 2008
              
              Three Months ended
                March 31, 2007
              
              Six Months ended
                March 31, 2008
              
              Six Months ended
                March 31, 2007Revenue:Product
                  Sales
              
              $
              20,726,314
              
              $
              8,191,091
              
              $
              38,317,622
              
              $
              16,229,624Service
                  Revenue
              
              
              755,126
              
              
              217,342
              
              
              1,349,852
              
              
              1,321,654Total
                  Revenue
              
              
              21,481,440
              
              
              8,408,433
              
              
              39,667,474
              
              
              17,551,278Cost
                  of Product Sold
              
              
              17,482,129
              
              
              6,970,512
              
              
              31,106,665
              
              
              14,467,928Cost
                  of Service Revenue
              
              
              1,403,511
              
              
              1,331,720
              
              
              3,320,929
              
              
              4,032,892Gross
                  margin
              
              
              2,595,800
              
              
              106,201
              
              
              5,239,880
              
              
              (949,542
              )OPERATING
                  EXPENSESOfficer
                  compensation
              
              
              350,829
              
              
              250,002
              
              
              605,252
              
              
              497,696General
                  and administrative
              
              
              3,767,003
              
              
              6,224,215
              
              
              7,376,816
              
              
              9,126,852Research
                  and development
              
              
              6,196,516
              
              
              1,218,362
              
              
              9,343,045
              
              
              2,646,111Sales
                  and Marketing
              
              
              1,289,516
              
              
              892,405
              
              
              2,466,566
              
              
              1,470,250Depreciation
                  & Amortization
              
              
              588,465
              
              
              655,164
              
              
              1,468,180
              
              
              1,282,290Total
                  operating expenses
              
              
              12,192,329
              
              
              9,240,148
              
              
              21,259,859
              
              
              15,023,199LOSS
                  FROM OPERATIONS
              
              
              (9,596,529
              )
              
              (9,133,947
              )
              
              (16,019,979
              )
              
              (15,972,741
              )OTHER
                  INCOME /(EXPENSE)Interest
                  expense
              
              
              (544,612
              )
              
              (1,598,518
              )
              
              (1,512,719
              )
              
              (1,990,100
              )Interest
                  income
              
              
              49,321
              
              
              27,242
              
              
              133,994
              
              
              98,045Other
                  income
              
              
              74,213
              
              
              1,408
              
              
              74,213
              
              
              273,206Expense
                  related to modification of warrants
              
              
              —
              
              
              (285,588
              )
              
              —
              
              
              (285,588
              )Total
                  other income/(expense)
              
              
              (421,078
              )
              
              (1,855,456
              )
              
              (1,304,512
              )
              
              (1,904,437
              )Net
                  Loss from Continuing Operations before Income Taxes
              
              
              (10,017,607
              )
              
              (10,989,403
              )
              
              (17,324,491
              )
              
              (17,877,178
              )Income
                  Taxes
              
              
              (1,300
              )
              
              1,600
              
              
              6,126
              
              
              52,433NET
                  LOSS from Continuing Operations
              
              
              (10,016,307
              )
              
              (10,991,003
              )
              
              (17,330,617
              )
              
              (17,929,611
              )Discontinued
                  Operations (Note 1)Loss
                  from Discontinued Operations (including a net loss on sales of
                  $0 and $0
                  for the three and six months ending March 31, 2008, respectively,
                  and net
                  loss on sales of $0 and $3,889,883 for the three and six months
                  ending
                  March 31, 2007 respectively)
              
              
              1,420,687
              
              
              82,200
              
              
              1,477,201
              
              
              103,634Minority
                  interest in loss of consolidated subsidiary
              
              
              —
              
              
              —
              
              
              —
              
              
              (10,719
              )NET
                  LOSS
              
              
              (11,436,994
              )
              
              (11,073,203
              )
              
              (18,807,818
              )
              
              (18,022,526
              )OTHER
                  COMPREHENSIVE LOSSForeign
                  Currency Translation Adjustment net of tax of $0 , $0, $0, and
                  $0
              
              
              (480,960
              )
              
              (69,235
              )
              
              (672,726
              )
              
              7,421COMPREHENSIVE
                  LOSS
              
              $
              (11,917,954
              )
              $
              (11,142,438
              )
              $
              (19,480,544
              )
              $
              (18,015,105
              )BASIC
                  AND DILUTED LOSS PER SHARELoss
                  from continuing operations
              
              $
              (0.04
              )
              $
              (0.06
              )
              $
              (0.08
              )
              $
              (0.10
              )Loss
                  from discontinued operations
              
              $
              (0.01
              )
              $
              (0.00
              )
              $
              (0.01
              )
              $
              (0.00
              )WEIGHTED-AVERAGE
                  COMMON SHARES OUTSTANDING
              
              
              **226,231,641**
              
              
              **178,880,937**
              
              
              **224,891,754**
              
              
              **178,824,838**
 
 The
        accompanying notes are an integral part of these financial statements.
  4
 
 **COMPOSITE
        TECHNOLOGY CORPORATION**
 **AND
        SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
 **FOR
        THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007**
 
 For
                  the Six Months ending Mar. 31, 2008
              
              For
                  the Six Months ending Mar. 31, 2007(unaudited)
              
              (unaudited)CASH
                  FLOWS FROM OPERATING ACTIVITIESNet
                  loss
              
              $
              (18,807,818
              )
              $
              (18,022,526
              )Loss
                  from discontinued operations
              
              
              1,477,201
              
              
              92,915Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Depreciation
                  & Amortization
              
              
              1,468,180
              
              
              1,282,290Amortization
                  of prepaid expenses paid in stock
              
              
              190,897
              
              
              258,738Interest
                  and deferred finance charge amortization to detachable warrants
                  and fixed
                  conversion features
              
              
              1,019,032
              
              
              1,380,744Expense
                  related to fair value of vested options
              
              
              877,727
              
              
              723,601Issuance
                  of common stock for services
              
              
              —
              
              
              248,500Compensation
                  expense related to modification of stock warrants
              
              
              —
              
              
              478,984Gain
                  on sale of equipment
              
              
              (74,729
              )
              
              —Changes
                  in Assets / Liabilities:Accounts
                  Receivable
              
              
              (7,006,061
              )
              
              (361,990
              )Inventory
              
              
              (22,668,742
              )
              
              (2,208,200
              )Advanced
                  payments for inventory
              
              
              1,565,913
              
              
              —Prepaid
                  expenses
              
              
              (530,533
              )
              
              (195,042
              )Restricted
                  cash
              
              
              (200,000
              )
              
              —Other
                  assets
              
              
              (92,295
              )
              
              163,734Accounts
                  Payable and Accrued expenses
              
              
              20,392,077
              
              
              4,176,962Accrued
                  Warranty Liability
              
              
              1,493,647
              
              
              119,527Deferred
                  revenue
              
              
              1,670,334
              
              
              (2,089,875
              )Cash
                  used in operating activities
              
              
              (19,225,170
              )
              
              (13,951,638
              )CASH
                  FLOW FROM INVESTING ACTIVITIESSale
                  of equipment
              
              
              110,325
              
              
              —Purchase
                  of property and equipment
              
              
              (2,457,140
              )
              
              (3,979,719
              )Cash
                  used in investing activities
              
              
              (2,346,815
              )
              
              (3,979,719
              )CASH
                  FLOW FROM FINANCING ACTIVITIESProceeds
                  from issuance of convertible debentures
              
              
              —
              
              
              21,455,500Proceeds
                  from exercise of warrants
              
              
              3,721,301
              
              
              —Proceeds
                  from Factoring Arrangements
              
              
              —
              
              
              1,800,000Proceeds
                  from Notes Payable
              
              
              —
              
              
              500,000Proceeds
                  from exercise of options
              
              
              11,600
              
              
              5,500Payments
                  on capital lease assets
              
              
              (77,183
              )
              
              (221,151
              )Repayments
                  of Notes Payable and Factoring Arrangements
              
              
              —
              
              
              (2,300,000
              )Cash
                  provided by financing activities
              
              
              3,655,718
              
              
              21,239,849Effect
                  of exchange rate changes on cash from continuing
                  operations
              
              
              (830,783
              )
              
              39,908Net
                  increase/(decrease) in cash and cash equivalents from continuing
                  operations
              
              
              (18,747,050
              )
              
              3,348,400CASH
                  FLOWS FROM DISCONTINUED OPERATIONS:Cash
                  used in operating activities – discontinued
                  operations
              
              
              —
              
              
              171,917Cash
                  used for investing activities – discontinued
                  operations
              
              
              —
              
              
              (281,156
              )Cash
                  used for financing activities – discontinued operations
              
              
              —
              
              
              —Effect
                  of exchange rate changes on cash – discontinued
                  operations
              
              
              —
              
              
              6,024Net
                  increase/(decrease) in cash and cash equivalents from discontinued
                  operations
              
              
              —
              
              
              (103,215
              )Total
                  net increase/(decrease) in cash and cash equivalents
              
              $
              (18,747,050
              )
              $
              3,245,185Cash
                  and cash equivalents at beginning of period – continuing
                  operations
              
              
              22,656,834
              
              
              2,475,132Cash
                  and cash equivalents at beginning of period – discontinued
                  operations
              
              
              —
              
              
              103,215Cash
                  and cash equivalents at beginning of period
              
              $
              22,656,834
              
              $
              2,578,347Cash
                  and cash equivalents at end of period – continuing
                  operations
              
              
              3,909,784
              
              
              5,823,532Cash
                  and cash equivalents at end of period – discontinued
                  operations
              
              
              —
              
              
              —Cash
                  and cash equivalents at end of period
              
              $
              3,909,784
              
              $
              5,823,532SUPPLEMENTAL
                  DISCLOSURES OF CASH FLOW INFORMATIONCASH
                  PAID FOR BANKRUPTCY ITEMS
              
              $
              —
              
              $
              316,592INTEREST
                  PAID
              
              $
              540,102
              
              $
              166,928INCOME
                  TAX PAID
              
              $
              —
              
              $
              1,600
 
 The
        accompanying notes are an integral part of these financial
        statements.
  5
  **Supplemental
        Schedule for Non Cash Financing Activities**
  During
        the first six months of fiscal 2008, the Company issued the
        following:
 
 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
        March,
        2008, the Company issued 339,806 shares of Common Stock for the conversion
        of
        $350,000 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 TM ”
for
        use
        in electric transmission and distribution lines. The Wind segment sells
        electricity generating wind turbines under the brand name DeWind. ACCC conductor
        is commercially available in the United States and Canada, China, Europe,
        the
        Middle East, and South America through direct sales to utilities and through
        distribution and purchase agreements.
 
 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
        our new D8.2 turbine models that are for sale worldwide as well as our D6
        and D8
        turbine models, which are for sale outside of North America.
 
 *Accounting*
 
 The
        accompanying unaudited consolidated financial statements of Composite Technology
        Corporation (the “Company” or “Composite Technology”) have been prepared in
        accordance with accounting principles generally accepted in the United States
        of
        America for interim financial information and with the instructions to Form
        10-Q
        and Rule 10-01 of Regulation S-X. Accordingly, they do not contain all of
        the
        information and footnotes required for complete financial statements. Interim
        information is unaudited; however, in the opinion of the Company's management,
        the accompanying unaudited, consolidated financial statements reflect all
        adjustments (consisting of normal, recurring adjustments) considered necessary
        for a fair presentation of the Company's interim financial information. These
        financial statements and notes should be read in conjunction with the audited
        financial statements of the Company included in the Company's Annual Report
        on
        Form 10-K for the fiscal year ended September 30, 2007 filed with the Securities
        and Exchange Commission on December 14, 2007.
 
 *Discontinued
        Operations*
 
 On
        October 1, 2006, the Company’s wholly owned subsidiary, EU Energy Service GmbH
        (EUES) entered into a recapitalization arrangement whereby 50% of the voting
        stock of EUES was sold to Enertrag AG, a turbine service customer of EUES
        and a
        new entity was created, called E Service. The new entity was operated under
        joint control of both Enertrag and DeWind executives during the quarter ended
        December 31, 2006.
 
 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.
  7
 
 On
        January 19, 2007 we agreed to amend our agreement between Enertrag AG that
        formed our E Services venture. This resulted in a decrease in our share of
        E
        Services share capital to 24.9%. Upon review of the new arrangement, the
        Company
        determined that E Services no longer met the reporting requirements for Variable
        Interest Entities under FIN 46R. As a result, effective as of January 19,
        2007,
        the Company has been recording its interest in E Service as an investment
        using
        the equity reporting method rather than consolidating the assets, liabilities,
        and operations of E Service with those of the Company.
 
 On
        April
        3, 2008 the Company and Enertrag closed the sale of the remaining 24.9%
        ownership in E Services for 500,000 Euros ($790,250 at March 31, 2008 exchange
        rates). The consolidated financial statements of Composite Technology
        Corporation have been restated to present the E Services operations, assets
        and
        liabilities as discontinued operations.
 
 The
        assets and liabilities of E Services, which consist solely of assets and
        no
        liabilities, have been classified on the balance sheet as net assets of
        discontinued operations.
 
