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

                               Amendment No. 2 to
                                    FORM 10-Q
                                   (Mark One)
|X|  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934

                FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2004

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                  ACT OF 1934.

                       For the transition period from     to     .

                         COMMISSION FILE NUMBER 0-10999

                        COMPOSITE TECHNOLOGY CORPORATION

             (Exact Name of Registrant as Specified in Its Charter)



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


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

                                 (949) 428-8500
              (Registrant's Telephone Number, Including Area Code)

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

YES |X| NO |_|

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

Large Accelerated Filer |_| Accelerated Filer |X| Non-Accelerated Filer |_|

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).

YES |_| NO |X|

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.

YES |X| NO |_|


Indicate the number of shares outstanding of the issuer's common stock as of
February 8, 2005:


            CLASS                              NUMBER OF SHARES OUTSTANDING
            -----                              ----------------------------
   Common Stock, par value                         114,178,914 shares
       $0.001 per share

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

<PAGE>

EXPLANATORY NOTE

This Amendment No. 2 to the quarterly report on Form 10-Q/A of Composite
Technology Corporation (the Company) for the quarterly period ended December 31,
2004 is being filed in order to amend the quarterly report to restate the
financial statements to reflect the correction of an error as discussed in Note
2.

As described in the Form 8-K filed by the Company with the Securities and
Exchange Commission on May 11, 2006, the Company announced it will restate its
financial statements for the quarter ending December 31, 2004. The restatement
reflects the Company's determination that it did not correctly capitalize the
fair value of warrants issued pursuant to a modification of the August, 2004
Debenture agreement ("Debentures"). The Company determined that approximately
$1,994,000 previously expensed in November, 2004 should have been capitalized
and expensed over the remaining life of the Debentures resulting in an expense
decrease of approximately $1,897,000 for the three months ended December 31,
2004. The restatement resulted in a decrease in the basic and fully diluted loss
per share of $0.02 for the three months ended December 31, 2004. This
restatement is in addition to the prior restatement reflected in the Company's
Form 10-Q/A filed on August 8, 2005 described in Note 2.

Except for the foregoing amended information required to reflect the effects of
the restated consolidated financial statements, this Form 10-Q/A continues to
describe conditions as presented in the original report on Form 10-Q and the
first amended Form 10-Q/A.. The Form 10-Q/A does not reflect events occurring
after the filing of the Form 10-Q, or modify or update those disclosures,
including exhibits to the Form 10-Q affected by subsequent events. Information
not affected by the restatement is unchanged and reflects the disclosures made
at the time of the original filing of the Form 10-Q on February 14, 2005 as
amended by the filing of Form 10-Q/A on August 8, 2005. Accordingly, this Form
10-Q/A should be read in conjunctions with filings made with the SEC subsequent
to the filing of the original Form 10-Q, including any amendments to those
filings. The following items have been amended (and conforming changes have been
made where indicated as restated) as a result of the restatement:

Part I, Item 1 - Consolidated Financial Statements and Notes to Consolidated
Financial Statements

     o   Consolidated Financial Statements

     o   Note 2 - Restatements and Reclassifications

     o   Note 4 - Summary of Significant Accounting Policies

     o   Note 7 - Shareholders' Equity

Part I, Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations

         o    Restatement of Financial Statements

         o    Overview

         o    Results of Operations

Part I, Item 4 - Controls and Procedures

Part II, Item 6 - Exhibits

<PAGE>


                        COMPOSITE TECHNOLOGY CORPORATION
      Amendment No. 2 to Form 10-Q for the Quarter ended December 31, 2004
                                Table of Contents


<TABLE>
<CAPTION>
<S>                                                                                                  <C>
                                                                                                     Page
                                                                                                     ----
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements (Restated)                                                                 3
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations          13
Item 3 Quantitative and Qualitative Disclosures About Market Risk                                     31
Item 4 Controls and Procedures                                                                        31

PART II - OTHER INFORMATION
Item 1 Legal Proceedings                                                                              32
Item 2 Unregistered Sales of Equity Securities and the Use of Proceeds                                35
Item 3 Defaults Upon Senior Securities                                                                35
Item 4 Submission of Matters to a Vote of Security Holders                                            35
Item 5 Other Information                                                                              35
Item 6 Exhibits                                                                                       36
SIGNATURE                                                                                             38
</TABLE>


<PAGE>

ITEM 1
                          PART 1 - FINANCIAL STATEMENTS
                        COMPOSITE TECHNOLOGY CORPORATION
                                AND SUBSIDIARIES
                          (DEVELOPMENT STAGE COMPANIES)
                           CONSOLIDATED BALANCE SHEET
                                   (unaudited)


<TABLE>
<CAPTION>
                                                                              December 31,    September 30,
                                                                                  2004           2004
                                                                              ------------    ------------
                                                                                Restated*       Restated*
<S>                                                                           <C>             <C>
ASSETS

CURRENT ASSETS
Cash and cash equivalents                                                     $  9,700,117    $  2,930,615
Restricted Cash                                                                       --        10,010,060
Accounts receivable, net                                                         2,500,000       2,501,994
Inventory                                                                        1,132,742         788,799
Prepaid expenses and other current assets                                          372,241         378,052
                                                                              ------------    ------------
Total current assets                                                            13,705,100      16,609,520

PROPERTY AND EQUIPMENT, net                                                      1,510,428       1,253,123
OTHER ASSETS                                                                       206,279         218,600
                                                                              ------------    ------------
TOTAL ASSETS                                                                  $ 15,421,807    $ 18,081,243
                                                                              ============    ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade                                                      $  1,171,560    $  1,841,535
Accrued payroll and related expenses                                               119,003         122,621
Deferred revenue                                                                   564,750         564,750
Accrued officer compensation                                                       255,619         264,561
Deferred gain on sale of fixed assets                                               28,903          49,569
Lease obligation - current                                                         319,782         251,782
                                                                              ------------    ------------
Total current liabilities                                                        2,459,617       3,094,818
                                                                              ------------    ------------
LONG TERM LIABILITIES
Convertible notes, net of unamortized debt discount
   of $7,465,421 and $6,098,894                                                  7,534,579       8,901,106
Lease obligation - long-term                                                       596,306         482,600
                                                                              ------------    ------------
Total long-term liabilities                                                      8,130,885       9,383,706
                                                                              ------------    ------------
                  Total Liabilities                                           $ 10,590,502      12,478,524
                                                                              ------------    ------------
COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Common stock, $0.001 par
value 200,000,000 shares authorized
113,506,341 and 110,841,320 shares issued and outstanding                          113,505         110,841
Deferred compensation - stock options                                             (322,600)       (362,925)
Additional paid-in capital                                                      35,260,639      32,294,159
Deficit accumulated during the development stage                               (30,220,239)    (26,439,356)
                                                                              ------------    ------------
Total shareholders' equity                                                       4,831,305       5,602,719
                                                                              ------------    ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                    $ 15,421,807    $ 18,081,243
                                                                              ============    ============
</TABLE>

* See Notes to Consolidated Financial Statements - Note 2 Restatements and
Reclassifications.


The accompanying notes are an integral part of these financial statements

                                        3


<PAGE>



                        COMPOSITE TECHNOLOGY CORPORATION
                                AND SUBSIDIARIES
                          (DEVELOPMENT STAGE COMPANIES)
                CONDENSED, CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE THREE MONTHS ENDED DECEMBER 31, 2004 AND 2003
                                   (UNAUDITED)
               AND FOR THE PERIOD FROM MARCH 28, 2001 (INCEPTION)
                              TO DECEMBER 31, 2004
                                   (UNAUDITED)



<TABLE>
<CAPTION>
                                        Three          Three           For the
                                        Months         Months          Period
                                        Ended          Ended           from March
                                        December       December        28,2001
                                        31,2004        31,2003         (Inception)
                                                                       to December 31,2004
                                       ------------    ------------    ------------------
                                         Restated                       Restated
                                        (unaudited)    (unaudited)     (unaudited)
<S>                                    <C>             <C>             <C>
Revenue:
         Product Sales                 $     46,485    $       --      $     46,485
         Consulting Revenue                    --              --         2,500,000
                                       ------------    ------------    ------------
Total Revenue                          $     46,485            --      $  2,546,485