 March 31,
                2008
              
              September
                30,2007Net
                  assets of discontinued operations
              
              $
              790,250
              
              $
              2,109,394
 
 The
        net
        income from operations of E Services has been classified on the statement
        of
        income as loss from discontinued operations. Summarized results of discontinued
        operations are as follows:
 
 Three
                  months ended
                March
                  31,
              
              Six
                  months ended
                March
                  31,2008
              
              2007
              
              2008
              
              2007Service
                  Revenues
              
              $
              —
              
              $
              —
              
              $
              —
              
              $
              3,889,883Cost
                  of Service Revenues
              
              
              —
              
              
              —
              
              
              —
              
              
              2,612,343Selling,
                  General & Administrative Expenses
              
              
              —
              
              
              —
              
              
              —
              
              
              1,237,249Other
                  Expenses
              
              
              —
              
              
              —
              
              
              —
              
              
              61,725Losses
                  from unconsolidated subsidiary accounted for under the equity
                  method
              
              
              —
              
              
              82,200
              
              
              56,514
              
              
              82,200Impairment
                  of long term assets
              
              
              1,420,687
              
              
              —
              
              
              1,420,687
              
              
              —Minority
                  Interest in loss of consolidated subsidiary
              
              
              —
              
              
              —
              
              
              —
              
              
              (10,719
              )Loss
                  from discontinued operations
              
              $
              1,420,687
              
              $
              82,200
              
              $
              1,477,201
              
              $
              92,915
  8
 
 E
        Services had previously been accounted for as a Variable Interest Entity
        (VIE)
        in past accounting periods. For the three months ending December 31, 2006,
        the
        operations were consolidated into the operations of the Company. In January,
        2007, the ownership ratio of E Services decreased to 24.9%, the operations
        were
        no longer consolidated and the VIE was accounted for under the equity method.
        The impairment loss recorded during the three and six months ended March
        31,
        2008 represents the writedown of the investment to the $790,250 sales value.
        Since October 1, 2006 E Services was operated as a stand-alone entity, generated
        no continuing cash flows and neither the Company nor any of its subsidiaries
        made any allocation of overhead including interest expense. No material
        contingent liabilities were retained after the disposal and no material
        operations activities occurred between March 31, 2008 and the disposal
        date.
  **REVENUE
          RECOGNITION**
 
 Revenues
          are recognized based on guidance provided in the Securities and Exchange
          Commission (SEC) Staff Accounting Bulletin No. 104 “Revenue Recognition in
          Financial Statements,” as amended (SAB 104). Accordingly, our general revenue
          recognition policy is to recognize revenue when there is persuasive evidence
          of
          an arrangement, the sales price is fixed or determinable, collection of
          the
          related receivable is reasonably assured, and delivery has occurred or
          services
          have been rendered.
  The
          Company derives, or seeks to derive revenues from following
          sources:
 
 (1)
          Product revenue which includes revenue from
 a)
          the
          sale of composite core, stranded composite core, core and stranded core
          hardware, and other electric utility related products.
 b)
          the
          sale of electrical generation turbines, related turbine parts, and license
          royalties on turbines sold by third parties
 
 (2)
          Service revenue which includes revenue from the service and maintenance
          of
          turbine generators under service contracts or revenue from billings on
          a cost
          and materials basis.
 
 In
          addition to the above general revenue recognition principles prescribed
          by SAB
          104, our specific revenue recognition policies for each revenue
          source:
 
 PRODUCT
          REVENUES. Product revenues are recognized when product shipment has been
          made
          and title has passed to the end user customer. Product revenues consist
          primarily of revenue from the sale of: (i) stranded composite core and
          related
          hardware to utilities either sold directly by the Company or through a
          distribution agreement, ii) composite core and related hardware sold to
          a cable
          stranding entity, or iii) turbines, turbine parts, or license rights sold
          to wind farm operators, utilities, and technology licensees. Revenues are
          deferred for product contracts where the Company is required to perform
          installation services until after the installation is complete. Our distribution
          agreements are structured so that our revenue cycle is complete upon shipment
          and title transfer of products to the distributor with no right of
          return.
 
 CTC
          Cable
          sales for the three and six months ended March 31, 2007 and 2008 consisted
          of
          stranded ACCC conductor and ACCC hardware sold to end user utilities, sales
          of
          ACCC conductor sold to our Chinese distributor, and sales of ACCC conductor
          core
          and ACCC hardware to two of our stranding manufacturers. All ACCC related
          product sales were recognized upon delivery of product and transfer of
          title.
          There is no right of return for sales of ACCC conductor or ACCC core to
          our
          Chinese distributor. If sold as ACCC conductor, we offer an insured warranty
          for
          up to seven years. If selected, we reduce the contract value of the sale
          by the
          cost of the insurance policy. Except for the quarter ended March 31, 2008
          when
          we reduced the value of the Polish contract by approximately $450,000 for
          an
          insured, extended warranty, the amount of revenue reduction related to
          conductor
          warranties is insignificant.
 
 DeWind
          Turbine related sales for the three and six months ended March 31, 2007
          and 2008
          consisted of completed and installed wind turbine units, turbine parts,
          and
          license fees. For DeWind turbine revenues, for turbine sales, we recognized
          revenues for completed and installed wind turbine units upon the commissioning,
          or operational viability of each wind turbine unit. We recognized revenues
          on
          turbine parts sales upon delivery to the customer and title transfer. We
          recognized revenues on the license fees upon collection of the license
          fees and
          reporting by the licensee of units sold under each license
          agreement.
 
 For
          turbine sales, our contracted sales typically include the turbine and warranty
          services for up to two years after turbine installation and we offer extended
          warranties for an additional fee. One turbine was sold during the three
          months
          ending March 31, 2008 that did not have a warranty. All other turbines
          sold
          carried a two year warranty. Our turbine sales are documented by turbine
          supply
          agreements that specify the contracted value of the turbine, the warranty
          service period, and the timing of cash payments by our customers. Our
          operational history and the value of extended warranties sold allow us
          to
          provide sufficient vendor specific objective evidence (VSOE) to value the
          warranty included with a wind turbine, generally $25,000 per rated megawatt
          of
          power per year representing expected warranty and availability related
          liabilities during the warranty period. We recognize as revenue the contracted
          turbine value reduced by the value of the warranty portion when the revenue
          cycle is completed as described above. Progress payments and customer deposits
          are recorded as deferred revenues until the revenue cycle is completed.
          Costs
          incurred and turbine materials purchased during the production of turbines
          in
          completion of the revenue cycle are capitalized into inventory. Operating
          expenses, including indirect costs and administrative expenses, are charged
          as
          incurred to periodic income and not allocated to contract costs.  The value
          of the warranty portion determined by the VSOE is deferred and recognized
          ratably over the life of the warranty service period. While we have had
          no
          instances of such contracts for the three and six months ending March 31,
          2007
          or 2008, For multiple element contracts where there is no vendor specific
          objective evidence (VSOE) or third-party evidence that would allow the
          allocation of an arrangement fee amongst various pieces of a multi-element
          contract, fees received in advance of services provided would be recorded
          as
          deferred revenues until additional operational experience or other vendor
          specific objective evidence becomes available, or until the contract is
          completed.
 
 SERVICE
          REVENUES. Service revenues consist of service and maintenance on our wind
          turbines under flat rate contracts, typically billed in advance on an annual
          or
          semi-annual basis on a flat rate, as a full service contract, typically
          calculated as a rate per kilowatt of generation and billed monthly or quarterly
          in arrears, or as a point of sale service call basis billed on a time and
          materials basis. Service revenues are deferred and recognized ratably over
          the
          life of a flat rate service contract, recognized as billed for full service
          contracts, or for point of delivery services, when the service has been
          provided. Direct costs of uncompleted work related to maintenance or repairs
          activity is capitalized and expensed upon completion.  Billings for
          turbines on a time and materials basis are recorded into revenue as the
          services
          are delivered.
 
 **WARRANTY,
          RETROFIT, AND AVAILABILITY PROVISIONS**
 
 Warranty
          provisions consist of the estimates of the costs and liabilities associated
          with
          the post-sale servicing of our DeWind wind turbines. Warranty periods range
          from
          zero to seven years and may include parts-only warranties or parts and
          repair
          services warranties and may or may not include revenue guarantees. Warranty
          conditions are specific to and are governed by the turbine supply agreement
          contract. Warranty related liabilities for time periods in excess of one
          year
          are classified as non-current liabilities. Substantially all of our warranty
          liabilities relate to the turbine warranty liabilities acquired during
          the
          DeWind acquisition in 2006.
 
 We
          use
          the following terms, all of which are accounted for as warranty related
          liabilities:
 
 (1)
                Warranty
                    provisions represent the estimated costs to perform expected
                    future
                    repairs of wind turbines, which are covered under a warranty.
                    We estimate
                    warranty provisions based on the historical cost to provide the
                    services
                    under warranty including monitoring, repairs, parts, and insurance
                    and
                    based on the age of the turbine under warranty. We also include
                    as
                    warranty provisions the estimated losses on “full service” contracts where
                    we provide full service in exchange for a revenue share of the
                    wind power
                    produced. For the three months ended March 31, 2008 our estimated
                    warranty
                    costs averaged approximately $1,600 per turbine per month under
                    warranty
                    and as of March 31, 2008 we had approximately 1,288 turbine – months
                    remaining under warranty. We have also recorded approximately
                    $1.6 million
                    in loss provisions for full service losses in our warranty accrual
                    payable
                    or amortizable over the next ten years. We amortize the estimated
                    warranties ratably over the remaining warranty period against
                    the actual
                    expenses incurred and we amortize the projected loss provisions
                    against
                    the expected future periods of full service
                    losses.
 (2)
                Retrofit
                    provisions represent the estimated future cost to perform significant
                    repairs for known defects in turbines that are expected to be
                    incurred
                    during the warranty period or were obligated to be repaired while
                    a
                    turbine was under warranty. Retrofit costs are estimated based
                    on
                    management’s projection of the costs to repair the known defects on a
                    parts and labor basis. When completed, retrofit provisions are
                    amortized
                    against the actual expenses incurred. All retrofit accruals are
                    recorded
                    as current liabilities.
 (3)
                Availability
                    penalties represent a combination of i) the calculated revenue
                    guarantees
                    under the turbine supply agreement and ii) the estimate of future
                    payments
                    for revenue guarantees. Actual penalties are calculated under
                    the terms of
                    each individual contract and represent the guaranteed value of
                    the wind
                    power generated under the term of the contract. If the turbine
                    delivers
                    less than the rated power determined under the contract, subject
                    to
                    minimum wind conditions, DeWind is obligated under some contracts
                    to
                    reimburse the wind turbine purchaser for the shortfall subject
                    to contract
                    or turbine maximums, as applicable. Actual availability penalties
                    are
                    recorded as current liabilities although the actual penalties
                    are often
                    disputed and negotiated over time, often in excess of one year.
                    Estimated
                    penalties are determined by past availability histories and management
                    estimates of the required revenue reimbursement on a per turbine
                    basis and
                    calculated using the expected availability rate multiplied by
                    the number
                    of months remaining under warranty. Estimated availability penalties
                    are
                    amortized against actual availability penalties incurred ratably
                    over the
                    remaining warranty period. As of March 31, 2008 we accrued estimated
                    availability penalties of approximately $1,900 per turbine per
                    month
                    remaining under warranty. For warranty periods in excess of one
                    year, the
                    estimated availability penalty is recorded as a long term
                    liability.
  *Estimates*
 
 The
        preparation of our financial statements conforms with accounting principles
        generally accepted in the United States of America, which requires management
        to
        make estimates and judgments in applying our accounting policies that have
        an
        important impact on our reported amounts of assets, liabilities, revenue,
        expenses and related disclosures at the date of our financial statements.
        On an
        on-going basis, management evaluates its estimates including those related
        to
        accounts receivable, inventories, stock-based compensation, warranty, retrofit
        and availability provisions and goodwill and intangibles. Management bases
        its
        estimates and judgments on historical experience and on various other factors
        that are believed to be reasonable under the circumstances, the results of
        which
        form the basis for making judgments about the carrying values of assets and
        liabilities that are not readily apparent from other sources. Actual results
        may
        differ from management’s estimates. We believe that the application of our
        critical accounting policies requires significant judgments and estimates
        on the
        part of management.  We
        believe that the estimates, judgments and assumption upon which we rely are
        reasonable based upon information available to us at the time that these
        estimates, judgments and assumptions are made. These estimates, judgments
        and
        assumptions can affect the reported amounts of assets and liabilities as
        of the
        date of the financial statements as 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.
  9
 
 Our
        key
        estimates we use that rely upon management judgment include:
 -
              the
                  estimates pertaining to the likelihood of our accounts receivable
                  collectibility, These estimates primarily rely upon past payment
                  history
                  by customer and management judgment on the likelihood of future
                  payments
                  based on the current business condition of each customer and the
                  general
                  business environment.-
              the
                  estimates pertaining to the valuation of our inventories. These
                  estimates
                  primarily rely upon the current order book for each product in
                  inventory
                  along with management’s expectations and visibility into future sales of
                  each product in inventory.-
              the
                  assumptions used to calculate fair value of our stock based compensation,
                  primarily the volatility component of the Black-Scholes-Merton
                  option
                  pricing model used to value our warrants and our employee and non-employee
                  options. This estimate relies upon the past volatility of our share
                  price
                  over time.-
              the
                  warranty, retrofit and availability provisions for our wind turbines.
                  These estimates rely primarily on the past history of repairs and
                  maintenance, turbine downtime and incurred availability charges
                  as
                  calculated under the terms of each contract, and management judgment
                  on:
                  i) the likelihood of customer claims for availability based on
                  past
                  history, ii) the likelihood of proactively solving or preventing
                  similar
                  repair, warranty, or availability expenses in the future, and iii)
                  the
                  projected recovery of sub-warranty claims, insurance claims, and
                  other
                  mitigating reimbursements.-
              goodwill
                  and intangible valuation. These estimates rely primarily on financial
                  models reviewed by senior management which incorporate business
                  assumptions made by management on the underlying products and technologies
                  acquired in the DeWind acquisition and the likelihood that the
                  values
                  assigned during the initial valuations will be recoverable over
                  time
                  through increased revenues, profits, and enterprise
                  value.
 
 Except
        as
        noted in this document, the methodology and assumptions used for the estimates
        pertaining to the activity during the six months ended March 31, 2008 are
        consistent with those used for the estimates included in our Form 10-K for
        the
        year ended September 30, 2007 filed on December 14, 2007.
 
 *Reclassifications*
 
 Certain
        balances were reclassified to conform with current period
        presentation.
 
 During
        the six months ended March 31, 2008, 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. This balance represents payments
        made to suppliers in advance for inventory not yet received as of the balance
        sheet date.
 
 Additionally,
        during the same period, 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.
  10
 
 *Recent
        Pronouncements*
  **Statement
        No. 141R, “Business Combinations” (SFAS 141R)**
 In
        December 2007, the FASB issued Statement of Financial Accounting Standards
        No. 141R, *Business
        Combinations* (SFAS
        141R). SFAS 141R requires most identifiable assets, liabilities, noncontrolling
        interests, and goodwill acquired in a business combination to be recorded
        at
“full fair value.” SFAS 141R applies to all business combinations, including
        combinations among mutual entities and combinations by contract alone. Under
        Statement 141R, all business combinations will be accounted for by applying
        the
        acquisition method. Statement 141R is effective for business combinations
        for
        which the acquisition date is on or after the beginning of the first annual
        reporting period beginning on or after December 15, 2008. We are currently
        evaluating the impact that SFAS 141R will have on our consolidated financial
        statements.
 