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


OPERATING EXPENSES
Officer compensation                         55,385          95,000       1,495,285
General and administrative                  598,607         462,811       5,636,892
Legal, professional, and
consulting                                  862,307         435,837      12,222,530
Research and development                  1,079,651         463,309       8,540,124
Sales and marketing                         272,789         311,617       2,894,081
Depreciation                                111,376           9,192         287,590
                                       ------------    ------------    ------------
Total operating expenses                  2,980,115       1,777,766      31,076,502
                                       ------------    ------------    ------------
LOSS FROM OPERATIONS                     (2,964,524)     (1,777,766)    (28,875,459)
                                       ------------    ------------    ------------
OTHER INCOME/EXPENSE
Interest expense                           (847,875)           --        (1,262,439)
Interest income                              27,260            --            41,157
Gain on sale of assets                        4,256            --            13,732
Carrying value impairment adjustment
on investments in other
companies                                      --              --          (137,230)
                                       ------------    ------------    ------------
Total other income/expense                 (816,359)           --        (1,344,780)
                                       ------------    ------------    ------------

NET LOSS                               $ (3,780,883)   $ (1,777,766)   $(30,220,239)
PREFERRED STOCK DIVIDENDS                      --             5,000            --
                                       ------------    ------------    ------------
NET LOSS AVAILABLE TO COMMON
SHAREHOLDERS                           $ (3,780,883)   $ (1,782,766)   $(30,220,239)
                                       ============    ============    ============
BASIC AND DILUTED
LOSS PER SHARE                         $      (0.03)   $      (0.02)
Loss per share                                                  --
                                       =============   ============
TOTAL BASIC AND DILUTED
 LOSS PER SHARE
AVAILABLE TO COMMON
SHAREHOLDERS                           $       (0.03)  $      (0.02)
                                       =============   ============
WEIGHTED-AVERAGE COMMON
SHARES OUTSTANDING                       111,814,117     99,398,246
                                       =============   ============
</TABLE>

* See Notes to Consolidated Financial Statements - Note 2 Restatements and
Reclassifications.


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

                                        4


<PAGE>

                        COMPOSITE TECHNOLOGY CORPORATION
                                AND SUBSIDIARIES
                          (DEVELOPMENT STAGE COMPANIES)
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              FOR THE THREE MONTHS ENDED DECEMBER 31, 2004 AND 2003
                                   (UNAUDITED)
              AND FOR THE PERIOD FROM MARCH 28, 2001 (INCEPTION) TO
                                December 31, 2004
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                        For the
                                                                        Period from
                                                                        March 28,2001
                                               For the Three            (Inception)to
                                          Months Ended December 31,     December 31,
                                        ----------------------------    2004
                                            2004                        (unaudited)
                                         Restated*          2003        Restated*
                                        ------------    ------------    ------------
<S>                                     <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                $ (3,780,883)   $ (1,777,766)   $(30,220,239)
Adjustments to reconcile
net loss to net cash used in
operating activities
Accretion of deferred gain                   (20,666)             --         (30,142)
Loss on sale of fixed assets                  16,410              --          16,410
Depreciation                                 111,376           9,192         287,590
Amortization of prepaid expenses
originally paid with common stock                 --         190,000         218,993
Interest on fixed conversion features        626,996              --         892,165
Expense related to fair value of
vested options                                40,325         104,451       1,341,675
Issuance of common stock for
services                                          --          28,050       8,585,555
Issuance of common stock for legal
services                                          --              --         832,750
Issuance of warrants for legal
settlement                                        --              --          11,750
Compensation expense related to
modification of options                           --              --         364,277
Compensation expense related to
Modification of warrants                          --              --       1,540,000
Compensation expense related to
issuances of common stock at
less than fair value                              --              --         603,500
Issuance of warrants for services             86,000              --       1,960,360
Carrying value impairment adjustment
on investments in other companies                 --              --         137,230

(Increase) decrease in Assets
Restricted Cash                           10,010,060              --              --
Inventory                                   (343,943)             --      (1,132,742)
Accounts Receivable                            1,994              --      (2,500,000)
Prepaid expenses                              66,053          74,036        (161,807)
Other Assets                                 (47,921)             --        (257,521)
Increase (decrease) in
Accounts payable - trade                    (669,974)        110,072       1,166,556
Accrued legal settlement                          --         (42,665)             --
Accrued payroll and related
expenses                                      (3,618)         79,911         119,003

Accrued interest payable                          --              --          13,101
Accrued officer compensation                  (8,942)             --         255,619
Deferred Revenue                                  --              --         564,750

                                        ------------    ------------    ------------
Net cash used in operating
activities                                 6,083,267      (1,224,719)    (15,391,167)
                                        ------------    ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment          (230,716)       (151,363)     (1,301,008)
Sale of property and equipment                93,015              --         593,015
Investments in other companies                    --              --         (40,000)
                                        ------------    ------------    ------------
Net cash provided by (used in)
Investing activities                        (137,701)       (151,363)       (747,993)
                                        ------------    ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Common stock subscription
receivable                                        --         (98,522)             --
Payment for costs associated with
the sale of common stock                          --        (220,030)       (237,030)
Proceeds from issuance of convertible
debenture                                         --              --      15,000,000
Proceeds from notes payable                       --              --         253,000
Payments on capital lease assets             (65,684)             --        (131,302)
Proceeds from sale of preferred stock             --              --         132,000
Proceeds from exercise of options             30,000              --         590,000
Proceeds from exercise of warrants           859,620         234,682       3,756,398
Proceeds from sale of common stock                --       3,265,105       6,476,211
                                        ------------    ------------    ------------
Net cash provided by financing
 activities                                  823,936       3,181,235      25,839,277
                                        ------------    ------------    ------------
Net increase/(decrease) in cash and
cash equivalents                        $  6,769,502    $  1,805,153    $  9,700,117
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD                                  2,930,615       1,130,498              --
                                        ------------    ------------    ------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD                                  $  9,700,117    $  2,935,651    $  9,700,117
                                        ============    ============    ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
INTEREST PAID                           $    220,879    $         --    $    629,927
INCOME TAX PAID                         $      1,600              --    $      1,600
                                        ============    ============    ============
</TABLE>

* See Notes to Consolidated Financial Statements - Note 2 Restatements and
Reclassifications.


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

                                        5

<PAGE>

Supplemental Schedule for Non Cash Financing Activities

During the first quarter of fiscal 2005, the Company approved for issuance
82,417 Series U warrants to two entities in connection with obtaining equipment
lease financing for the Company. Each Series U warrant entitles the holder to
purchase one share of unregistered, restricted common stock at $1.83 per share
and expires on August 18, 2008. The Company may, subject to a 20 day notice,
call the warrants if the common stock price is equal to or exceeds 200% of the
exercise price. The Company valued the warrants using the modified
Black-Scholes-Merton option pricing model with a risk free rate of 3.66%, a life
of four years, a volatility of 73%, a 0% dividend rate and a market price of
$1.83 per share. The Company recognized $85,714 of compensation expense for
services rendered. The warrants have not been issued as of December 31, 2004.

During the first quarter of fiscal 2005, the Company issued 1,083,592 warrants
in connection with obtaining an amendment to the August, 2004 Debenture held by
Midsummer Investment, Ltd, Bristol Investment Fund, Ltd, Islandia L.P. and
Omicron Master Trust. Each warrant entitles the holder to purchase one share of
unregistered, restricted common stock at $3.23 per share and expires on November
19, 2008. The warrants were valued using the modified Black-Scholes-Merton
option pricing model with a risk free rate of 3.66%, a life of four years, a
volatility of 73%, a 0% dividend rate and a market price of $3.23 per share. The
Company recorded $1,993,523 of additional debt discount for the warrants issued.

During the three months ended December 31, 2004, 16,666 Series K warrants
exercisable at $0.46 per warrant were exercised on a cashless exercise basis.
The Company issued 28,352 shares of common stock as a result of these
transactions.

During the three months ended December 31, 2004, 250,000 Series L warrants
exercisable at $0.42 per warrant were exercised on a cashless exercise basis.
The Company issued 229,000 shares of common stock as a result of this
transaction.

During the three months ended December 31, 2004, the Company acquired fixed
assets under a capital lease agreement in the amount of $247,390.

NOTE 1 - ORGANIZATION AND LINE OF BUSINESS

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

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

NOTE 2 - RESTATEMENTS AND RECLASSIFICATIONS

The financial statements included herein have been restated to correct the
following:

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

In May, 2005, the Company also reclassified certain consulting related expenses
in the Statement of Operations for the three months ended December 31, 2003.