 **Statement
        No. 160, “Non-controlling Interests in Consolidated Financial Statements” (SFAS
        160)**
 In
        December 2007, the FASB issued Statement of Financial Accounting Standards
        No. 160, *Non-controlling
        Interests in Consolidated Financial Statements* (SFAS
        160). SFAS 160 requires the ownership interests in subsidiaries held by parties
        other than the parent to be treated as a separate component of equity and
        be
        clearly identified, labeled, and presented in the consolidated financial
        statements. SFAS 160 is effective for periods beginning on or after
        December 15, 2008. Earlier adoption is prohibited. We are currently
        evaluating the impact that SFAS 160 will have on our consolidated financial
        statements.
 
 **Statement
        No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (SFAS
        161)**
 In
        March,
        2008, the FASB issued Statement of Financial Accounting Standards No. 161, *Disclosures
        about Derivative Instruments and Hedging Activities”* (SFAS
        161). SFAS 161 amends and expands the disclosure requirements of SFAS 133
        by
        providing additional disclosure on the use of derivative instruments including
        qualitative disclosures about fair value amounts of gains and losses on
        derivative instruments, and disclosures about credit-risk-related contingent
        features in derivative agreements. SFAS 161 is effective for periods beginning
        on or after November 15, 2008. We are currently evaluating the impact that
        SFAS
        161 will have on our consolidated financial statements.
  *Significant
        new accounting policies adopted or implemented during the six months ended
        March
        31, 2008*
  **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.
  11
  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 three and six months ended March 31, 2008, the Company’s federal returns
        were selected for examination by the Internal Revenue Service (IRS) for prior
        fiscals years ended September 30, 2001 through 2005, all years in which net
        losses were reported and filed.  As of March 31, 2008, the IRS has not
        proposed any significant adjustments to the Company’s tax positions. Currently,
        the Company is not able 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. Payments relating to any proposed assessments arising from the
        2001
        through 2005 audits will not be made until a final agreement is reached between
        the Company and the IRS on such assessments or upon a final resolution resulting
        from the administrative appeals process or judicial action.
 
 The
        Company recognizes potential accrued interest and penalties related to uncertain
        tax positions in income tax expense. During the three and six months ended
        March
        31, 2008, 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
        statute of limitations prior to September 30, 2008.
 
 **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.
  12
 
 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 and equity issuances
        and historically, the Company has issued registered stock and unregistered,
        restricted stock, stock options, and warrants in settlement of both operational
        and non-operational related liabilities and as a source of funds.
 
 Commercial
        orders: To date, since inception for our Cable products and since the
        acquisition of DeWind, we have received orders for approximately $54 million
        in
        ACCC conductor products and $224 million of Wind turbines. We will require
        a
        significant increase in customer orders at sufficient profit margin levels
        to
        cover our expenses and generate sufficient cash from operations.
 
 There
        is
        no guarantee that our products will be accepted or provide a marketable
        advantage and therefore no guarantee that our products will ever be profitable.
        In addition, management plans to ensure that sufficient capital will be
        available to provide for its capital needs with minimal borrowings and may
        issue
        equity securities to ensure that this is the case. However, there is no
        guarantee that the Company will be successful in obtaining sufficient capital
        through borrowings or selling equity securities. These financial statements
        do
        not include any adjustments to the amounts and classification of assets and
        liabilities that may be necessary should the Company be unable to become
        a going
        concern.
 
 We
        believe our cash position as of March 31, 2008 of $3.9 million and expected
        cash
        flows from revenue orders may not be sufficient to fund operations for the
        next
        four calendar quarters. In May, 2008 we closed a financing transaction for
        an
        equity investment of $10 million with an option for an additional $40 million
        at
        the option of the investor. With the $10 million investment, we anticipate
        that
        additional cash is needed to fund operations beyond August, 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. If the investor were to invest the additional $40 million,
        we
        expect that the total investment of $50 million along with expected cash
        flows
        from revenue orders would be sufficient to fund operations for the next four
        calendar quarters.
  13
  **NOTE
        3 – BALANCE SHEET DETAILS**
 
 *Accounts
        Receivable*
  Accounts
        Receivable consisted of the following at March 31, 2008 and September 30,
        2007:
  March
                  31,
                2008
              
              September
                  30,
                2007(unaudited)Turbine
                  products and service receivables
              
              $
              11,795,239
              
              $
              8,148,472Unbilled
                  receivables
              
              
              2,042,796
              
              
              1,867,009Cable
                  products receivables
              
              
              4,415,496
              
              
              1,199,043Gross
                  Receivables
              
              $
              18,253,531
              
              $
              11,214,524Reserves
              
              
              (628,926
              )
              
              (595,980
              )Net
                  receivables
              
              $
              17,624,605
              
              $
              10,618,544Portion
                  relating to greater than one year, net of reserves of $0 and
                  $0
              
              
              3,371,865
              
              
              2,809,986$
              14,252,740
              
              $
              7,808,986
 
 The
        asset
        unbilled receivables (noted in above table) represents revenue that is
        recognizable due to the performance of services for which billings have not
        been
        generated as of the balance sheet date. In general, amounts become billable
        pursuant to contractual milestones or in accordance with predetermined billing
        schedules.
 
 *Inventories
        and Advanced Payments for Turbine Inventory*
  Inventories
        and advanced payments for turbine inventory consisted of the following at
        March
        31, 2008 and September 30, 2007:
  March 31, 2008
              
              September 30, 2007(unaudited)Raw
                  Materials and Turbine Parts
              
              $
              39,497,251
              
              $
              12,590,808Work
                  in Progress
              
              
              8,755,127
              
              
              10,621,287Finished
                  Goods
              
              
              2,269,892
              
              
              3,984,804Gross
                  Inventory
              
              $
              50,522,270
              
              $
              27,196,899Reserves
              
              
              (2,151,673
              )
              
              (1,495,044
              )Net
                  Inventory
              
              $
              48,370,597
              
              $
              25,701,855Advanced
                  Payments for Turbine Inventory
              
              $
              11,327,594
              
              $
              12,893,507
 
 Advanced
        payments for turbine inventory represents payments made to suppliers in advance
        for inventory not yet received as of the balance sheet date.
  14
 
 *Property
        and Equipment*
  Property
        and equipment consisted of the following at March 31, 2008 and September
        30,
        2007:
  Estimated
                Useful
                  Lives
              
              March 31, 2008
              
              September 30, 2007(unaudited)Office
                  furniture and equipment
              
              
              3-10
                  yrs
              
              $
              1,456,722
              
              $
              1,240,703Production
                  Equipment
              
              
              3-10
                  yrs
              
              
              6,827,058
              
              
              5,923,236Wind
                  Turbines in production
              
              
              20
                  yrs
              
              
              3,699,236
              
              
              3,320,536Automobiles
              
              
              3-5
                  yrs
              
              
              42,230
              
              
              26,301Leasehold
                  improvements
              
              
              7
                  yrs
              
              
              1,252,945
              
              
              424,184Total
                  Property
              
              
              
              
              $
              13,178,191
              
              $
              10,934,960Accumulated
                  Depreciation
              
              
              
              
              
              (3,851,575
              )
              
              (2,994,283
              )Property,
                  net
              
              
              
              
              $
              9,426,616
              
              $
              7,942,677
  *Intangible
        Assets*
  There
        were no additions to our acquisition-related intangible assets during the
        six
        month period ending March 31, 2008. Information regarding our
        acquisition-related intangible assets are as follows:
  **Gross Carrying**
                **Amount**
              
              **Accumulated Amortization**
              
              **Net Carrying**
                **Amount******
              
              **September 30,**
              
              **Sept 30,**
              
              ****
              
              **March 31,**
              
              **March 31,******
              
              **2007**
              
              **2007**
              
              **Amortized**
              
              **2008**
              
              **2008**Supply
                  Agreements
              
              $
              12,347,000
              
              $
              —
              
              $
              (165,000
              )
              $
              (165,000
              )
              $
              12,182,000Tech
                  Transfer Agreements
              
              
              3,131,000
              
              
              —
              
              
              (176,575
              )
              
              (176,575
              )
              
              2,954,425Tradename
              
              
              7,553,000
              
              
              (472,400
              )
              
              (189,000
              )
              
              (661,400
              )
              
              6,891,600Service
                  Contracts
              
              
              1,442,000
              
              
              (1,442,000
              )
              
              —
              
              
              (1,442,000
              )
              
              —Subtotal,
                  Intangible Assets
              
              $
              24,473,000
              
              $
              (1,914,400
              )
              $
              (530,575
              )
              $
              (2,444,975
              )
              $
              22,028,025
  Amortization
        expense of other acquisition-related intangible assets was $530,575 and $652,000
        for the six months
        ended March 31, 2008 and 2007, respectively. Our acquisition-related intangible
        assets are amortized on a per turbine unit shipped basis for the Supply and
        Technology Transfer Agreements, over the life of the underlying service
        contracts expiring through 2009, and on a 20 year straight line basis for
        the
        tradename.
  Estimated
        amortization expense for other acquisition-related intangible assets on our
        March 31, 2008 balance sheet for the fiscal years ending September 30, is
        as follows:
  Remainder
                  of 2008
              
              $
              901,6672009
              
              
              3,506,1082010
              
              
              4,291,7172011
              
              
              4,542,9332012
              
              
              3,595,000Thereafter
              
              
              5,190,600Total
              
              $
              22,028,025
  15
 
 *Accounts
        Payable and Accrued Liabilities*
  Accounts
        Payable and Accrued Liabilities consisted of the following at March 31, 2008
        and
        September 30, 2007:
  March 31, 2008
              
              September 30, 2007(unaudited)Trade
                  Payables
              
              $
              36,375,899
              
              $
              15,161,739Legal
                  Provision
              
              
              1,709,984
              
              
              2,072,434Accrued
                  Acquisition Costs
              
              
              250,000
              
              
              318,502Accrued
                  Payroll
              
              
              985,810
              
              
              1,014,702Accrued
                  Interest
              
              
              207,111
              
              
              —Due
                  to Affilliates
              
              
              1,291,469
              
              
              1,848,521Deferred
                  Rents
              
              
              217,598
              
              
              227,059Other
                  Accruals
              
              
              —
              
              
              2,837Total
                  Accounts Payable and Accrued Liabilities
              
              $
              41,037,871
              
              $
              20,645,794
  *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 March 31, 2008 and September 30, 2007:
  March 31, 2008
              
              September 30, 2007(unaudited)Customer
                  advances on turbines and turbine parts sales
              
              $
              33,309,799
              
              $
              30,352,975Deferred
                  revenues – Other turbine related
              
              
              3,028,486
              
              
              4,030,602Deferred
                  revenues – Cable Sales
              
              
              2,049,520
              
              
              2,333,894Total,
                  Deferred revenues & customer advances
              
              $
              38,387,805
              
              $
              36,717,471Balance
                  included in current liabilities
              
              
              37,533,047
              
              
              35,581,067Long
                  Term Deferred Revenues
              
              $
              854,758
              
              $
              1,136,404
  16
  *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. See also
        Note 1.
  The
        following table sets forth an analysis of warranty reserve activity as of
        March
        31, 2008.
 March
                    31, 2008(unaudited)Balance
                    at September 30, 2007
                
                $
                15,815,465Additional
                    reserves recorded to expense
                
                
                6,038,691Reserves
                    utilized
                
                
                (2,838,644
                )Reserves
                    released for customer settlement
                
                
                (1,706,400
                )Balance
                    at March 31, 2008
                
                $
                17,309,112Less
                    Amount classified as current liabilities
                
                
                14,834,484Long
                    Term Warranty Liability at March 31, 2008
                
                $
                2,474,628
  During
          the quarter ending March 31, 2008 the Company reached a settlement agreement
          with a DeWind customer that resulted in reduction of future warranty, related
          availability, and loss provisions previously estimated at $2.7 million.
          The
          Company reduced the liability to this customer by $1,619,200 reflecting
          the
          change in an estimate of the required warranty exposure for these turbines.
          The
          remaining liability for this customer is payable at approximately $140,000
          per
          year for ten years and the balance remaining in warranty liability of $1,005,000
          represents the discounted present value of the remaining payments due over
          time.
  **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 have been allocated to our two operating segments.
  CTC
        conducts its operations in the following two business segments: CTC Cable
        Division and DeWind Turbine Division. The segments have been organized on
        the
        basis of products. All of each segment’s product revenues relate to external
        customers. See also the analysis in Item 2 Management Discussion and
        Analysis.
  ACCC
        Cable Division
 Located
        in Irvine, California with sales operations in Irvine, California; Shanghai,
        China; Europe, the Middle East, and Brazil, the CTC Cable Division produces
        and
        sells ACCC electrical conductor products and related ACCC hardware products.
        ACCC cable production is a two step process. The Irvine operations produce
        the
        high strength, light weight, reduced sag composite “core” (ACCC core) which is
        then shipped to one of four cable stranding licensees in Canada, Belgium,
        China
        or Bahrain where the core is stranded with conductive aluminum to become
        ACCC
        conductor. ACCC conductor and core are sold through a distribution
        agreement with General Cable in the US and Canada and ACCC conductor and
        core are sold outside the US and Canada directly to utilities as well as
        through license and distribution agreements with Lamifil in Belgium, Jiangsu
        New
        Far East in China and Midal in Bahrain. ACCC cable has been sold commercially
        since 2005 and is currently marketed worldwide to electrical utilities and
        transmission companies.
  17
 
 DeWind
        Turbine Division
 The
        Wind
        division operates under the brand name DeWind. Located in Lubeck Germany
        with
        sales operations in Dallas, Texas and Irvine, California, the DeWind Division
        produces, services, and sells DeWind turbines in the 1.25 and 2.0 Megawatt
        range.
 