In May, 2006, the Company determined that the accounting treatment of the
issuance of warrants in November, 2004 for the release of $10,000,000 from our
August, 2004 Debenture issue was improperly expensed to legal, professional, and
consulting expense as incurred. During the quarter ended December 31, 2004, we
had expensed $1,993,523 which was the fair value of the warrants issued to the
debenture holders. Under the guidance of EITF 96-19 "Debtors Accounting of a
Modification or Exchange of Debt Instruments" the issuance of the warrants
constituted a modification of a convertible debt instrument. Accordingly, the
fair value of the additional warrants issued in November, 2004 should have been
deferred and amortized as an adjustment of interest expense over the remaining
term of the debentures using the interest method.

All adjustments related to non-cash expense items and as such there was no
impact to the net cash provided by (used in) operating activities for the
periods presented. The change to the net loss balance was offset in full by
changes to the non-cash expense items described below.

Below is the effect to the Balance Sheet as of December 31, 2004 and the
Statements of Operations for the three months ended December 31, 2003 and 2004:

Balance Sheet as of December 31, 2004

                               As
                           Originally      Restatement
                            Reported       Adjustment        As Restated
                          ------------    ------------       ------------
Convertible notes,
 net of unamortized
 discount                 $  9,431,446      (1,993,523) 3
                                                96,656  4       7,534,579
                          ------------    ------------       ------------
Total Liabilities           12,487,369      (1,896,867)        10,493,846
                          ============    ============       ============
Shareholders' Deficit
  Additional Paid in
    Capital               $ 34,896,362    $    364,277  1    $ 35,260,639
                          ------------    ------------       ------------
Deficit accumulated
 during the
 development stage         (31,752,829)       (364,277) 1
                                             1,993,523  3
                                               (96,656) 4     (30,220,239)
                          ------------    ------------       ------------
Total Shareholders'
 equity                   $  2,934,438       1,896,867          4,831,305
                          ============    ============       ============

Statement of Operations for Three months ended December 31, 2003

<TABLE>
<CAPTION>
                                            As Originally       Restatement                 As
                                              Reported           Adjustment              Restated
                                          -----------------  -----------------       -----------------
<S>                                       <C>                <C>                     <C>
Operating Expenses
General and administrative                $         745,736  $        (282,925)  2   $         462,811
                                          -----------------  -----------------       -----------------
Legal, Professional, and consulting                 572,083           (136,246)  2             435,837
                                          -----------------  -----------------       -----------------
Research and Development                            251,305            212,004   2             463,309
                                          -----------------  -----------------       -----------------
Sales and Marketing                                      --            311,617   2             311,617
                                          -----------------  -----------------       -----------------
Compensation expense related to fair
 value of stock options legal                        64,125            (64,125)  2                  --
                                          -----------------  -----------------       -----------------
Compensation expense related to fair
 value of stock options research and
 development                                         40,325            (40,325)  2                  --
                                          -----------------  -----------------       -----------------
 Net loss                                 $      (1,777,766)  $             --       $      (1,777,766)
                                          ==================  =================      =================
</TABLE>

Statement of Operations for Three months ended December 31, 2004

                           As Originally     Restatement
                             Reported        Adjustment        As Restated
                          --------------   --------------     --------------
Legal, Professional and
Consulting                $    2,855,830   $   (1,993,523) 3  $      862,307
                          --------------   -----------------  ------------------

Interest expense                (751,219)         (96,656) 4        (847,875)
                          --------------   -----------------  ------------------

Net Loss                  $   (5,677,750)  $    1,896,867     $   (3,780,883)
                          ==============   =================  ==================
Basic and Diluted Loss per
 Share                    $        (0.05)  $         0.02     $        (0.03)
Weighted-Average
 Common Shares
 Outstanding                 111,814,117      111,814,117        111,814,117
                          ==============   =================  ==================

1) During fiscal 2004, the Company allowed for the cashless exercise of non
qualifying employee stock options to four former employees as part of the
settlement of their option vesting and to one employee. A total of 280,265
shares were exercised between $0.25 per share and $1.00 per share. As a result
of these transactions, the company had initially recorded $64,005 in
compensation expense. Under FIN 44 "Accounting for Certain Transactions
involving Stock Compensation", a cashless exercise where the exercise price is
paid for by the stock being exercised is considered to be a modification of the
option grant and the fair value of the transaction must be recorded as expense.
For the 280,265 shares exercised, 237,220 shares of Common Stock of the Company
were issued and additional compensation expense was recorded as follows: the
fair value was determined using the difference between the closing market value
of the Company's common stock on the date of each underlying transaction and the
exercise price per share of the options exercised. For fiscal 2004, the total
additional expense of $364,277 represents the fair value of the 280,265 shares,
valued at $496,217 less the exercise cost of $65,935 and less the previously
recorded expense of $64,005. No cashless exercises were transacted in the
quarter ended December 31, 2004. The impact on earnings per share for the year
ended September 30, 2004 was less than $0.01 on both a basic and fully diluted
earnings per share.

2) During the preparation of the quarterly filing for the period ending March
31, 2005, the Company changed classification of certain consulting expenses
related to general and administrative, product development, and sales and
marketing activities. To be consistent with the current period presentation,
certain operating expense balances for the three and six month periods ending
March 31, 2004 were reclassified. No additional expense was recorded as a result
of this reclassification.

3) During the quarter ending December 31, 2004, the Company recorded as legal,
professional, and consulting expense $1,993,523 which represented the fair value
of approximately $1.84 per warrant for 1,083,592 warrants issued as compensation
to the August, 2004 Debenture holders to obtain the release of $10,000,000 of
escrowed funds pursuant to the August, 2004 Debenture offering. Under the
guidance of EITF 96-19 "Debtors Accounting of a Modification or Exchange of Debt
Instruments" the issuance of the warrants constituted a modification of a
convertible debt instrument. Accordingly, the fair value of the additional
warrants issued in November, 2004 should have been deferred and amortized as an
adjustment of interest expense over the remaining term of the debentures using
the interest method. The impact on the loss per share for the quarter ended
December 31, 2004 was to decrease the loss per share by $0.02 per share.

4) Balance represents the additional interest expense of $96,656 which should
have been recorded as a result of the debt discount recorded for the restated
warrant fair value as described in 3) above. The balance represents the
additional discount of $1,993,523 amortized over the remaining 33 months of the
debt including the entire month of December and the partial month of November,
2004.

NOTE 3 - GOING CONCERN

The Company has received a report from its independent auditors for the year
ended September 30, 2004 that includes an explanatory paragraph describing the
uncertainty as to the Company's ability to continue as a going concern. These
consolidated financial statements contemplate the ability to continue as such
and do not include any adjustments that might result from this uncertainty.

NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited consolidated financial statements of Composite
Technology Corporation (the "Company" or "Composite Technology") have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not contain all of the information and footnotes required for complete financial
statements. Interim information is unaudited; however, in the opinion of the
Company's management, the accompanying unaudited, consolidated financial
statements reflect all adjustments (consisting of normal, recurring adjustments)
considered necessary for a fair presentation of the Company's interim financial
information. These financial statements and notes should be read in conjunction
with the audited financial statements of the Company included in the Company's
Annual Report on Form 10-KSB for the year ended September 30, 2004 filed with
the Securities and Exchange Commission on December 23, 2004.

The results of operations for the three months ended December 31, 2004 are not
necessarily indicative of the operating results that may be reported for the
fiscal year ending September 30, 2005 or for any other future period.

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

Restricted Cash

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

REVENUE RECOGNITION

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

(1)   Product revenue which includes revenue from the sale of composite core,
      wrapped composite core, and other electric utility related products.

(2)   Consulting revenue, which includes engineering, product design, and
      service fees that we receive under customer agreements related to the
      installation and design of our product sale solutions.

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

PRODUCT SALES. Product revenues are generally recognized when product shipment
has been made and title has passed to the end user customer. Product revenues
consist primarily of revenue from the sale of: (i) wrapped composite core to
utilities either sold directly by the Company or through our distributor, ii)
composite core sold to a cable wrapping partner not subject to a distributor
agreement and where title passes to the partner, or iii) cable core hardware
sold to utility companies. For most product sales, we expect that the terms of
sales generally will not contain provisions that will obligate us to provide
additional products or services after installation to end users.. We recognize
revenue: (i) upon shipment when products are shipped FOB shipping point or (ii)
upon delivery at the customer's location when products are shipped FOB
destination.

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

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


                                        6

<PAGE>

Development Stage Enterprise

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

Stock-Based Compensation

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

The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost other than that required to be recognized by
APB No. 25, the difference between the fair value of the Company's common stock
at the grant date and the exercise price of the options has been recognized. Had
compensation cost for the Company's Stock Plan been determined based on the fair
value at the grant date for awards consistent with the provisions of SFAS No.
123, the Company's net loss and loss per share for the three months ended
December 31, 2004 and 2003 would have been increased to the pro forma amounts
indicated below.

Options granted to employees and warrants issued for services were valued at
fair value using the Modified Black-Scholes Merton Option pricing model.
Assumptions used were a risk free rate of 3.66%, a dividend yield of 0%, a
volatility of 73% and a time to maturity of the expected life at the option or
warrant.

<TABLE>
<CAPTION>
                                                   Three months      Three months
                                                      ended              ended
                                                 December 31,2004   December 31,2003
                                                 ----------------   ----------------
                                                 Restated-Note 2
<S>                                              <C>                <C>
Net loss, as reported                            $     (3,780,883)  $     (1,777,766)
Add stock based employee compensation
expense included in net income, net of tax
Deduct total stock based employee compensation
Expense determined under fair value method
 for all awards, net of tax                              (419,242)           (75,242)
                                                 ----------------   ----------------
Net loss, pro forma                              $     (4,200,125)  $     (1,853,008)
                                                 ================   ================

Earnings per common share
Basic, as reported                               $          (0.03)  $          (0.02)
Basic, pro forma                                 $          (0.04)  $          (0.02)
Diluted, as reported                             $          (0.03)  $          (0.02)
Diluted, pro forma                               $          (0.04)  $          (0.02)
</TABLE>


Principles of Consolidation

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

Research and Development Expenses

Research and development expenses are charged to operations as incurred.


                                        7

<PAGE>

Accounts Receivable

The Company has a $2,500,000 account receivable from one entity relating to
engineering services provided during fiscal 2004 for an electrical line project
in Kansas. The company has received a progress payment on this receivable in
April, 2005 and has entered into a payment schedule for repayment of the entire
receivable by July, 2005. In May 2005, the progress payment received was
returned for insufficient funds. The Company will evaluate the likelihood of
collectibility in the subsequent quarter and intends to record a reserve for any
uncollected amounts that exist prior to the date of the filing of Form 10-Q on
or before August 9, 2005.

Loss Per Share

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

The following common stock equivalents were excluded from the calculation of
diluted loss per share for the three months ended December 31, 2004 and 2003
since their effect would have been anti-dilutive:

                                                        December 31
                                                  ------------------------
                                                     2004          2003
                                                  ----------    ----------
      Series B convertible preferred stock                --        80,000
      Options for common stock                     7,175,336     7,897,740
      Warrants                                    11,748,282    13,189,569
      Convertible Debentures, if converted         8,982,036            --
                                                  ----------    ----------
      Total                                       27,905,654    21,167,309

Concentration of Credit Risk

The Company has an $2,500,000 account receivable from one entity relating to
engineering services provided during fiscal 2004. The company has received a
progress payment on this receivable in April, 2005 and has entered into a
payment schedule for repayment of the entire receivable by July, 2005. In May
2005, the progress payment received was returned for insufficient funds. The
Company will evaluate the likelihood of collectibility in the subsequent quarter
and intends to record a reserve for any uncollected amounts that exist prior to
the date of the filing of Form 10-Q on or before August 9, 2005.


Recently Issued Accounting Pronouncements

SFAS No. 151

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

SFAS No. 152

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


                                        8

<PAGE>

SFAS No. 153

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

SFAS No. 123(R)

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

NOTE 5 - PROPERTY AND EQUIPMENT

Property and equipment at December 31, 2004 consisted of the following:

                 Manufacturing equipment            $1,155,733
                 Office furniture equipment            237,533
                 Leasehold improvements                352,193
                                                    ----------
                                                     1,745,459

                    Less accumulated depreciation     (235,031)
                                                    ----------

                             TOTAL                  $1,510,428
                                                    ==========


                                        9

<PAGE>

Depreciation expense was $111,376, $9,192, and $287,590 for the three months
ended December 31, 2004 and 2003 and the period from March 28, 2001 (inception)
to December 31, 2004, respectively.

NOTE 6- COMMITMENT AND CONTINGENCIES

In November 2004, the Company committed to a $450,000 capital lease with a
financial institution. The lease was partially funded during the quarter, with
the balance expected to be funded during the second quarter of fiscal 2005. When
fully funded, the Company will be obligated to pay total monthly lease payments
of $14,197 for a total of 42 months and will have the option to purchase the
equipment for fair market value, subject to a minimum of 10% and maximum of 20%
of equipment cost. The Company has paid a deposit of $20,857 relating to the
$208,570 balance of the lease commitment and is awaiting delivery of the
equipment. The Company allocated 12,362 Series U warrants as part of the lease
terms (See Note 7- Shareholders' Equity).

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

The Company has a $3 million commitment for equipment lease financing, subject
to completing due diligence, from a financial institution. The lease is for a
term of 42 months, has total monthly payments of $84,240 if fully funded and, at
the end of the lease term, the Company has the option of purchasing the
equipment for fair market value, subject to a minimum and maximum of 20% of
equipment cost. As part of this commitment, the Company made a deposit of $5,000
and allocated 70,055 Series U warrants to be paid upon lease funding as part of
the lease terms (See Note 7 - Shareholders' Equity).

NOTE 7- SHAREHOLDERS' EQUITY

COMMON STOCK

During the three months ended December 31, 2004 a total of 2,545,021 shares of
the Company's Common Stock was issued pursuant to exercises of warrants for
total cash consideration of $859,620 as follows:

Cashless Exercises of warrants:
During the three months ended December 31, 2004, 16,666 Series K warrants were
exercised on a cashless exercise basis. The Company issued 13,279 Common Shares
as a result of this transaction.

During the three months ended December 31, 2004, 250,000 Series L warrants were
exercised on a cashless exercise basis. The Company issued 229,000 Common Shares
as a result of this transaction.

Warrants exercised for cash:
During the three months ended December 31, 2004, 322,242 warrants issued in 2002
were exercised for total cash consideration of $161,120, at $0.50 per share.

During the three months ended December 31, 2004, 1,338,000 Series E warrants
were exercised for total cash consideration of $334,500, at $0.25 per share.

During the three months ended December 31, 2004, 500,000 Series N warrants were
exercised for total cash consideration of $250,000, at $0.50 per share.

During the three months ended December 31, 2004, 142,500 Series P warrants were
exercised for total cash consideration of $114,000, at $0.80 per share.

STOCK OPTIONS

Stock Plan

During the three month period ending December 31, 2004 the Company issued to one
employee 100,000 options to purchase an equivalent number of shares registered
under the Company's Form S-8, filed in January 2005 at an exercise price of
$1.68. These options expire December 31, 2011.

During the three months ended December 31, 2004, 120,000 options were exercised
to purchase common stock for total cash consideration of $30,000, at $0.25 per
share.

On October 28, 2004, the Company's shareholders approved an increase of 15
million shares subject to the 2002 Non-Qualified Stock Compensation Plan.

The following table summarizes all Stock Plan activity through December 31,
2004.


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

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

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

  Outstanding, September 30, 2003                    8,147,740       $     0.39
    Granted                                            969,904       $     1.00
    Exercised                                         (497,220)      $     0.11
    Cancelled                                       (1,425,088)      $     0.30
                                                    ----------

  Outstanding, September 30, 2004                    7,195,336       $     0.37
       Granted                                         100,000       $     1.68
       Exercised                                      (120,000)      $     0.25
                                                    ----------


OUTSTANDING, December 31, 2004                       7,175,336       $     0.39
                                                    ==========

EXERCISABLE, December 31, 2004                       3,354,248       $     0.39
                                                    ==========


                                       11

<PAGE>

WARRANTS

During the first quarter of fiscal 2005, the Company approved for issuance
82,417 Series U warrants to two entities in connection with obtaining equipment
lease financing for the Company. Each Series U warrant entitles the holder to
purchase one share of unregistered, restricted common stock at $1.83 per share
and expires on August 18, 2008. The Company may, subject to a 20 day notice,
call the warrants if the common stock price is equal to or exceeds 200% of the
exercise price. The Company valued the warrants using the modified
Black-Scholes-Merton option pricing model with a risk free rate of 3.66%, a life
of four years, a volatility of 73%, a 0% dividend rate and a market price of
$1.83 per share. The Company recognized $86,000 of compensation expense for
services rendered recorded in Legal, Consulting, and Professional Fees expense.
The warrants have not been issued as of December 31, 2004.