 Segment
        information for the three months ended March 31, 2008 and 2007 is as
        follows:
 
 **Corporate**
              
              **Cable**
              
              **Turbine**
              
              **Total****Three
                  Months Ended:****March
                  31, 2008**Revenues
              
              $
              —
              
              $
              10,492,098
              
              $
              10,989,342
              
              $
              21,481,440Operating
                  income (loss)
              
              
              (1,479,870
              )
              
              56,832
              
              
              (8,173,491
              )
              
              (9,596,529
              )Total
                  assets
              
              
              828,355
              
              
              13,698,874
              
              
              127,731,148
              
              
              142,258,377Goodwill
              
              
              —
              
              
              —
              
              
              24,218,539
              
              
              24,218,539Capital
                  expenditures
              
              
              —
              
              
              (933,823
              )
              
              (1,523,317
              )
              
              (2,457,140
              )Depreciation
                  & amortization
              
              
              —
              
              
              204,867
              
              
              383,598
              
              
              588,465**March
                  31, 2007**Revenues
              
              $
              —
              
              $
              2,703,094
              
              $
              5,705,339
              
              $
              8,408,433Operating
                  income (loss)
              
              
              (1,646,829
              )
              
              (880,294
              )
              
              (6,606,824
              )
              
              (9,133,947
              )Total
                  assets
              
              
              5,303,055
              
              
              11,558,627
              
              
              87,399,296
              
              
              104,260,978Goodwill
              
              
              —
              
              
              —
              
              
              25,711,940
              
              
              25,711,940Capital
                  expenditures
              
              
              —
              
              
              (340,411
              )
              
              (3,639,308
              )
              
              (3,979,719
              )Depreciation
                  & amortization
              
              
              —
              
              
              202,945
              
              
              452,219
              
              
              655,164
  The
          Company operates and markets its services and products on a worldwide basis
          with
          its principal markets as follows:
  Three Months EndedMarch 31, 2008
                
                March 31, 2007Revenue
                    allocation by geographic region based on location of
                    customer:
                
                Cable
                
                Turbine
                
                Consolidated
                
                Cable
                
                Turbine
                
                ConsolidatedEurope
                
                $
                6,192,165
                
                $
                2,434,530
                
                $
                8,626,695
                
                $
                —
                
                $
                219,448
                
                $
                219,448China
                
                
                4,188,375
                
                
                5,150,832
                
                
                9,339,207
                
                
                1,100,000
                
                
                5,485,891
                
                
                6,585,891South
                    America
                
                
                68,001
                
                
                3,403,980
                
                
                3,471,981
                
                
                —
                
                
                —
                
                
                —North
                    America
                
                
                43,557
                
                
                —
                
                
                43,557
                
                
                1,603,094
                
                
                —
                
                
                1,603,094Total
                    Revenue
                
                $
                10,492,098
                
                $
                10,989,342
                
                $
                21,481,440
                
                $
                2,703,094
                
                $
                5,705,339
                
                $
                8,408,433
  March 31, 2008
                
                September 30, 2007Long-lived
                    assets (including goodwill and intangible assets) by geographic
                    region
                    based on location of operations:
                
                Cable
                
                Turbine
                
                Consolidated
                
                Cable
                
                Turbine
                
                ConsolidatedEurope
                
                $
                —
                
                $
                52,902,689
                
                $
                52,902,689
                
                $
                —
                
                $
                52,436,786
                
                $
                52,436,786United
                    States
                
                
                2,770,491
                
                
                —
                
                
                2,770,491
                
                
                2,283,030
                
                
                —
                
                
                2,283,030Total
                    long-lived assets (including goodwill and intangible
                    assets)
                
                $
                2,770,491
                
                $
                52,902,689
                
                $
                55,673,180
                
                $
                2,283,030
                
                $
                52,436,786
                
                $
                54,719,816
 
 During
          the quarter, three customers in China represented 43.5% of revenues (two
          customers from our DeWind segment and one customer from our Cable segment
          at
          24.0% and 19.5%, respectively), two customers in Europe with 36.6% of revenues
          (one customer each from DeWind and Cable segments at 7.8% and 28.8%,
          respectively) and one customer (from our DeWind segment) in South America
          with
          15.9% of revenues. No other customer represented greater than 5% of consolidated
          revenues.
 
 **NOTE
        5 – EQUITY BASED COMPENSATION**
 
 The
        Company historically has issued equity based compensation in the form of
        stock
        options to its employees and consultants via option grants. The Company uses
        the
        guidelines of SFAS 123R which requires fair value calculation of the grant
        and a
        recognition of the cost of employee services received in exchange for the
        award
        over the period the employee is required to perform the services.
 
 The
        values of the financial instruments are estimated using the Black-Scholes-Merton
        (Black-Scholes) option pricing model. Key assumptions used during the six
        months
        ended March 31, 2008 and 2007 to value options and warrants granted are as
        follows:
 
 **Six
                  Months Ended****March
                  31,****2008**
              
              **2007**Risk
                  Free Rate of Return
              
              
              3.28-4.29
              %
              
              4.7-4.85
              %Volatility
              
              
              88
              %
              
              83-98
              %Dividend
                  yield
              
              
              0
              %
              
              0
              %Expected
                life
              
              
              0-5
                  yrs
              
              
              0-5
                  yrs
  18
 
 Our
        computation of expected volatility for the six months ended March 31, 2008
        is
        based on historical and volatility over the expected life of the options
        granted. Our computation of expected life is based on historical exercise
        patterns. The interest rate for periods within the contractual life of the
        award
        is based on the U.S. Treasury yield curve in effect at the time of grant.
  On
        March
        29, 2006, the Securities and Exchange Commission published Staff Accounting
        Bulletin No. 107 (SAB 107), which provides the Staff’s views on a variety of
        matters relating to stock-based payments. 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 and six months ending March 31, 2008 and 2007
        is
        as follows:
 
 **Three Months**
                **Ended**
              
              **Three Months**
                **Ended**
              
              **Six Months**
                **Ended**
              
              **Six Months**
                **Ended****March
                  31**
              
              **March
                  31**
              
              **March
                  31**
              
              **March
                  31****2008**
              
              **2007**
              
              **2008**
              
              **2007**Cost
                  of Product Sold
              
              $
              14,818
              
              $
              15,761
              
              
              29,636
              
              $
              46,795Officer
                  Compensation
              
              
              110,253
              
              
              —
              
              
              110,253
              
              
              —Selling
                  and marketing
              
              
              168,588
              
              
              149,989
              
              
              210,096
              
              
              198,826Research
                  and development
              
              
              211,611
              
              
              56,405
              
              
              288,322
              
              
              90,296General
                  and administrative
              
              
              156,187
              
              
              369,027
              
              
              239,419
              
              
              387,684Totals
              
              $
              661,457
              
              $
              591,182
              
              $
              877,727
              
              $
              723,601
 
 As
        of
        March 31, 2008, there was $8.9 million of total unrecognized compensation
        cost
        related to non-vested share-based compensation arrangements related to stock
        options. The costs are expected to be recognized over a weighted-average
        period
        of 2.5 years.
 
 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
        $2,100,000 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 March
        31,
        2008.
 
 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
              )
              $
              0.56OUTSTANDING,
                  March 31, 2008
              
              
              18,648,270
              
              $
              1.09EXERCISABLE,
                  March 31, 2008
              
              
              8,501,771
              
              $
              0.78
  19
 
 The
        weighted-average remaining contractual life of the options outstanding at
        March
        31, 2008 was 3.7 years. The exercise prices of the options outstanding at
        March
        31, 2008 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
              
              
              1,613,216
              
              
              3.7
              
              $
              0.29
              
              $
              0.29$0.50-$0.99
              
              
              2,775,000
              
              
              2,548,333
              
              
              3.7
              
              $
              0.59
              
              $
              0.58$1.00-$1.49
              
              
              10,315,054
              
              
              4,098,722
              
              
              3.7
              
              $
              1.07
              
              $
              1.02$1.50-$2.09
              
              
              3,945,000
              
              
              241,500
              
              
              3.7
              
              $
              1.80
              
              $
              1.92Total
              
              
              18,648,270
              
              
              8,501,771
 
 **NOTE
        6 – EQUITY**
  **COMMON
        STOCK**
 
 During
        the six months ended March 31, 2008 the Company issued a total of 5,188,414
        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
        October, 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.
 
 In
        March,
        2008, the Company issued 339,806 shares of Common Stock for the conversion
        of
        $350,000 of Convertible Debt at a conversion price of $1.03 per
        share.
 
 **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.
  20
  The
        following table summarizes the Warrant activity for the six months ending March
        31 ,
        2008:
  Number
                of
                  Warrants
              
              Weighted-Average
                  Exercise PriceOutstanding,
                  September 30, 2007
              
              
              32,449,107
              
              $
              1.30Granted
              
              
              —
              
              $
              —Exercised
              
              
              3,161,423
              
              $
              1.18Cancelled
              
              
              —
              
              $
              —OUTSTANDING,
                  March 31, 2008
              
              
              29,287,684
              
              $
              1.31EXERCISABLE,
                  March 31, 2008
              
              
              29,287,684
              
              $
              1.31
 
 The
        following table summarizes the warrants issued, outstanding, and exercisable
        as
        of March 31, 2008:
 
 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
  21
 
 (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 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.
 
 (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
 
 On
        May 9,
        2008 we closed an equity transaction that resulted in the triggering of
        anti-dilution protection of the following series resulting in exercise price
        decreases and additional warrant issuances:
 
 March
                31,
                2008
                price
              
              Reset
                price
              
              March31,
                2008
                Warrants
              
              Additional
                Warrants
              
              Reduction in
                Cash ProceedsAugust,
                  2004 Debenture warrants
              
              $
              1.40
              
              $
              1.29
              
              
              3,221,471
              
              
              —
              
              $
              354,605Debenture
                  Amend
              
              $
              1.40
              
              $
              1.29
              
              
              1,083,592
              
              
              —
              
              
              119,195October,
                  2005 DIP Series 1
              
              $
              1.21
              
              $
              1.17
              
              
              996,538
              
              
              34,083
              
              
              —October,
                  2005 DIP Series 2
              
              $
              1.31
              
              $
              1.27
              
              
              1,003,207
              
              
              31,597
              
              
              —2006
                  Series A2
              
              $
              0.99
              
              $
              0.75
              
              
              1,489,399
              
              
              476,608
              
              
              —2007
                  Convertible Debt
              
              $
              1.11
              
              $
              1.06
              
              
              7,367,815
              
              
              —
              
              
              368,3912007
                  Convertible Debt Fees
              
              $
              1.03
              
              $
              1.00
              
              
              1,316,833
              
              
              —
              
              
              39,505June
                  PIPE Series 1
              
              $
              1.39
              
              $
              1.27
              
              
              5,490,100
              
              
              —
              
              
              658,812June
                  PIPE Series 2
              
              $
              1.40
              
              $
              1.28
              
              
              1,564,901
              
              
              —
              
              
              187,788Total
              
              
              
              
              
              
              
              
              
              
              
              542,288
              
              $
              1,728,296
  22
  **LOSS
        PER SHARE**
 
 The
        Company utilizes SFAS No. 128, “Earnings per Share.” Basic loss per share is
        computed by dividing loss available to common shareholders by the
        weighted-average number of common shares outstanding. Diluted loss per share
        is
        computed similar to basic loss per share except that the denominator is
        increased to include the number of additional common shares that would have
        been
        outstanding if the potential common shares had been issued and if the additional
        common shares were dilutive. Common equivalent shares are excluded from the
        computation if their effect is anti-dilutive.
 
 The
        following common stock equivalents were excluded from the calculation of
        diluted
        loss per share for the three and six months ended March 31, 2008 and 2007
        since
        their effect would have been anti-dilutive:
 
 March
                  312008
              
              2007Options
                  for common stock
              
              
              18,648,270
              
              
              15,529,336Warrants
              
              
              29,287,684
              
              
              26,580,274Convertible
                  Debentures, if converted
              
              
              9,800,948
              
              
              26,044,56557,736,902
              
              
              68,154,175
  **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.
  In
        March,
        2008, $350,000 of principal of the February, 2007 convertible debt was converted
        into 339,806 shares of Common Stock at a conversion price of $1.03 per
        share.
 
 A
        total
        of $10,094,973 of principal of the February, 2007 convertible debt remained
        at
        March 31, 2008 convertible at a current conversion price of $1.03 per share
        into
        9,800,948 shares, if fully converted.
  On
        May 9,
        2008 as a result of the equity transaction as described in Note 11, we reset
        the
        conversion price of the remaining $10,037,280 of our Senior Convertible Notes
        from $1.03 to $1.00 per share. The fair value of the additional conversion
        shares will be recorded as additional debt discount to be amortized over
        the
        remaining term of the debt.
  The
        following table summarizes the Company’s debt structure as of March 31, 2008 and September
        30, 2007:
  March 31, 2008
              
              September 30, 2007(unaudited)Senior
                  Convertible 8% Notes due January, 2010 net of discount of $1,523,252
                  and
                  $2,337,656
              
              $
              8,571,721
              
              $
              9,834,817Capital
                  Leases
              
              
              31,838
              
              
              109,021Total
                  Debt
              
              $
              8,603,559
              
              $
              9,943,838Less
                  balance included in current liabilities
              
              
              31,838
              
              
              109,021Long
                  Term Debt
              
              $
              8,571,721
              
              $
              9,834,817
  23
  **NOTE
        8 – COMMITMENT AND CONTINGENCIES**
 
 Please
        refer to the Commitment and Contingencies Note number 17 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 and as updated in the Off Balance Sheet disclosure in Item 2
        below.
 
 During
        the quarter and six months ended March 31, 2008, our purchasing efforts
        increased after having negotiated frame supply contracts during the six months
        ending March 31, 2008 and the prior fiscal year 2007 with numerous vendors
        for
        the purchase of wind turbine components for delivery in fiscal years 2008
        and
        2009. These contracts are considered to be in the ordinary course of business
        under ordinary payment terms. Material purchase commitments as of March 31,
        2008
        are estimated at $10 million. Advanced payments made for turbine inventory
        under
        these contracts are included as a separate line item on our balance sheet,
        which
        totaled $11,327,594 as of March 31, 2008.
 
 **NOTE
        9 – 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 May 12, 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 our motion to dismiss. On
          May 12,
          2008 Justice Bernard J. Fried of the Supreme Court of the State of New
          York
          granted our motion to dismiss and ordered that the case be
          closed.
  **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”); DeWind v. FKI.**
 
 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.
 
 In
        April,
        2008 DeWind filed an amended counterclaim for the capital reserve accounts
        matter against FKI for 37,672,950 Euros ($59,542,210 at March 31, 2008 exchange
        rates) representing loans that DeWind contends were illegally repaid to FKI
        from
        DeWind between June, 2004 and June, 2005, plus statutory interest calculated
        since July, 2006 estimated to be in excess of 3,500,000 Euros ($5,531,750
        at
        March 31, 2008 exchange rates), and inestimable additional attorney and court
        costs, restitution, tax indemnity, and other damages.
 
 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.
  24
  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 ($3,705,000 at March 31, 2008 exchange rates).





Subsequent
      to the December 7, 2007 hearing, FKI and DeWind met 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 made a 153,000
      Euro ($219,000 at January, 2008 exchange rates) progress payment on the FKI
      claims in exchange for additional time to prepare a revised settlement proposal
      that was provided on February 15, 2008. FKI rejected the settlement proposal.
      In
      April, 2008 mediation meetings to explore settlement of the Brush claim were
      held. No settlement was finalized at these meetings. If mediation is
      unsuccessfully, additional legal proceedings on the Brush claim are scheduled
      in
      May, 2008.





Since
      the
      December, 2007 hearing, during the quarter ended March 31, 2008 additional
      court
      costs totaling 265,000 Euros ($419,000 at March 31, 2008 exchange rates)
      primarily related to a change of venue of the capital accounts claim and which
      have been recorded as General and Administrative expense.





FKI
      may
      attempt to enforce collection of the funds due to FKI from two of the Company’s
      subsidiaries for their adjudicated debts due from DeWind GmbH and its holding
      company, DeWind Holdings. If FKI were to do enforce the payment under its
      claims, it may possibly force either or both of these subsidiaries into
      insolvency proceedings under German law if the claims remained unpaid. DeWind
      Holdings is in turn a wholly owned subsidiary of DeWind Turbines, Ltd. which
      is
      in turn a wholly owned subsidiary of Composite Technology Corporation.
      Substantially all of DeWind Holdings’ assets are the shares of DeWind, GmbH.
      DeWind GmbH operates substantially for the purpose of servicing and managing
      the
      warranty liabilities existing for the European wind turbine operations. We
      believe that if the subsidiaries were forced into insolvency that it would
      have
      a minimal impact on the current or expected future operations of our wind
      segment.




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





There
      were no changes to the Zephyr case between October 1, 2007 and May 12,
      2008.





25





**NOTE
      10 – 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
      patent 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 patent and intellectual
                property services for that division.·
            An
                agreement between TMG and EU Energy, a wholly owned subsidiary operating
                as the “wind” division of the Company to provide patent and intellectual
                property services for that division.·
            An
                agreement between TMA and the Company to provide management services
                related to the Company’s technology protection and
                management.





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





For
      the
      three and six months ended March 31, 2008, we recorded consulting fees of
      $125,000 and $250,000, respectively. In addition, we paid $33,185 and $106,899
      of reimbursable expenses for the three and six months ended March 31, 2008,
      representing pass-through expenses for incidental expenses as well as patent
      and
      intellectual property related fees. All balances were expensed to Research
      and
      Development expenses. As of March 31, 2008 we had a balance due of $132,730
      to
      TMA and TMG combined.





**NOTE
      11 - SUBSEQUENT EVENTS**





On
      April
      3, 2008 we sold our remaining 24.9% ownership of E Services to Enertrag for
      500,000 Euros ($790,250 at March 31, 2008 exchange rates). We have classified
      the operations of E Services as discontinued operations in the financial
      statements.





On
      May 5,
      2008 we signed a financing agreement for a senior secured debt facility for
      $5,000,000. The facility is for a term of six months at an interest rate of
      17%
      per annum. Prepayment was permitted so long as the entire six month’s worth of
      interest had been also paid. Fees of $150,000 were paid to the lender to
      establish this agreement and fees of $100,000 were paid to a placement agent.
      The agreement calls for a priority first lien on substantially all of the US
      based assets of the Company on a consolidated basis. On May 5, 2008 we drew
      $2,500,001 of this facility. On May 13, 2008 we repaid the $2,500,001 in
      principal and interest of $212,500 out of the proceeds of our May 9, 2008
      financing described below. We issued 1,125,000 warrants in conjunction with
      this
      financing at an exercise price of $0.99 per warrant valued under the
      Black-Scholes-Merton option pricing model at $0.3947 per warrant using a 3
      year
      term, a volatility of 90%, a risk free rate of 3.5% and a 0% dividend rate.
      We
      will record the fair value of these warrants to interest expense.





On
      May 9,
      2008 we closed the placement of 13,333,333 shares of the Company’s common stock
      at a price per share of $0.75 per share for proceeds of $10,000,000 and we
      issued an option to sell an additional 45,454,545 shares of common stock at
      a
      price of $0.88 per share for possible proceeds of an additional $40,000,000.
      The
      option expires on June 30, 2008. We incurred no placement fees for this
      transaction and an immaterial amount of legal fees for this transaction. As
      a
      result of this transaction, we triggered antidilution protection provisions
      in
      our warrant series’ as described in Note 6 and our remaining $10,037,280 of our
      8% convertible Debentures as described in Note 7.




On
      May
      12, 2008, as discussed in Note 9, Justice Bernard J. Fried of the Supreme Court
      of the State of New York granted our motion to dismiss the Enable v. Composite
      Technology Corporation case and ordered that the case be closed.




26




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





You
      should read the following discussion and analysis of our financial condition
      and
      results of operations together with our interim financial statements and the
      related notes appearing at the beginning of this report. The interim financial
      statements and this Management's Discussion and Analysis of Financial Condition
      and Results of Operations should be read in conjunction with the financial
      statements and notes thereto for the year ended September 30, 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 “Factors That May Affect Future Operating Results” and elsewhere in
      this report and in our Annual Report on Form 10-K for the fiscal year ended
      September 30, 2007. All forward-looking statements are based on information
      currently available to Composite Technology Corporation and we assume no
      obligation to update such forward-looking statements, except as required by
      law.
      Service marks, trademarks and trade names referred to in this Form 10-Q are
      the
      property of their respective owners.





**OVERVIEW**





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





The
      quarter ended March 31, 2008 represented continued progress on our growth
      initiatives in both of our two operating divisions. We continued to lay the
      groundwork for rapid revenue growth in our DeWind Division and we opened up
      key
      new markets for our ACCC products sold in our CTC Cable Division. Subsequent
      to
      the March 31, 2008 quarter end, we closed a significant equity financing
      transaction in order to better capitalize the Company.





**Corporate**


On
      May 5,
      2008 we executed a bridge financing agreement to borrow up to $5,000,000
      with ACF CTC, L.L.C. in two tranches of $2,500,000 each. The agreement is a
      senior secured debt agreement that uses substantially our entire asset base
      as
      secured collateral. We immediately borrowed the first tranche. On May 8, 2008
      we
      closed a financing transaction with Credit Suisse Securities (Europe) Ltd.
      whereby it agreed to immediately invest $10,000,000 in the common stock of
      our company with a further option to invest an additional $40,000,000 upon
      the
      completion of due diligence on the Company. We received these funds on May
      12,
      2008 and repaid the ACF debt on May 13, 2008. The option with Credit Suisse
      expires on June 30, 2008.


We
        believe that the Credit Suisse arrangement has the potential to provide the
        Company with sufficient growth capital for both our DeWind and CTC Cable
        divisions as well as provide the Company with a substantial cash position
        on our
        balance sheet. It has been represented to CTC and DeWind management by potential
        wind turbine customers that one of the key barriers to making large advance
        payments on long term contracts with our DeWind division has been the going
        concern risk that is indicated by a low cash position. We believe that a
        sizable
        cash position is a necessary condition so as to enable wind turbine orders
        of
        sufficient size to benefit from the economies of scale required to allow
        DeWind
        to grow into a profitable business.


27




**ACCC
        Cable Division**
 Located
        in Irvine, California with sales operations in Irvine, California, Shanghai,
        China, Europe, the Middle East, and Brazil, the CTC Cable Division produces
        and
        sells ACCC conductor products and related ACCC hardware products. ACCC conductor
        production is a two step process. The Irvine operations produce the high
        strength, light weight, reduced sag composite “core” (ACCC core) which is then
        shipped to one of three conductor stranding licensees in Canada, Belgium,
        China,
        or Bahrain where the core is stranded with conductive aluminum to become
        ACCC
        conductor. ACCC conductor and core is sold through a distribution agreement
        with
        General Cable in the US and Canada and ACCC conductor is sold directly to
        utilities in the North America as well as the rest of the world. ACCC conductor
        and core is sold outside the US and Canada directly to utilities as well
        as
        through license and distribution agreements with Lamifil in Belgium, Jiangsu
        New
        Far East in China, and Midal in Bahrain. ACCC conductor has been sold
        commercially since 2005 and is currently marketed worldwide to electrical
        utilities and transmission companies.





**RECENT
      DEVELOPMENTS**





The
      Cable
      Division had its second consecutive quarter of profitability on ACCC conductor
      product revenues of $10.5 million. Cable margins of $2.7 million decreased
      to
      26% of revenues due to the fulfillment of a large $6 million, lower margin
      ACCC
      conductor order shipped to the Polish grid during the March quarter as described
      in greater detail below. Cable operating expenses were $2.6 million including
      non-cash stock option and depreciation charges of $0.6 million for positive
      “non-GAAP” EBITDAS (Earnings before Interest, Taxes, Depreciation, and Stock
      charges) of $0.7 million for the quarter. The $10.5 million of revenues
      represented an increase of 288% sequentially over the March, 2007 quarter of
      $2.7 million and the $21.5 million for the six months ending March, 2008
      representing an increase of 394% over the $4.3 million recorded for the prior
      years six month period. Sequentially, our March revenues decreased by $0.5
      million or 4.5% due primarily to China related revenues deferred at the end
      of
      the September, 2007 quarter that were recognized in early October, 2007. At
      the
      end of the quarter at March 31, 2008, we had a non-cancelable order backlog
      for
      our cable products of $11 million including approximately $8 million of high
      margin ACCC core and $3 million of lower margin ACCC conductor and ACCC hardware
      products compared to a non-cancelable order backlog of $8.2 million at the
      end
      of the quarter on December 31, 2007.





The
      following table is a reconciliation of  “non-GAAP” EBITDAS discussed above
      for the three months ended March 31, 2008 and 2007:





**Three months ended Mar 31,****Cable
                Segment Only**
            
            **2008**
            
            **2007**Net
                Income/(Loss)
            
            $
            131,561
            
            $
            (880,294
            )Interest,
                taxes, depreciation, amortization and stock-based compensation
                (ITDAS):Depreciation
                and amortization
            
            
            204,867
            
            
            202,945SFAS
                123R Stock-based compensation
            
            
            407,738
            
            
            368,924Total
                ITDAS
            
            $
            612,605
            
            $
            571,869“Non-GAAP”
                EBITDAS
            
            $
            744,166
            
            $
            (308,425
            )




28





The
      Cable
      division’s sales focus continues to be on developing new relationships in
      targeted markets including Europe, South and Latin America and the Middle East
      and on fulfilling our long term supply agreement with our Chinese conductor
      licensee Jiang-Su New Far East. During the quarter, we successfully opened
      three
      new international markets with initial orders including an initial order that
      represents our single largest order in the history of the Company. Our order
      for
      ACCC conductor for over $6 million to the Polish grid represents the first
      of a
      three-phase project that, if we are awarded phases 2 and 3, could bring in
      excess of $15 million of additional ACCC conductor orders. In order to fulfill
      this order, we incurred additional expenses that increased our costs above
      what
      we expect the potential second and third phases to be. In addition, we
      penetrated two additional markets in Mexico and Chile with initial orders in
      both of these countries that represent substantial opportunities for ACCC
      conductor sales. All three of these new markets represent the culmination of
      several years of testing and certification procedures and opens these markets
      to
      additional orders in the future. We are excited about the opportunities that
      these new markets present and we consider our initial sales to be further proof
      of worldwide adoption of ACCC conductors.





We
      continued our success in China with additional orders and deliveries under
      the
      Jiang-Su New Far East agreement where we now sell higher margin ACCC conductor
      core and ACCC hardware to China as compared to prior quarters where we sold
      lower margin ACCC conductors. We enjoy excellent relations with our Chinese
      ACCC
      licensee. We believe that our business in China will continue to increase over
      time as our superior performance ACCC product is recognized in that market.
      In
      the United States, we are encouraged by our US business prospects despite having
      no US sales during the quarter. We are beginning to achieve results by gaining
      access into the senior decision making ranks of the potential buyers and we
      are
      now quoting much larger US transmission projects which we believe will have
      a
      greater chance of success since there have beenACCC installations that have
      been
      energized for over two years.





The
      focus
      of our cable operations during the three and six month period ending March
      31,
      2008 has been to increase production to manage the large influx of orders from
      our new markets in Poland, Mexico, and South America as well as produce ACCC
      core for deliveries under our China agreement. Our current production capacity
      utilizes eight pultruder machines, each capable of producing up to 700 km of
      core per year. Without expansion, our existing backlog has scheduled the
      production floor through August, 2008. During the quarter and extending into
      the
      June quarter, we are expanding our capacity by adding 10 additional pultruder
      machines, each capable of operating at a faster production rate than our
      existing equipment and retrofitting some of our existing machines to add more
      capacity. At an estimated cost of $1.5 million, the new capacity would
      bring our production capability to in excess of 15,000 km of ACCC core
      production per year.





We
      believe that we have lined up sufficient raw materials supplies for our ACCC
      conductor core to produce our expected ACCC sales worldwide for the next twelve
      months. We will continue to work to expand our ACCC conductor production
      capacity through stranding and manufacturing agreements with targeted
      manufacturers worldwide. As we open new markets and we begin to sell ACCC
      conductor locally, we will look to sign additional agreements with local
      stranding sources. In addition, our manufacturing agreement with General Cable,
      previously an exclusive agreement, lapsed at the end of the December 31, 2007
      quarter. We are beginning the process of negotiating non-exclusive agreements
      with General Cable and other conductor manufacturers to better serve the US
      and
      North American markets.





**DeWind
      Division**


The
      DeWind division operates under the brand name DeWind, which has manufactured
      and
      sold wind turbines since 1995 from Lubeck, Germany. Currently, DeWind is
      operated from the Company’s Irvine offices with sales operations in Irvine,
      California, Dallas, Texas and Lubeck, Germay. Production, Engineering, and
      R&D operations are in Irvine, California and Lubeck, Germany. DeWind has
      contract assembly operations with TECO Westinghouse Motor Co. in Round Rock,
      Texas. 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.





29





**RECENT
      DEVELOPMENTS**





Our
      DeWind March 31, 2008 quarterly revenues of $11 million represents the sale
      of 2
      turbines totaling 3.25 megawatts of generation at an average price of $1.65
      million per megawatt in addition to contribution from license fee and parts
      sales receipts from our Chinese licensees. The price per megawatt is higher
      than
      projected future turbine sales since the quarterly results include the
      recognition of the Argentina D8.2 unit that carried a $1.8 million per megawatt
      price point. Revenues increased 93% over the prior year’s quarter and 53%
      sequentially from the December, 2007 quarter. Turbine related gross margins
      improved sequentially from a negative $0.2 million in the December quarter
      to
      positive $0.5 million in the March, 2008 quarter. The DeWind operating loss
      increased $1.0 million to $8.2 million from the prior quarter’s $7.2 million on
      the net effect of improved margins of $1.5 million, and increased R&D
      expenses of $2.5 million related to our D8.2 prototype.