In addition, during the first quarter of fiscal 2005, the Company issued
1,083,592 warrants in connection with obtaining an amendment to the August, 2004
Debenture held by Midsummer Investment, Ltd, Bristol Investment Fund, Ltd,
Islandia L.P. and Omicron Master Trust. Each warrant entitles the holder to
purchase one share of unregistered, restricted common stock at $3.23 per share
and expires on November 19, 2008. The warrants were valued using the modified
Black-Scholes-Merton option pricing model with a risk free rate of 3.66%, a life
of four years, a volatility of 73%, a 0% dividend rate and a market price of
$3.23 per share and the Company recorded $1,993,523 of additional debt discount.
See also Note 2 Restatement and Reclassifications.

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

During the three months ended December 31, 2004, 16,666 Series K warrants were
exercised on a cashless exercise basis. The Company issued 13,279 Common Shares
as a result of this transaction.

During the three months ended December 31, 2004, 250,000 Series L warrants were
exercised on a cashless exercise basis. The Company issued 229,000 Common Shares
as a result of this transaction.

During the three months ended December 31, 2004, 322,242 warrants issued in 2002
were exercised for total cash consideration of $161,121, at $0.50 per share.

During the three months ended December 31, 2004, 1,338,000 Series E warrants
were exercised for total cash consideration of $334,500, at $0.25 per share.

During the three months ended December 31, 2004, 500,000 Series N warrants were
exercised for total cash consideration of $250,000, at $0.50 per share.

During the three months ended December 31, 2004, 142,500 Series P warrants were
exercised for total cash consideration of $114,000, at $0.80 per share.


The following table summarizes all Warrant activity through December 31, 2004:

                                                                     Weighted-
                                                                      Average
                                                         Number       Exercise
                                                       of Shares        Price
                                                      -----------    -----------
Outstanding, March 18, 2001 (inception)                        --    $        --
  Granted                                               1,905,600    $      1.26
                                                      -----------

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

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

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

Outstanding, September 30, 2004                        13,151,681    $      0.81
  Granted                                               1,166,009    $      3.13
     Exercised                                         (2,569,408)   $      0.38
                                                      -----------

OUTSTANDING, DECEMBER 31, 2004                         11,748,282    $      1.45

EXERCISABLE, DECEMBER 31, 2004                         11,748,282    $      1.45
                                                      ===========


                                       12

<PAGE>

NOTE 8 - SUBSEQUENT EVENTS

On January 11, 2005, the Company announced the resignation of Mr. William
Arrington, as President and Chief Operating Officer, effective as of January 5,
2005, to take up a new position as Senior Vice President, Office of the Chief
Executive Officer that will enable him to focus on public relations and
strategic marketing of the Company's products in addition to assisting the Chief
Executive Officer in the fulfillment of his duties. On January 5, 2005, the
board of directors of the Company appointed a consultant as Acting Chief
Operating Officer.

Effective January 1, 2005, the Company committed to a sale and leaseback of
$21,500 of manufacturing equipment as part of the $450,000 capital lease
financing discussed in Note 6 - Commitments and Contingencies.

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

You should read the following discussion and analysis of our financial condition
and results of operations together with our interim financial statements and the
related notes appearing at the beginning of this report. The interim financial
statements and this Management's Discussion and Analysis of Financial Condition
and Results of Operations should be read in conjunction with the financial
statements and notes thereto for the year ended September 30, 2004 and the
related Management's Discussion and Analysis of Financial Condition and Results
of Operations, both of which are contained in our Annual Report on Form 10-KSB
filed with the Securities and Exchange Commission on December 23, 2004.

The following discussion and other parts of this Form 10-Q contain
forward-looking statements that involve risks and uncertainties. Forward-looking
statements can be identified by words such as "anticipates," "expects,"
"believes," "plans," and similar terms. Our actual results could differ
materially from any future performance suggested in this report as a result of
factors, including those discussed in "Factors That May Affect Future Operating
Results" and elsewhere in this report and in our Annual Report on Form 10-KSB
for the fiscal year ended September 30, 2004. All forward-looking statements are
based on information currently available to Composite Technologies and we assume
no obligation to update such forward-looking statements, except as required by
law. Service marks, trademarks and trade names referred to in this Form 10-Q are
the property of their respective owners.

RESTATEMENTS

In May, 2005, the Company determined that certain fiscal 2004 transactions with
employee and settlements of former employee stock options that were exercised on
a "cashless" basis were improperly recorded. For these transactions, the
exercise price was allowed to be paid for in shares of the stock exercised.
Under FIN 44, such changes are considered to be modifications of the option
grant and the transactions are required to be accounted for at the fair value of
the stock issued on the date of the cashless exercise. The Company filed Form
10-Q/A on August 8, 2005 to correct this error.

In May, 2006, the Company determined that the accounting treatment of the
issuance of warrants in November, 2004 for the release of $10,000,000 from our
August, 2004 Debenture issue was improperly expensed to legal, professional, and
consulting expense as incurred. During the quarter ended December 31, 2004, we
had expensed $1,993,523 which was the fair value of the warrants issued to the
debenture holders Under the guidance of EITF 96-19 "Debtors Accounting of a
Modification or Exchange of Debt Instruments" the issuance of the warrants
constituted a modification of a convertible debt instrument. Accordingly, the
fair value of the additional warrants issued in November, 2004 should have been
deferred and amortized as an adjustment of interest expense over the remaining
term of the debentures using the interest method.

See Note 2- Restatements and Reclassifications for additional guidance.

OVERVIEW

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

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

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


                                       13

<PAGE>

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

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

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

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

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

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

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

Revenue Recognition

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

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

(1)   Product revenue which includes revenue from the sale of composite core,
      wrapped composite core, and other electric utility related products.

(2)   Consulting revenue, which includes engineering, product design, and
      service fees that we receive under customer agreements related to the
      installation and design of our product sale solutions.

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

PRODUCT SALES. Product revenues are generally recognized when product shipment
has been made and title has passed to the end user customer. Product revenues
consist primarily of revenue from the sale of: (i) wrapped composite core to
utilities either sold directly by the Company or through our distributor, (ii)
composite core sold to a cable wrapping partner not subject to a distributor
agreement and where title passes to the partner, or (iii) cable core hardware
sold to utility companies. For most product sales, we expect that the terms of
sales generally will not contain provisions that will obligate us to provide
additional products or services after installation to end users. We recognize
revenue: (i) upon shipment when products are shipped FOB shipping point or (ii)
upon delivery at the customer's location when products are shipped FOB
destination.

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

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


                                       14

<PAGE>

Development Stage Enterprise

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

Stock-Based Compensation

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

The Company has adopted the disclosure-only provisions of SFAS No. 123.
Accordingly, no compensation cost other than that required to be recognized by
APB No. 25, the difference between the fair value of the Company's common stock
at the grant date and the exercise price of the options has been recognized. Had
compensation cost for the Company's Stock Plan been determined based on the fair
value at the grant date for awards consistent with the provisions of SFAS No.
123, the Company's net loss and loss per share for the three months ended
December 31, 2004 and 2003 would have been increased to the pro forma amounts
indicated below:

Options granted to employees and warrants issued for services were valued at
fair value using the modified Black-Scholes-Merton pricing model. Assumptions
used were a risk free rate of 3.66%, a dividend yield of 0%, a volatility of 73%
and a time to maturity of the expected life of the option or warrant.

<TABLE>
<CAPTION>
                                                   Three months        Three months
                                                      ended               ended
                                                 December 31,2004    December 31,2003
                                                 ----------------    ----------------
                                                 Restated Note-2
<S>                                              <C>                 <C>
Net loss, as reported                            $     (3,780,883)   $     (1,777,766)
Add stock based employee compensation
expense included in net income, net of tax
Deduct total stock based employee compensation
Expense determined under fair value method
 for all awards, net of tax                              (419,242)            (75,242)
                                                 ----------------    ----------------
Net loss, pro forma                              $     (4,200,125)   $     (1,853,008)
                                                 ================    ================

Earnings per common share
Basic, as reported                               $          (0.03)   $          (0.02)
Basic, pro forma                                 $          (0.04)   $          (0.02)
Diluted, as reported                             $          (0.03)   $          (0.02)
Diluted, pro forma                               $          (0.04)   $          (0.02)
</TABLE>


                                       15

<PAGE>

Principles of Consolidation

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

Research and Development Expenses

Research and development expenses are charged to operations as incurred.