During
      the March, 2008 quarter and through May 11, 2008 we achieved several key
      milestones towards our initial sales of D8.2 units and added a significant
      order
      to our older D8 technology.





In
      February, 2008 we successfully installed and began tests of our 2 megawatt
      D8.2
      60 hertz US prototype at the Sweetwater, Texas demonstration location. In April,
      2008 we achieved full worldwide DEWI certification for this unit. Partially
      as a
      result of the quick certification and the operating history with our 50 hertz
      prototype in Cuxhaven, Germany. In April, 2008 we were also able to obtain
      a
      complete five year warranty package including sub-warranties for the major
      drive-train components and including full mechanical breakdown coverage
      underwritten by Zurich American Insurance Co. Finally, we believe that the
      closing of the equity financing on May 9, 2008 provides DeWind with a
      substantial financial partner that could eventually provide our potential
      D8.2 customers with sufficient assurance of the financial stability of DeWind.
      We believe that the lack of financial strength, the full certification of the
      new D8.2 unit, and a five year warranty package were the three significant
      barriers to commercialization of the 2 megawatt D8.2 60 hertz turbine.





We
      incurred significant non-recurring expenses on our D8.2 60 hertz prototype
      during the quarter including the costs to test and certify the unit and
      additional costs involved to erect the turbine including the cost of the
      turbine, access roads, concrete pads, installation and electrical infrastructure
      connectivity. We currently have a contract to sell the prototype unit to the
      Texas State Technical College for $2.2 million and we have recorded this balance
      to inventory. The expenses recorded in excess of the expected proceeds were
      charged to Research and Development expense for the March, 2008 quarter. We
      expect to receive the proceeds of the prototype sale after all remaining tests
      are completed in May, 2008 and we expect to record revenues of $2.2 million
      for
      this unit in the June, 2008 quarter.





Our
      significant sales success during the quarter was the sale of 40 D8 turbines
      to
      S&M CZ s.r.o, our existing customer in the Czech Republic for a total of
      61,440,000 Euros ( $97 million at March 31, 2008 exchange rates). The turbines
      were originally scheduled for delivery beginning in late 2008 and 2009. The
      first 16 D8 units are covered under a Bank Guarantee which would allow us to
      draw up to approximately $17 million by the end of June, 2008 as advance
      payments. The drawdown on the January, 2008 order is dependent on the delivery
      of the remaining seven D6 turbine units ordered by this customer in January,
      2007. Delivery on the D6 units has been delayed due to a supply delay on the
      D6
      blades. This D6 blade supply issue is expected to be resolved and the D6 units
      are expected to be shipped in May, 2008. Upon delivery of the D6 units, we
      expect to receive the advance payments on the D8 units.


We
        have
        not as yet closed a substantial sales contract for D8.2 units. Excluding
        the two
        prototype units, we have signed sales contracts for two D8.2 units including
        the
        one unit commissioned in February, 2008 at high elevation in Argentina and
        one
        unit sold in the US and scheduled for delivery later in 2008. As a result
        of the
        lack of sales, during the March, 2008 quarter we substantially slowed our
        purchase of turbine parts that had been previously been ramped up due to
        our
        then expected sales that we had believed were imminent. We believe that
        substantial sales of D8.2 turbines have been hampered by three issues consisting
        of: i) a fully certified turbine, ii) an extended warranty of the D8.2, and
        iii)
        a sufficiently large capitalization to add assurance to customers that the
        Company would continue as a going concern while their ordered turbines are
        delivered and under warranty. As discussed above and with the recently announced
        capital infusion of $10 million common stock issuance with an option for
        a $40
        million additional infusion, we believe that all three of these barriers
        could
        be eliminated.




30


Our
        legacy service and related warranty and availability liabilities issues
        continued in the March 31, 2008 quarter with approximately $2.2 million in
        availability and warranty costs incurred but we began to see results from
        our
        new warranty liability and service management strategy. Subsequent to quarter
        end, we sold the remaining and non-performing 24.9% of the E Services entity.
        During the quarter, we negotiated a settlement with a key customer that formerly
        had been serviced by our existing service provider. We also certified their
        internal service organization to service their own turbines and effective
        on
        February 1, 2008 they have begun to provide service to their own turbines
        and
        have substantially decreased their turbine outages. As part of this negotiation,
        we agreed to forgo collection of certain future “full service” wind generation
        revenue streams and the customer agreed to forgo future availability and
        warranty claims. We agreed to pay this customer approximately $140,000 per
        year
        for ten years as a settlement and we have approximately $1 million accrued
        as a
        warranty liability as of March 31, 2008 representing the discounted value
        of
        this payment stream. As a result of this settlement, we recorded a reduction
        in
        our estimates for this customer’s warranty and availability liabilities of
        approximately $1.6 million, recorded as a reduction in cost of service. We
        intend to continue to negotiate with other customers with turbines under
        warranty in an attempt to resolve all remaining legacy turbines. During the
        quarter ending March 31, 2008 the number of turbine months under warranty
        decreased from 1,764 as of December 31, 2007 to 1,288 months as of March
        31,
        2008 including 167 months reduced under the settlement described above. The
        number of warranty months is expected to decrease to approximately 825 by
        the
        end of December, 2008 through warranty attrition.




In
      April,
      2008 we filed an amended counterclaim against the FKI parties, as discussed
      in
      Note 9 for approximately 36 million Euros ($60 million at March, 2008 exchange
      rates) plus statutory interest and court costs in excess of 3.5 million Euros
      ($5 million).





**RESULTS
      OF OPERATIONS**





Revenues,
      Cost of Revenues, and Gross Margins:





During
      the quarter ended March 31, 2008, the geographical allocation of consolidated
      revenues was:





China
            
            
            43.5
            %Europe
            
            
            40.1
            %South
                America
            
            
            16.2
            %North
                America
            
            
            0.2
            %




During
        the quarter, three customers in China represented 43.5% of revenues (two
        customers from our DeWind segment and one customer from our Cable segment
        at
        24.0% and 19.5%, respectively), two customers in Europe with 36.6% of revenues
        (one customer each from DeWind and Cable segments at 7.8% and 28.8%,
        respectively) and one customer (from our DeWind segment) in South America
        with
        15.9% of revenues. No other customer represented greater than 5% of consolidated
        revenues.





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





Three Months Ended March 31,2008
            
            2007(unaudited)
            
            Cable Segment
            
            Wind Segment
            
            Total
            
            Cable Segment
            
            Wind Segment
            
            TotalProduct
                Sales –Cable
            
            $
            10,492,098
            
            $
            —
            
            $
            10,492,098
            
            $
            2,703,094
            
            $
            —
            
            $
            2,703,094Product
                Sales – Turbines
            
            
            —
            
            
            10,234,216
            
            
            10,234,216
            
            
            —
            
            
            5,487,997
            
            
            5,487,997Other
                Turbine Related Revenue
            
            
            —
            
            
            755,126
            
            
            755,126
            
            
            —
            
            
            217,342
            
            
            217,342Total
                Revenues
            
            $
            10,492,098
            
            $
            10,989,342
            
            $
            21,481,440
            
            $
            2,703,094
            
            $
            5,705,339
            
            $
            8,408,433Cost
                of Sales - Cable
            
            $
            7,786,197
            
            $
            —
            
            $
            7,786,197
            
            $
            1,820,817
            
            $
            —
            
            $
            1,820,817Cost
                of Sales – Turbines
            
            
            —
            
            
            9,695,932
            
            
            9,695,932
            
            
            —
            
            
            5,149,695
            
            
            5,149,695Cost
                of Sales – Turbine Service
            
            
            —
            
            
            1,403,511
            
            
            1,403,511
            
            
            —
            
            
            1,331,720
            
            
            1,331,720Total
                Cost of Sales
            
            $
            7,786,197
            
            $
            11,099,443
            
            $
            18,885,640
            
            $
            1,820,817
            
            $
            6,481,415
            
            $
            8,302,232Gross
                Margin - Cable
            
            $
            2,705,901
            
            $
            —
            
            $
            2,705,901
            
            $
            882,277
            
            $
            —
            
            $
            882,277Gross
                Margin % - Cable
            
            
            25.8
            %
            
            —
            
            
            25.8
            %
            
            32.0
            %
            
            —
            
            
            32.0
            %Gross
                Margin – Turbines
            
            
            —
            
            
            538,284
            
            
            538,284
            
            
            —
            
            
            338,302
            
            
            338,302Gross
                Margin % - Turbines
            
            
            —
            
            
            5.3
            %
            
            5.3
            %
            
            —
            
            
            6.2
            %
            
            6.2
            %Gross
                Margin – Turbine Service
            
            
            —
            
            
            (648,385
            )
            
            (648,385
            )
            
            —
            
            
            (1,114,378
            )
            
            (1,114,378
            )Gross
                Margin % - Turbine Service
            
            
            —
            
            
            -85.9
            %
            
            -85.9
            %
            
            —
            
            
            -512.7
            %
            
            -512.7
            %Total
                Gross Margin
            
            $
            2,705,901
            
            $
            (110,101
            )
            $
            2,595,800
            
            $
            882,277
            
            $
            (776,076
            )
            $
            106,201Total
                Gross Margin %
            
            
            25.8
            %
            
            -1.0
            %
            
            12.1
            %
            
            32.0
            %
            
            -13.6
            %
            
            1.3
            %Six Months Ended March 31,2008
            
            
            2007(unaudited)
            
            
            Cable Segment
            
            
            Wind Segment
            
            
            Total
            
            
            Cable Segment
            
            
            Wind Segment
            
            
            TotalProduct
                Sales –Cable
            
            $
            21,486,061
            
            $
            —
            
            $
            21,486,061
            
            $
            4,347,002
            
            $
            —
            
            $
            4,347,002Product
                Sales – Turbines
            
            
            —
            
            
            16,831,561
            
            
            16,831,561
            
            
            —
            
            
            11,882,622
            
            
            11,882,622Other
                Turbine Related Revenue
            
            
            —
            
            
            1,349,852
            
            
            1,349,852
            
            
            —
            
            
            1,321,654
            
            
            1,321,654Total
                Revenues
            
            
            21,486,061
            
            
            18,181,413
            
            
            39,667,474
            
            $
            4,347,002
            
            $
            13,204,276
            
            $
            17,551,278Cost
                of Sales - Cable
            
            $
            14,607,035
            
            $
            —
            
            $
            14,607,035
            
            $
            3,165,375
            
            $
            —
            
            $
            3,165,375Cost
                of Sales – Turbines
            
            
            —
            
            
            16,499,630
            
            
            16,499,630
            
            
            —
            
            
            11,302,553
            
            
            11,302,553Cost
                of Sales – Turbine Service
            
            
            —
            
            
            3,320,929
            
            
            3,320,929
            
            
            —
            
            
            4,032,892
            
            
            4,032,892Total
                Cost of Sales
            
            
            14,604,035
            
            
            19,820,559
            
            
            34,427,594
            
            $
            3,165,375
            
            $
            15,335,445
            
            $
            18,500,820Gross
                Margin - Cable
            
            $
            6,879,026
            
            $
            —
            
            $
            6,879,026
            
            $
            1,181,627
            
            $
            —
            
            $
            1,181,627Gross
                Margin % - Cable
            
            
            32.0
            %
            
            —
            
            
            32.0
            %
            
            27.2
            %
            
            —
            
            
            27.2
            %Gross
                Margin – Turbines
            
            
            —
            
            
            331,931
            
            
            331,931
            
            
            —
            
            
            580,069
            
            
            580,069Gross
                Margin % - Turbines
            
            
            —
            
            
            2.0
            %
            
            2.0
            %
            
            —
            
            
            4.9
            %
            
            4.9
            %Gross
                Margin – Turbine Service
            
            
            —
            
            
            (1,971,077
            )
            
            (1,971,077
            )
            
            —
            
            
            (2,711,238
            )
            
            (2,711,238
            )Gross
                Margin % - Turbine Service
            
            
            —
            
            
            -146.0
            %
            
            -146.0
            %
            
            —
            
            
            -205.1
            %
            
            -205.1
            %Total
                Gross Margin
            
            $
            6,879,026
            
            $
            (1,639,146
            )
            $
            5,239,880
            
            $
            1,181,627
            
            $
            (2,131,169
            )
            $
            (949,542
            )Total
                Gross Margin %
            
            
            32.0
            %
            
            -9.0
            %
            
            13.2
            %
            
            27.2
            %
            
            -16.1
            %
            
            -5.4
            %





31




CABLE
      REVENUES. Product revenues for the quarter ended March 31, 2008 of $10.5 million
      consisted of over 800 kilometers of ACCC conductor, ACCC core, and related
      ACCC
      hardware products sold primarily to Jiangsu New Far East Cable Company in China
      (over 500 km), and a new customer in Poland, Zircon Poland (over 300 km). Cable
      revenues increased $7.8 million or 288% for the quarter and $17.1 million or
      394% for the six months ended March 31, 2008, compared to the same periods
      in
      prior year. The increases in revenue were primarily due to increases in sales
      to
      China of $3.1 million for the quarter and $12.3 million for the six months
      ended
      March 31, 2008, and sales to Poland for $6.2 million, offset by a decrease
      in
      North American sales by $1.6 million for the quarter and six months ended March
      31, 2008, as compared to the same periods in prior year.





Cost
      of
      Sales and resultant Gross Margin on cable revenues for the three and six months
      ended March 31, 2008 represent materials, labor, freight, and allocated overhead
      costs to produce ACCC conductor and related hardware. Cable gross margin
      increased $1.8 million or 207% for the quarter and $5.7 million or 482% for
      the
      six months ended March 31, 2008, compared to the same periods in prior year.
      Margin percentages for the three months ended March 31, 2008 declined by 6.8%,
      but increased 4.8% for the six months ended March 31, 2008 compared to the
      same
      periods in prior year. The current quarter gross margin decline is primarily
      attributed to our strategic sales to our new Poland customer at discounted
      pricing, which allowed us to open up a new market in our geographic customer
      base. Year to date gross margin improvements are primarily due to a higher
      proportion of current year revenues from higher margin ACCC core
      product.