Accounts Receivable

The Company has a $2,500,000 account receivable from one entity relating to
engineering services provided during fiscal 2004 for an electrical line project
in Kansas. The Company received a $250,000 progress payment in April, 2005 and
has agreed to a repayment schedule consisting of a series of payments with the
balance due and payable in July, 2005. In May 2005, the progress payment
received was returned for insufficient funds. The Company will evaluate the
likelihood of collectibility in the subsequent quarter and intends to record a
reserve for any uncollected amounts that exist prior to the date of the filing
on Form 10-Q on or before August 9, 2005.

Loss Per Share

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

The following common stock equivalents were excluded from the calculation of
diluted loss per share for the three months ended December 31, 2004 and 2003
since their effect would have been anti-dilutive:

                                                        December 31
                                                 ------------------------
                                                    2004          2003
                                                 ----------    ----------
     Series B convertible preferred stock                --        80,000
     Options to acquire common stock              7,195,336     7,897,740
     Warrants to acquire common stock            11,748,282    13,189,569
     August, 2004 Debentures, if converted        8,982,036            --
                                                 ----------    ----------
     Total                                       27,905,654    21,167,309

Concentration of Credit Risk

The Company has a $2,500,000 account receivable from one entity relating to
engineering services provided during fiscal 2004. The Company received a
$250,000 progress payment in April, 2005 and has agreed to a repayment schedule
consisting of a series of payments with the balance due and payable in July,
2005. In May 2005, the progress payment received was returned for insufficient
funds. The Company will evaluate the likelihood of collectibility in the
subsequent quarter and intends to record a reserve for any uncollected amounts
that exist prior to the date of the filing on Form 10-Q on or before August 9,
2005.

RESULTS OF OPERATION

Three Months Ended December 31, 2004 and December 31, 2003

PRODUCT REVENUES. Product revenues for the three months ended December 31, 2004
consist of revenue from the sale of ACCC Cable products to utility companies on
a "trial" basis that enables these companies to assess our technology on a use
basis. The cable sold does not have a right of return. Product revenues
increased from $0 for the three months ending December 31, 2003 to $46,485 for
the three months ending December 31, 2004. The dollar increase was due to
increased ACCC cable trials by utility companies.

CONSULTING REVENUES. Consulting revenues since inception consisted of $2,500,000
for a single consulting contract that was completed during the three months
ending September 30, 2004. No consulting contracts were completed during either
the three months ended December 31, 2003 or 2004. While this contract provided
us with significant revenues, we currently are not concentrating our efforts to
increase our consulting business and instead are focused on increasing our
product revenues through commercialization of the ACCC Cable. As a result, we do
not believe that consulting revenues will be maintained or grow. Revenue of
$564,750 from one project has been deferred, with associated costs capitalized,
pending completion of the project.


                                       16

<PAGE>

COST OF PRODUCT REVENUES. Cost of product revenues for the three months ending
December 31, 2004 represented materials costs to produce ACCC cable. Cost of
product revenues increased from $0 for the three months ending December, 2003 to
$30,894 for the three months ending December, 2004. The dollar increase was due
to increased ACCC cable trials by utility companies.

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

Cost of contract revenue since inception consisted of costs related to the
single consulting contract that was completed during the three months ending
September 30, 2004. No consulting contracts were completed during either the
three months ended December 31, 2003 or 2004 and accordingly, no costs of
contract revenue was recorded for the respective quarters.

OFFICER COMPENSATION. Officer compensation expense consisted of salaries and
employee benefits for our Chief Executive and Chief Operating Officers. Officer
compensation expenses decreased 42% from $95,000 in the first quarter of fiscal
2004 to $55,385 in the current year quarter. For the three month period, the
dollar decrease was due to additional officer compensation expense recorded in
the fiscal 2004 quarter relating to balances due from quarters prior to the
quarter ending December 31, 2003.

GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expense consisted
primarily of salaries and employee benefits for administrative personnel,
facilities costs, stock exchange fees and insurance expenses. General and
administrative expense increased 29% or approximately $135,000 from $462,811 in
the first quarter of fiscal 2004 to $598,607 in the first fiscal 2005 quarter.
For the three month period ended December 31, 2004, the dollar increase was
primarily due to an increase of $182,000 in rent and facilities as a result of
the Company moving to our new manufacturing facility effective January, 2004,
offset by a decrease of $43,000 in reduced personnel costs, primarily lower
expenditures resulting from replacing or converting more expensive consultants
with less expensive employees.

LEGAL, PROFESSIONAL, AND CONSULTING EXPENSE. Legal, professional, and consulting
expense consisted primarily of professional legal and accounting fees, business
strategy consulting, and financing related expenses. Legal, professional, and
consulting expenses increased $426,000 or 98% from $435,837 in the first quarter
of fiscal 2004 to $862,307 in the first fiscal 2005 quarter. For the three month
period ended December 31, 2004, the dollar increase was primarily due to $86,000
in non-cash compensation expense related to warrants issued for capital lease
fees, $363,000 in finders fees paid in cash, $81,000 in decreased legal fees
incurred relating to SEC and litigation work performed by outside counsel, and
$59,000 increase in audit and professional accounting fees.

RESEARCH AND DEVELOPMENT EXPENSE. Research and development expense consisted
primarily of salaries for engineers and expenses for consultants, recruiting,
supplies, equipment, and facilities related to engineering projects to enhance
and extend our composite materials intellectual property offerings, and our
composite materials product technology. Research and development expense
increased $616,000 or 133% from $463,309 in the first quarter of fiscal 2004 to
$1,079,651 in the first quarter of fiscal 2005. The dollar increase in the three
month period was primarily due to increased personnel costs of $421,000
including higher employee payroll, benefits, and consulting fees paid; an
increase of $246,000 due to increased product development related tools,
supplies, and expensed equipment resulting from increased activity in advance of
full product manufacturing; and an increase in allocated facilities related
expense of $74,000 related to the new manufacturing facility.

SALES AND MARKETING EXPENSE Sales and marketing expense consisted primarily of
salaries for sales and marketing personnel, expenses for consultants, equipment,
travel, and printed marketing literature and sales materials. Sales and
Marketing expense decreased $39,000 or 12% from $311,617 in the first quarter of
fiscal 2004 to $272,789 in the first quarter of fiscal 2005. The dollar decrease
in the three month period was primarily due to a decrease of $76,000 in
personnel costs, primarily lower expenditures resulting from replacing or
converting more expensive consultants with less expensive employees; a decrease
in the purchase of promotional materials of $25,000 due to timing vs fiscal
2003; offset by an increase of $34,000 relating to allocated facilities costs,
and an increase in travel expenses of $28,000 over the three months ended
December 31, 2003.


                                       17

<PAGE>

DEPRECIATION EXPENSE. Depreciation expense consisted of depreciation on
capitalized equipment, leasehold improvements, and other capital assets.
Depreciation expense increased by 1,111% from $9,192 to $111,376 in the first
quarter of fiscal 2005. The dollar increase in the three month period ended
December 31, 2004 was primarily due to increases in the balance of equipment and
for the leasehold improvements related to the new manufacturing facility.

INTEREST INCOME. Interest income increased to $27,260 in the first quarter of
fiscal 2005 from $0 in the prior year quarter. The increase was due to interest
earned on substantially higher cash balances.

INTEREST EXPENSE. Interest expense increased to $847,875 in the first quarter of
fiscal 2005 from $0 in the prior year quarter. The increase was due to cash
interest expense and amortization of the debt discount related to the
Convertible Subordinated Debentures that closed on August 17, 2004.

INCOME TAXES. We made no provision for income taxes in the three months ending
December 31, 2004 and 2003 due to net losses incurred. In 2002, we determined
that due to our continuing operating losses as well as the uncertainty of the
timing of profitability in future periods, we should fully reserve our deferred
tax assets. As of December 31, 2004, our deferred tax assets continued to be
fully reserved. We will continue to evaluate, on a quarterly basis, the positive
and negative evidence affecting the realizability of our deferred tax assets.