TURBINE
      REVENUES. Turbine revenues for the quarter ended March 31, 2008 consisted of
      sales of a D6 turbine for $1.7 million to an existing customer in Europe, a
      D8.2
      turbine for $3.4 million to a customer in South America, $4.3 million in turbine
      parts sales and $0.8 million in turbine license sales to China. Turbine revenues
      for the quarter ended March 31, 2007 consisted of $1.7 million of turbine sales
      and $4.0 million of turbine parts sales to China.





Cost
      of
      sales for the quarter ended March 31, 2008 and resultant positive gross margin
      is reflective of the combination of high margin license and parts sales revenues
      to our Chinese partners, low but positive margin sales of the D6 and D8.2
      turbines sold in the quarter, and additional loss provisions recorded related
      to
      delivery delays on the D6 turbines that were delayed to our Czech customer
      due
      to the D6 blade supply problem described above.





Cost
      of
      sales for the turbines and related revenues for the quarter ended December
      31,
      2007 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, the gross profit for that quarter is
      largely this nominal profit margin in addition to the margin generated by the
      sale of other turbine parts and for the addition of additional costs required
      in
      excess of the estimate made for future turbine deliveries. We do not believe
      that these margin percentages are necessarily indicative of future profit
      margins of turbines produced by DeWind subsequent to the acquisition for our
      projected D6 , D8, or D8.2 sales.





TURBINE
      SERVICE REVENUES. Turbine service revenues for the quarter ended March 31,
      2008
      of $0.8 million consisted of amortized deferred service and maintenance revenues
      and service billings related to turbines that were not transferred to the now
      discontinued E Services entity, typically for turbines recently ending their
      warranty periods. Turbine service revenues for the quarter ended March 31,
      2007
      of $0.2 million represents primarily amortization of deferred maintenance
      revenues for those turbines remaining under warranty which were not transferred
      to E Service. The increase in revenues is due to increased service billings
      for
      customers rolling off their warranty period who purchased maintenance services
      subsequent to their warranty termination.




32


Cost
        of
        revenues for turbine service represents the labor, parts, supplies, and overhead
        related to the servicing of turbines and the net effect of changes in our
        turbine availability and warranty provisions. During the quarter ended March
        31,
        2008 we continued to work through the service issues with our European service
        provider but we benefited from the successful negotiation with one our larger
        wind farm operators in Europe resulting in a reduction of warranty loss
        provisions and availability accruals. We negotiated a settlement with a customer
        representing approximately 30% of our turbine install base under warranty
        as
        described above and recorded a corresponding expense reduction of $1.6 million
        to update our estimate of the balances due. Offsetting this decrease were
        costs
        of $3.0 million including $1.4 million for additional availability penalties
        in
        excess of our expected penalties. Additional availability penalties include
        $0.6
        million related to the settled customer of which we may recover $0.3 million
        of
        this estimate; $0.3 million represents availability penalties that we may
        recover through insurance proceeds; $0.3 million represents availability
        penalties for two turbines under repair at March 31, 2008; $0.2 million relates
        to availability penalties for three turbines under repair at December 31,
        2008
        that are now repaired; and $0.3 million represents additional costs related
        to
        seasonally high wind speeds corresponding to increased turbine failure and
        increased penalty bases for availability calculation. We also incurred loss
        provisions of $0.8 million for additional warranty related claims for turbine
        repairs in excess of our estimates and costs incurred for billed services
        of
        $0.8 million. Service margins improved from negative $1.1 million to negative
        $0.6 million despite the higher than expected availability penalties described
        above due to our efforts to cancel unprofitable service customers in Europe
        and
        an increase in paying serviced turbines formerly under
        warranty.





OPERATING
      EXPENSES





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





Consolidated
      operating expenses increased $3.0 million or 32% from $9.2 million in the
      quarter ended March 31, 2007 to $12.2 million in the current quarter, and $6.3
      million or 42% from $15.0 million in the six months ended March 31, 2007 to
      $21.3 million in the current six month period. The overall current quarter
      increase can be attributed to the increase in Cable operations expenses in
      line
      with the significant increase in Cable revenues as discussed above. Cable
      operating expenses increased $0.9 million, offset by decreases in Corporate
      expenses of $0.2 million and an increase in DeWind operating expenses of $2.6
      million primarily related to costs associated with our D8.2 prototype. We do
      not
      expect the additional approximately $6 million of operating expenses related
      to
      the D8.2 prototype incurred over the six monts ending March 31, 2008 to recur.
      Variances by category are discussed further below.





33




The
      following table provides a comparative analysis of operating
      expenses.





Three Months Ended March 31,2008
            
            2007Corporate
            
            Cable
            
            DeWind
            
            Total
            
            Corporate
            
            Cable
            
            DeWind
            
            TotalOfficer
                Compensation
            
            $
            350,829
            
            $
            —
            
            $
            —
            
            $
            350,829
            
            $
            250,002
            
            $
            —
            
            $
            —
            
            $
            250,002General
                and Administrative
            
            
            1,129,041
            
            
            457,653
            
            
            2,180,309
            
            
            3,767,003
            
            
            1,396,827
            
            
            366,953
            
            
            4,460,435
            
            
            6,224,215Research
                and Development
            
            
            —
            
            
            1,029,830
            
            
            5,166,686
            
            
            6,196,516
            
            
            —
            
            
            606,608
            
            
            611,754
            
            
            1,218,362Sales
                and Marketing
            
            
            —
            
            
            956,719
            
            
            332,797
            
            
            1,289,516
            
            
            —
            
            
            586,065
            
            
            306,340
            
            
            892,405Depreciation
                and Amortization
            
            
            —
            
            
            204,867
            
            
            383,598
            
            
            588,465
            
            
            —
            
            
            202,945
            
            
            452,219
            
            
            655,164Total
                Operating Expenses
            
            $
            1,479,870
            
            $
            2,649,069
            
            $
            8,063,390
            
            $
            12,192,329
            
            $
            1,646,829
            
            $
            1,762,571
            
            $
            5,830,748
            
            $
            9,240,148Six Months Ended March 31,2008
            
            2007Corporate
            
            
            Cable
            
            
            DeWind
            
            
            Total
            
            
            Corporate
            
            
            Cable
            
            
            DeWind
            
            
            TotalOfficer
                Compensation
            
            $
            605,252
            
            $
            —
            
            $
            —
            
            $
            605,252
            
            $
            497,696
            
            $
            —
            
            $
            —
            
            $
            497,696General
                and Administrative
            
            
            2,221,543
            
            
            861,280
            
            
            4,293,993
            
            
            7,376,816
            
            
            2,619,749
            
            
            792,391
            
            
            5,714,712
            
            
            9,126,852Research
                and Development
            
            
            —
            
            
            1,708,857
            
            
            7,634,188
            
            
            9,343,045
            
            
            —
            
            
            1,451,815
            
            
            1,194,296
            
            
            2,646,111Sales
                and Marketing
            
            
            —
            
            
            1.668,212
            
            
            798,354
            
            
            2,466,566
            
            
            —
            
            
            1,069,448
            
            
            400,802
            
            
            1,470,250Depreciation
                and Amortization
            
            
            —
            
            
            410,766
            
            
            1,057,414
            
            
            1,468,180
            
            
            —
            
            
            405,630
            
            
            876,660
            
            
            1,282,290Total
                Operating Expenses
            
            $
            2,826,795
            
            $
            4,649,115
            
            $
            13,783,949
            
            $
            21,259,859
            
            $
            3,117,445
            
            $
            3,719,284
            
            $
            8,186,470
            
            $
            15,023,199




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 $100,827 or 40.3% in the current quarter from $250,002 for the quarter
      ended March 31, 2007, and $107,556 or 21.6% in the current six months from
      $497,696 for the six months ended March 31, 2007. The increase for the quarter
      and six months is due primarily to stock-compensation recorded in the current
      quarter with no comparable expense recorded in prior year.





GENERAL
      AND ADMINISTRATIVE EXPENSES. General and administrative expenses consisted
      primarily of salaries and employee benefits for administrative personnel,
      facilities costs, stock listing fees, insurance expenses, legal, professional
      and consulting expenses, and expenses related to reserves for uncollectible
      receivables. G&A expense decreased $2.5 million or 39.5% in the current
      quarter from $6.2 million for the quarter ended March 31, 2007, and $1.8 million
      or 19.2% in the current six months from $9.1 million for the six months ended
      March 31, 2007. The decreases in G&A expenses for the quarter and six months
      were due primarily to decreases in legal expenses related to the FKI litigation
      discussed in Note 9 above of $1.4 million, a decrease in corporate G&A due
      to reduction in non-recurring legal fees and an increase of $0.1 million in
      cable G&A due to increased overhead costs relating to increased
      activities.




34




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 $5.0 million or 416% in the current quarter
      from $1.2 million for the quarter ended March 31, 2007, and $6.7 million or
      258%
      in the current six months from $2.6 million for the six months ended March
      31,
      2007. The current quarter increase is primarily attributable to our DeWind
      segment increase of $4.5 million, in addition to the increase in our Cable
      segment of $0.4 million. $6.4 million or 96% of the $6.7 million increase in
      the
      current six months as compared to the prior year six months is also primarily
      attributed to our DeWind segment. The increase in DeWind R&D
      expenses is related to approximately $2.7 million of non-recurring site
      preparation, consulting and outside engineering costs associated with the 60
      Hertz US D8.2 prototype including testing fees and shipping to the National
      Renewable Energy Lab and for site preparation and other costs related to the
      Sweetwater, Texas prototype site, as well as an increase of $1.8 million related
      to current investment in our wind business for extended blade development and
      cold weather package for our D8.2. The increase in Cable R&D is primarily
      due to increases in stock compensation charges of $0.2 million and a $0.2
      million writeoff of unsalable ACCC core.





SALES
      AND
      MARKETING EXPENSE. Sales and marketing expense consisted primarily of salaries
      and commissions for sales and marketing personnel, expenses for consultants,
      equipment, travel, and printed marketing literature and sales materials. Sales
      and Marketing expenses increased $397,111 or 44.5% in the current quarter from
      $892,405 in the quarter ended March 31, 2007, and increased $996,316 in the
      current six months from $1.5 million in the six months ended March 31, 2007.
      The
      current quarter increase in sales and marketing expenses were
      primarily due to Cable segment increases in sales commissions of approximately
      $165,000 due to higher sales and an increase of approximately $174,000 from
      headcount related expenses related to increased Cable sales efforts.





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
      decreased by approximately $67,000 or 10.2% for the current quarter from
      approximately $655,000 for the quarter ended March 31, 2007, and increased
      approximately $186,000 or 14.5% for the current six months from $1.3 million
      for
      the six months ended March 31, 2007. The decrease in the quarter was primarily
      due to lower amortization of intangibles from our DeWind segment compared to
      prior year, in line with expected turbine deliveries. The increase in the six
      months increase was due to primarily to higher depreciable fixed assets than
      in
      prior year.





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. Interest expense decreased $1.1 million or 65.9% in the
      current quarter from $1.6 million in the quarter ended March 31, 2007, and
      decreased $0.5 million or 24% in the current six months from $2.0 million for
      the six months ended March 31, 2007. The decreases in the quarter and six months
      are due to decreases in non-cash amortization of debt discount and lower cash
      interest paid on lower debt balances. Prior year expenses related to the
      amortization of warrants issued, amortization of debt discount associated with
      the issuance of warrants as part of the $22.8 million February 2007 Convertibles
      Notes and cash interest on the Convertible Notes payable. As of March 31, 2008
      our debt balance consisted of approximately $10.1 million principal at 8%
      interest, with $1.9 million of unamortized debt discounts, for a net debt
      balance of $8.2 million.




35




INCOME
      TAXES. We made no provision for income taxes in the three months ending March
      31, 2008 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 March 31, 2008, our deferred tax assets continued to be fully
      reserved. We will continue to evaluate, on a quarterly basis, the positive
      and
      negative evidence affecting the realization of our deferred tax assets.





**Net
      Loss**





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





**Three Months Ended March 31,**
            
            **Six Months Ended March 31,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Corporate
            
            $
            (1,996,367
            )
            $
            (3,423,853
            )
            $
            (4,156,062
            )
            $
            (5,280,883
            )Cable
            
            
            131,561
            
            
            (880,294
            )
            
            2,304,640
            
            
            (2,537,657
            )Dewind
            
            
            (9,572,188
            )
            
            (6,769,056
            )
            
            (16,956,396
            )
            
            (10,203,986
            )Total
            
            $
            (11,436,994
            )
            $
            (11,073,203
            )
            $
            (18,807,818
            )
            $
            (18,022,526
            )





Our
      net
      loss increased $0.3 million or 3% in the current quarter from $11.1 million
      for
      the quarter ended March 31 2007. The increase for the quarter and six months
      was
      due primarily to improvements in Corporate and Cable operations from increased
      sales volume and margins in Cable, and decreases in operating and interest
      expenses in Corporate, as mentioned above in addition to the non-recurring
      R&D expenses related to our D8.2 US prototype.





36




**LIQUIDITY
      AND CAPITAL RESOURCES**





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





For
      the
      six months ended March 31, 2008, we had a net loss of $18.8 million. At March
      31, 2008 we had $3.9 million of cash and cash equivalents, which represented
      an
      decrease of $18.7 million from September 30, 2007. The decrease was due to
      cash
      used in operations of $19.2 million, cash used in investing activities for
      the purchase of property, plant and equipment of $2.3 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 in operations during the six months ended March 31, 2008 of $19.2
      million was the result of operating losses, offset by depreciation,
      amortization, and non-cash compensation expenses and working capital
      requirements, most significantly related to the purchase of turbine inventory
      parts. In particular, during the March 31, 2008 quarter, we made considerable
      investments in our Turbine business to purchase turbine parts.





We
      anticipate that sales of our ACCC conductor will not be sufficient to sustain
      our newly combined operations including the DeWind segment without sufficient
      wind turbine orders with sizable customer advance payments of cash and further
      anticipate that we will continue to incur consolidated net losses due to our
      costs exceeding our revenues for an indefinite period of time. Further, our
      cash
      flows are reliant upon the payment of several large invoices from international
      customers and the payment of cash advances from turbine customers. If existing
      cash and cash generated from operations are insufficient to satisfy our
      liquidity requirements, we may seek to raise additional capital through
      issuances of equity or debt securities. Any additional financing may not be
      available in amounts or on terms acceptable to us, or at all and the option
      outstanding for an investor to invest $40,000,000 may be exercised in part,
      or
      not at all.




On
      May 12, 2008, we received $10.0 million in cash from
      Credit Suisse Securities (Europe) Ltd. in connection with an equity financing
      of
      13,333,333 shares of our common stock.