Net Loss

Our net loss increased to $3.8 million in the three months ended December 31,
2004 compared to $1.7 million during the corresponding period in 2003. The
increase in 2004 from 2003 of $2.1 million was due primarily to expense
increases consisting of $0.85 million in increased employee headcount,
consulting, supplies, equipment, and additional overhead expenses related to
preparation for full production of our core product, $0.45 million of
non-recurring expenses related to our $15 million debentures,and $0.8 million in
interest expense on our $15.0 million debentures.

                                       18


<PAGE>

RECENT ACCOUNTING PRONOUNCEMENTS

SFAS No. 151

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

SFAS No. 152

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

SFAS No. 153

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

SFAS No. 123(R)

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


                                       19

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

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

For the three months ended December 31, 2004, we had a net loss of $3.8 million.
At December 31, 2004, we had $9.7 million of cash and cash equivalents, which
represented an increase of $6.8 million from September 30, 2004. The increase
was due to the transfer of $10.0 million of cash from restricted cash related to
the August, 2004 Debentures offset by $3.2 million of net change in cash.

Cash provided by operations during the three months ended December 31, 2004 of
$6,083,266 was the result of the removal of the restrictive covenants on
$10,010,060 of cash received in our August, 2004 Debenture offering offset by
$3,926,794 use of cash, primarily the result of operating losses, offset by
depreciation, amortization, and non-cash compensation expenses and working
capital requirements. Cash used for investing activities of $137,701 was
primarily related to the purchase of computer hardware and software, and
equipment put in service in anticipation of manufacturing activities offset by
the sale of equipment. Cash provided by financing of $823,936 was primarily due
to the cash proceeds from option and warrant exercises net of principal payments
made on capital lease obligations.

In November 2004, we reached an agreement with the investors that purchased
debentures in our $15 million financing of August 17, 2004 to release $10
million that was held in a custodian account. Following the release of the $10
million, we believe that we have sufficient operating capital to carry out our
plans for the near to medium term. We anticipate that we will begin generating
sales in fiscal year ending September 30, 2005 sufficient to cover operating
costs. Central to our financial strategy for fiscal 2005 is the securing of
sufficient equipment lease financing to support the ramp up of our core
production in larger production facilities. During the quarter, we obtained
approximately $455,000 in long term lease financing commitments and we are in
negotiation for an additional $3.0 million in long term equipment lease
financing.

CAPITAL EXPENDITURES

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

EFFECTS OF INFLATION

We are subject to inflation and other price risks arising from price
fluctuations in the market prices of the various raw materials that we use to
produce our products. Price risks are managed through cost-containment measures.
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.

DEVELOPMENTS THIS QUARTER

We continue to develop and refine the ACCC product. During this quarter,
refinements to the product and production process have resulted in processing
optimizations, including increasing line speed. In addition, funds were expended
for further development work for various conductor ancillaries, such as
connection hardware, which we anticipate will facilitate the installation of
ACCC cable in the field using conventional installation tools.

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


                                       20

<PAGE>

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

During this quarter, we sought to strengthen our operational management
specifically in relation to increasing our production capabilities and in the
strategic marketing arena. These efforts culminated, subsequent to the end of
the first quarter, in the appointment of a new Acting Chief Operating Officer,
Brian Brittsan, who has had considerable experience in managing companies as
they take new technology products into the commercial production stage of
operations. It is hoped that following a probationary period Mr. Brittsan will
be appointed Chief Operating Officer and become an officer of the Company. In
addition, we strengthened our financial management with the engagement of
Bradford Wheatley as a consultant to assist the Acting Chief Financial Officer,
Benton Wilcoxon, in the fulfillment of his duties. It is hoped that following a
probationary period Mr. Wheatley will be appointed to the position of Chief
Financial Officer and become an officer of the Company. Mr. Wheatley has
extensive experience in accessing capital markets, as well as in accounting and
financial management, important background as we commit resources to ramping up
production.

Mr. William Arrington, our former Chief Operating Officer, has been appointed
Senior Vice President, Office of the Chief Executive Officer, a new position
that will enable Mr. Arrington to focus on public relations and strategic
marketing of our products in addition to assisting the Chief Executive Officer
in the fulfillment of his duties.

OFF BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS There are no off
balance sheet arrangements.

The following table summarizes our contractual obligations (including interest
expense) and commitments as of December 31, 2004:

<TABLE>
<CAPTION>

-------------------------------------------------------------------------------------------------------------------------------
<S>                     <C>                  <C>                  <C>                  <C>                        <C>
Contractual
Obligations             Total              Less than 1 Year        1-3 Years           3-5 Years           More than 5 Years
-------------------------------------------------------------------------------------------------------------------------------
Long-Term Debt
Obligations             $17,392,500          $  900,000           $16,492,500               --                    --
-------------------------------------------------------------------------------------------------------------------------------
Capital Lease
Obligations             $ 1,097,375          $  408,959           $   688,416               --                    --
-------------------------------------------------------------------------------------------------------------------------------
Operating Lease
Obligations             $ 6,904,208          $1,005,903           $ 3,244,767          $2,653,538                 --
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

While we have raised significant capital through our August, 2004 Debenture
offering, we anticipate that sales of our ACCC cable will not be sufficient to
sustain our operations, and further anticipate that we will continue to incur
net losses due to our costs exceeding our revenues for an indefinite period of
time. 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.

FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS

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

Since the reorganization of the Company in 2001, we have had a limited operating
history and are at an early stage of commercialization of a new technology
product to a market unused to using new technologies. We made our ACCC available
and entered into our first commercial agreement in 2003. Our technology is a
relatively new advance for the electrical utility industry technology and has
not yet achieved widespread adoption. We do not have enough experience in
selling our products at a level consistent with broad market acceptance and do
not know whether we can do so and generate a profit. As a result of these
factors, it is difficult to evaluate our prospects, and our future success is
more uncertain than if we had a longer or more proven history of operations.


                                       21

<PAGE>

WE EXPECT FUTURE LOSSES AND OUR FUTURE PROFITABILITY IS UNCERTAIN.

Prior to acquiring Transmission Technology Corporation, or TTC, in November
2001, we were a shell corporation having no operating history, revenues from
operations, or assets since December 31, 1989. We have not had any bookable
revenues from operations subsequent to acquiring TTC through June 30, 2004. We
may experience significant quarterly and annual losses for the foreseeable
future.

We may not ever become profitable. If we do achieve profitability, we may not be
able to sustain or increase profitability on a quarterly or annual basis. We
expect the need to significantly increase our general administrative and product
prototype and equipment prototype production expenses, as necessary. As a
result, we will need to generate significant revenues to achieve and maintain
profitability.

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

In previous filings, our accountants have issued a report relating to our
audited financial statements which contains a qualification with respect to our
ability to continue as a going concern because, among other things, our ability
to continue as a going concern is dependent upon our ability to generate
profitable operations in the future or to obtain the necessary financing to meet
our obligations and repay our liabilities from normal business operations when
they come due. There is no guarantee that the product will be accepted or
provide a marketable advantage, and therefore, no guarantee that the
commercialization will ever be profitable.

For the three months ended December 31, 2004, we had a net loss of $3,780,883
and positive cash flows from operations of $6,083,266. For the fiscal year ended
September 30, 2004, we had a net loss of $14,687,874 and negative cash flows
from operations of $18,735,430. For the fiscal years ended September 30, 2003
and 2002, we had net losses of $6,771,252 and $4,523,953, respectively. For the
same periods, we had negative cash flows from operations of $2,022,935 and
$715,923, respectively.

As of December 31, 2004, our accumulated deficit was $30,220,239.

OUR INABILITY TO RAISE ADDITIONAL WORKING CAPITAL AT ALL OR TO RAISE IT IN A
TIMELY MANNER COULD NEGATIVELY IMPACT OUR ABILITY TO FUND OUR OPERATIONS, TO
GENERATE REVENUES, AND TO OTHERWISE EXECUTE OUR BUSINESS PLAN, LEADING TO THE
REDUCTION OR SUSPENSION OF OUR OPERATIONS AND ULTIMATELY OUR GOING OUT OF
BUSINESS.