**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.





37





**OFF
      BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS**





There
      are
      no off **** balance
      sheet arrangements. The following table summarizes our contractual obligations
      (including interest expense) and commitments as of March 31, 2008:





Contractual
                Obligations
            
            Total
            
            Less than 1
              year
            
            1-3 years
            
            More than 3
              YearsDebt
                Obligations
            
            $
            10,094,973
            
            $
            —
            
            $
            10,094,973
            
            $
            —Capital
                Lease Obligations
            
            
            32,369
            
            
            32,369
            
            
            —
            
            
            —Operating
                Lease Obligations
            
            
            3,632,506
            
            
            1,604,990
            
            
            2,025,722
            
            
            1,794Purchase
                Commitments
            
            $
            6,000,000
            
            $
            6,000,000
            
            $
            —
            
            $
            —





Not
      included in the table above are amounts included on our balance sheet under
      warranty liabilities. Our turbine warranty generally provides for payment of
      services for turbine related repairs as well as provides for compensation for
      availability penalties. Availability penalties are wind generating revenue
      guarantees payable in cash to wind farm operators if their turbine under
      warranty fails to meet minimum wind generation levels. As of March 31, 2008
      we
      had accrued availability penalties relating to incurred and measured wind
      generating guarantees totaling $5,423,000 which are payable upon the resolution
      of the underlying claims. We currently classify all such payments as less than
      one year.





38




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





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





As
      of
      March 31, 2008 we did not hold any derivative financial instruments for
      speculative or trading purposes. The primary objective of our investment
      activities is the preservation of principal while maximizing investment income
      and minimizing risk. As of March 31, 2008, we had $3.9 million in cash, cash
      equivalents and short-term investments that mature in twelve months or less.
      Due
      to the short duration of these financial instruments, we do not expect that
      a
      change in interest rates would result in any material loss to our investment
      portfolio.





**ITEM
      4: CONTROLS AND PROCEDURES**





Based
      on
      an evaluation under the supervision and with the participation of the Company's
      management, including the Chief Executive Officer, the Chief Financial Officer
      and the Chief Operating Officer, the Company's principal executive officer
      and
      principal financial officer have concluded that the Company's disclosure
      controls and procedures (as defined under the Securities Exchange Act of 1934,
      as amended (Exchange Act)) were not effective as of March 31, 2008 to ensure
      that information required to be disclosed by the Company in reports that it
      files or submits under the Exchange Act is recorded, processed, summarized and
      reported within the time periods specified in Securities and Exchange Commission
      rules and forms.





During
      management's review of our internal control structure under Sarbanes-Oxley
      section 404, for the fiscal year ending September 30, 2007, we determined the
      following to be material weaknesses:





Entity
      level Processes and weaknesses. As of September 30, 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 year
      end.





o
      The
      Company had a one member Audit Committee, a one member Compensation Committee,
      and had a designated financial expert on the Board of Directors since January
      of
      2006.





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.





39




Information
      Technology Controls (ITCs) . ITCs are policies and procedures that relate to
      many applications and support the effective functioning of application controls
      by helping to ensure the continued proper operation of information systems.
      ITGCs include four basic information technology (IT) areas relevant to internal
      control over financial reporting: program development, program changes, computer
      operations, and access to programs and data. As of September 30, 2007, a
      material weakness existed relating to our information technology general
      controls, including ineffective controls relating to:





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





Inventory
      Processes. As of September 30, 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 2007 assessment, we noted that there were insufficient cycle counts of
      Turbine related parts for our Interim Reporting Periods.





Procure
      to Pay process. During our fiscal 2007 assessment of the Company’s procure to
      pay (cash payments and disbursements) cycle, we determined that there were
      numerous significant control deficiencies relating primarily to inventory
      purchasing and related purchasing and payable system control deficiencies.
      If
      assessed on an individual basis, none of these deficiencies were determined
      to
      be material weaknesses. However, taken in the aggregate we believe the following
      constitute a material weakness:





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





During
      the three and six months ended March 31, 2008 the Company improved the internal
      control structure and addressed the identified material weaknesses as
      follows:





o
      Added
      additional accounting and finance personnel to address proper segregation of
      duties and inadequate training, including personnel knowledgeable with US GAAP
      located in our European subsidiaries.





o
      The
      Company added an independent outside director, increasing the number of members
      on the Board of Directors to four, now has a two member Audit Committee and
      a
      two member Compensation Committee, and has had a designated financial expert
      on
      the Board of Directors since January of 2006.





o
      The
      Company has stepped up our Information Technology Controls with the current
      implementation of a fully integrated ERP system expected to go live in the
      third
      quarter of the current fiscal year.





o
      The
      Company has hired a purchasing manager to provide a purchasing function, to
      eliminate the lack of segregation of duties between the purchasing and payable
      processing functions and to help resolve vendor management and purchasing
      reports issues.




40





There
      were no changes in our internal control over financial reporting during the
      quarter or six months ended March 31, 2008 that has materially affected, or
      is
      reasonably likely to materially affect, our internal control over financial
      reporting, other than the remediation measures which are described
      above.





Singer
      Lewak Greenbaum & Goldstein LLP, our independent registered public
      accounting firm, has audited management's assessment of the effectiveness of
      the
      Company's internal control over financial reporting as of September 30, 2007
      and
      2006 as stated in their report which appears in the Annual Report on Form
      10-K filed December 14, 2007.





**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 except as noted in Footnote 9. See also footnote 9
      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 on December 14,
      2007 and such risk factors should be read in conjunction with the risk factors
      listed in such Form 10-K filed on 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 $42 million
      in
      ACCC product sales since inception and we have $37 million in Turbine and
      related services revenues since the acquisition of DeWind on July 3, 2006.
      Historically, we have incurred substantial losses and we may experience
      significant quarterly and annual losses for the foreseeable future. We may
      never
      become profitable. If we do achieve profitability, we may not be able to sustain
      or increase profitability on a quarterly or annual basis. We expect the need
      to
      significantly increase our product development and product prototype and
      equipment prototype production expenses, as necessary. As a result, we will
      need
      to generate significant revenues and earnings to achieve and maintain
      profitability.





41




WE
      HAVE A
      SIGNIFICANT PORTION OF OUR CURRENT REVENUES AND ORDER BOOKINGS WITH A SMALL
      NUMBER OF CUSTOMERS.


For
      both
      our cable and turbine business units, revenues recognized over the past two
      fiscal quarters and order bookings received to date are concentrated with a
      very
      small number of customers, primarily our Cable customer in China, a Cable
      customer in Poland, and for turbine related contracts, orders to our
      Chinese licensees, Czech customer, and a customer in Argentina. The loss of
      one
      or more of our customers or material changes to the contracts with or payment
      terms of these customers may result in a significant business interruption
      through reduced revenues, reduced cash flows, delays in revenues or cash flows
      and such delays or reductions could have a material impact on the future revenue
      growth and profitability of the Company.




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 accountants have issued a report relating to our audited
      financial statements which contains a qualification with respect to our ability
      to continue as a going concern because, among other things, our ability to
      continue as a going concern is dependent upon our ability to generate profitable
      operations in the future or to obtain the necessary financing to meet our
      obligations and repay our liabilities from normal business operations when
      they
      come due. There is no guarantee that the products will be accepted or provide
      a
      marketable advantage, and therefore, no guarantee that the commercialization
      will ever be profitable. For the six months ended March 31, 2008 we had a net
      loss $17,330,617 and negative cash flows from continuing operations of
      $18,747,050. 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.


IF
        WE
        CANNOT RAISE CAPITAL WHEN IT IS NEEDED, WE MAY BE REQUIRED TO REDUCE OR SUSPEND
        OPERATIONS OR GO OUT OF BUSINESS ALTOGETHER.
 We
        anticipate that for the foreseeable future, the sales of our ACCC cable or
        DeWind turbines may not be sufficient enough to sustain our operations and
        that
        we will continue to incur net losses due to our costs exceeding our revenues.
        For these reasons, we believe that we will need to raise additional capital
        until such time, if ever, as we become cash-flow positive. It is highly likely
        that we will continue to seek to raise money through public or private sales
        of
        our securities, debt financing or short-term loans, corporate collaborations
        or
        a combination of the foregoing. Our ability to raise additional funds in
        the
        public or private markets will be adversely affected if the results of our
        business operations are not favorable, if any products developed are not
        well-received or if our stock price or trading volume is low. Additional
        funding
        may not be available on favorable terms to us, or at all. To the extent that
        money is raised through the sale of our securities, the issuance of those
        securities could result in dilution to our existing stockholders. If we raise
        money through debt financing, we may be required to secure the financing
        with
        all of our business assets, which could be sold or retained by the creditor
        should we default in our payment obligations. If we cannot sustain our working
        capital needs with financings or if available financing is prohibitively
        expensive, we may not be able to complete the commercialization of our products.
        As a result, we may be required to discontinue our operations without obtaining
        any value for our products, which could eliminate stockholder equity, or
        we
        could be forced to relinquish rights to some or all of our products in return
        for an amount substantially less than we expended.


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


As
      of
      April 30, 2008, Benton H Wilcoxon, our Chairman of the Board and Chief
      Executive Officer, and Michael Porter, former CTC President and former majority
      shareholder of EU Energy in the aggregate beneficially own or control
      approximately 14% of the outstanding common stock. As a result, these persons
      have controlling influence in determining the outcome of any corporate matters
      submitted to our shareholders for approval, including mergers, consolidations
      and the sale of all or substantially all of our assets, election of directors
      and other significant corporate actions. They also have the power to prevent
      or
      cause a change in control. The interests of these shareholders may differ from
      the interests of the other shareholders, and may limit the ability of other
      shareholders to affect our management and affairs.




42




WE
      HAVE
      SUBSTANTIAL EXPOSURE TO EXCHANGE RATE RISK AS WE PURCHASE A SUBSTANTIAL QUANTITY
      AND VALUE OF TURBINE PARTS FROM EUROPEAN BASED SUPPLIERS AND WE HAVE SIGNIFICANT
      LIABILITIES DENOMINATED IN FOREIGN CURRENCIES.





Over
      the
      past 18 months, the US Dollar has significantly weakened against foreign
      currencies, notably the Euro. When the Company purchased the DeWind subsidiary
      in July, 2006, the Dollar to Euro exchange rate was approximately $1.29 to
      the
      Euro. As of March 31, 2008 the exchange rate was $1.58 to the Euro for a 22.5%
      decline in the dollar from July 3, 2006 to March 31, 2008. We currently do
      not
      hedge our foreign currency risk.





We
      currently purchase significantly all of our turbine components and parts from
      overseas suppliers, primarily in Europe and a significant percentage of our
      parts are payable in Euros. We have contractual commitments with certain key
      suppliers that call for payment denominated in the Euro. We also have
      contractual commitments under past warranties that call for payments in Euros.
      To the extent that the Dollar to Euro exchange rates change significantly,
      any
      such change could have a material impact on the operations and financial results
      of the company.





**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 $2.22 to a low of $0.70. Fluctuations in the
      trading price or liquidity of our common stock may adversely affect our ability
      to raise capital through future equity financings.





AS
      OF MAY
      12, 2008, 51,808,766 COMMON SHARES ARE ISSUABLE UPON EXERCISE OF ALL OUTSTANDING
      OPTIONS, WARRANTS AND CONVERSION OF CONVERTIBLE NOTES FOR LESS THAN THE MARKET
      PRICE OF $0.91 PER SHARE. CASH PROCEEDS RESULTING FROM THE FULL EXERCISE AND
      CONVERSION OF THESE SECURITIES WOULD BE APPROXIMATELY $43,591,079. 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 21.6% TO APPROXIMATELY 291,695,000
      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 May12, 2008 market price of $0.91 per share, 51,808,766 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 $43,591,079 and would increase the outstanding common shares by
      21.6% to approximately 291,695,000 shares.





43




**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**




On
        March
        4, 2008, at the annual meeting of our shareholders, the shareholders voted
        as
        indicated on the following matters submitted to them for consideration:
 
 (a)
              
              To
                  elect four (4) directors, each to a one-year term or until the
                  next annual
                  meeting.**Director
                  Nominee Benton H. Wilcoxon****For**
              
              **Against**
              
              **Abstain**130,481,741
              
              
              
              17,534,221**Director
                  Nominee Michael D. McIntosh****For**
              
              **Against**
              
              **Abstain**131,380,066
              
              
              
              13,635,896**Director
                  Nominee D. Dean McCormick****For**
              
              **Against**
              
              **Abstain**132,647,616
              
              
              
              12,368,346**Director
                  Nominee John P. Mitola****For**
              
              **Against**
              
              **Abstain**133,096,041
              
              
              
              11,919,921
 (b)
              
              To
                  ratify the selection of Singer Lewak Greenbaum & Goldstein LLP, as the
                  independent auditor for Composite Technology
                  Corporation.**For**
              
              **Against**
              
              **Abstain**128,503,665
              
              9,206,591
              
              7,305,706
 (c)
                
                To
                      approve the 2008 Stock Compensation Plan.**For**
                
                **Against**
                
                **Abstain**46,954,940
                
                19,936,322
                
                7,486,235
 No
        other
        business was presented at the meeting. Based upon the voting, all proposals
        were
        approved by the shareholders.


**ITEM
      5 - OTHER INFORMATION**




None




44





**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 therein




10.13(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





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)10.23(17)
            
            Financing
                Agreement, effective as of May 5, 2008 by and between the Registrant
                and
                ACF CTC, L.L.C10.24(17)
            
            Form
                of Warrant10.25(17)
            
            Subscription
                Agreement, effective as of May 9, 2008 by and between the Registrant
                and
                Credit Suisse Securities (Europe) Ltd10.26(17)
            
            Call
                Option Deed by and between the Registrant and Credit Suisse Securities
                (Europe) Ltd.31.1(18)
            
            Rule
                13a-14(a) / 15d-14(a)(4) Certification of Chief Executive
                Officer31.2(18)
            
            Rule
                13a-14(a) / 15d-14(a)(4) Certification of Chief Financial
                Officer32.1(18)
            
            Section
                1350 Certification of Chief Executive Officer32.2(18)
            
            Section
                1350 Certification of Chief Financial
                Officer





45




(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)
      Incorporated herein by reference to Form 8-K filed with the U.S. Securities
      and
      Exchange Commission on May 9, 2008.





(18)
      Filed herewith.




46





**SIGNATURE**





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





**COMPOSITE
      TECHNOLOGY CORPORATION**


(Registrant)





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





*May
      14, 2008*




47