While we have raised significant capital through our debenture offering, we
anticipate that the sales of our ACCC cable will not be sufficient enough to
sustain our operations, and further anticipate that we will continue to incur
net losses due to our costs exceeding our revenues for an indefinite period of
time. For these reasons, we believe that we will need to raise additional
capital until such time, if any, as we become cash-flow positive. It is highly
likely that we will continue to seek to raise money through public or private
sales of our securities, debt financing or short-term loans, corporate
collaborations or a combination of the foregoing. Our ability to raise
additional funds in the public or private markets will be adversely affected if
the results of our business operations are not favorable, if any products
developed are not well-received or if our stock price or trading volume is low.
However, additional funding may not be available on favorable terms to us, or at
all. To the extent that money is raised through the sale of our securities, the
issuance of those securities could result in dilution to our existing
stockholders. If we raise money through debt financing, we may be required to
secure the financing with all of our business assets, which could be sold or
retained by the creditor should we default in our payment obligations. Should
the financing we require to sustain our working capital needs be unavailable or
prohibitively expensive when we require it, we may not be able to complete the
commercialization of any products that we may have developed. As a result, we
may be required to discontinue our operations without obtaining any value for
our products under development, which could eliminate stockholder equity, or we
could be forced to relinquish rights to some or all of our products in return
for an amount substantially less than we expended to develop such products.


                                       22

<PAGE>

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

The electrical utility industry has historically used a variety of technologies,
including a variety of technologies involving steel cable. Compared to these
conventional technologies, our technology is relatively new, and the number of
companies using our technology is limited. The commercial success of our product
will depend upon the widespread adoption of our technology as a preferred method
by major utility companies to transmit electricity. In order to be successful,
our product must meet the technical and cost requirements for electric
transmission within the electric utility industry. Market acceptance will depend
on many factors, including: (i) the willingness and ability of customers to
adopt new technologies; (ii) our ability to convince prospective strategic
partners and customers that our technology is an attractive alternative to
conventional methods used by the electric utility industry; (iii) our ability to
change our customers' evaluation of the economics of powerline construction,
changing their focus on limiting initial capital costs to evaluating the cost
and benefit of the full life of a line liberating capital funding to acquire our
products that can overall reduce costs in power transmission; and (iv) our
ability to sell sufficient quantities of our products.

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

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

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


                                       23

<PAGE>

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

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

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

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

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

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

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

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

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

We have entered into purchase and distribution agreements with General Cable to
manufacture and distribute our ACCC product in the United States and Canada. Our
success is dependent upon establishing and maintaining relationships with
strategic partners, such as our relationship with General Cable. We face
numerous risks in successfully obtaining suitable partners on terms consistent
with our business model, including, among others: (i) we must typically undergo
a lengthy and expensive process of building a relationship with a potential
partner before there is any assurance of an agreement with such party; (ii) we
must persuade cable manufacturers with significant resources to rely on us for
critical technology on an ongoing basis rather than trying to develop similar
technology internally; (iii) we must persuade potential partners to bear
retooling costs associated with producing our products; and (iv) we must
successfully transfer technical know-how to our partners.

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

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

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

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


                                       24

<PAGE>

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

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

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

As of April 8, 2005, Benton H Wilcoxon, our Chairman of the Board, Chief
Executive Officer and Acting Chief Financial Officer, and C. William Arrington,
our director, in the aggregate beneficially own or control approximately 35% of
the outstanding common stock. As a result, these persons have controlling
influence in determining the outcome of any corporate matters submitted to our
stockholders for approval, including mergers, consolidations and the sale of all
or substantially all of our assets, election of directors and other significant
corporate actions. They also have the power to prevent or cause a change in
control. The interests of these stockholders may differ from the interests of
the other stockholders, and may limit the ability of other stockholders to
affect our management and affairs.

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

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

OUR BUSINESS MAY BE SUBJECT TO INTERNATIONAL RISKS.

We are pursuing international business opportunities, including in China,
Mexico, Brazil, Europe, the Middle East, certain far eastern countries and
Africa. As to international business in the Middle East, our current target
markets include Saudi Arabia, Qatar, United Arab Emirates, Oman, Iraq,
Afghanistan and Jordan. Of these the only countries that we believe pose a
particular problem are Iraq and Afghanistan as a result of additional
instability. In Africa we are actively pursuing South Africa and Kenya as well
as engaging in discussions with engineering companies that bid on trans-African
projects. There are no special additional risks related to these countries that
are not disclosed in the list of risks affecting most international business. To
date, we have not engaged in any transactions on these countries. Our business
model has been implemented only in the United States and Canada where we produce
the ACCC core for delivery to General Cable under a manufacturing agreement.
Expansion internationally will depend on our adaptation of this model to
international markets and may be costly and time consuming. Risks inherent in
international operations in general include: (i) unexpected changes in
regulatory requirements, export restrictions, tariffs and other trade barriers;
(ii) challenges in staffing and managing foreign operations; (iii) differences
in technology standards, employment laws and business practices; (iv) longer
payment cycles and problems in collecting accounts receivable; (v) political
instability; (vi) changes in currency exchange rates; (vii) currency exchange
controls; and (viii) potentially adverse tax consequences.

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

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

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


                                       25

<PAGE>

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

As a manufacturer and distributor of wire and cable products we are subject to a
number of industry standard-setting authorities, such as the Institute of
Electrical and Electronic Engineers, the European based International Council on
Large Electric Systems , the American Society of Testing and Materials and the
Canadian Standards Association. In addition, many of our products may become
subject to the requirements of federal, state and local or foreign regulatory
authorities. Changes in the standards and requirements imposed by such
authorities could have an adverse effect on us. In the event we are unable to
meet any such standards when adopted our business could be adversely affected.
In addition, changes in the legislative environment could affect the growth and
other aspects of important markets served by us. While certain legislative bills
and regulatory rulings are pending in the energy and telecommunications sectors
which could improve our markets, including energy bill H.R. 6 that passed both
the House and Senate in 2003 and the House Conference Committee, any delay or
failure to pass such legislation and regulatory rulings could adversely affect
our opportunities and anticipated prospects may not arise. Energy bill H.R. 6 is
a federal bill, that, if enacted, would cover energy conservation, research and
development and improvement of the energy infrastructure pursuant to a national
energy policy. We believe that this bill could improve our market opportunities
if, as a result, it enhances the willingness and ability of potential customers
to adopt new technologies in the electrical utility industry. This comprehensive
bill currently remains in conference committee in the Senate. It is not possible
at this time to predict the impact that any such legislation or regulation or
failure to enact any such legislation or regulation, or other changes in laws or
industry standards that may be adopted in the future, could have on our
financial results, cash flows or financial position.

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

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


                                       26

<PAGE>

RISKS RELATED TO OUR SECURITIES

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

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

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

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

Stockholders should be aware that, according to Securities and Exchange
Commission Release No. 34-29093, dated April 17, 1991, the market for penny
stocks has suffered in recent years from patterns of fraud and abuse. Such
patterns include: (i) control of the market for the security by one or a few
broker-dealers that are often related to the promoter or issuer; (ii)
manipulation of prices through prearranged matching of purchases and sales and
false and misleading press releases; (iii) boiler room practices involving
high-pressure sales tactics and unrealistic price projections by inexperienced
sales persons; (iv) excessive and undisclosed bid-ask differential and markups
by selling broker-dealers; and (v) the wholesale dumping of the same securities
by promoters and broker-dealers after prices have been manipulated to a desired
level, along with the resulting inevitable collapse of those prices and with
consequent investor losses.

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

The market price of our common stock may be subject to significant fluctuations
in response to our operating results, announcements of new products or market
expansions by us or our competitors, changes in general conditions in the
economy, the financial markets, the electrical power transmission and
distribution industry, or other developments and activities affecting us, our
customers, or our competitors, some of which may be unrelated to our
performance. The sale or attempted sale of a large amount of common stock into
the market may also have a significant impact on the trading price of our common
stock. During the last 12 months, the closing bid prices for our common stock
have fluctuated from a high of $6.24 to a low of $0.87. Fluctuations in the
trading price or liquidity of our common stock may adversely affect our ability
to raise capital through future equity financings.


                                       27

<PAGE>

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

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

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

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

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

AS OF APRIL 8, 2005, 26,717,996 COMMON SHARES ARE ISSUABLE UPON EXERCISE OF ALL
OUTSTANDING OPTIONS, WARRANTS AND CONVERSION OF CONVERTIBLE DEBENTURES FOR LESS
THAN THE MARKET PRICE OF $2.60 PER SHARE. CASH PROCEEDS RESULTING FROM THE FULL
EXERCISE AND CONVERSION OF THESE SECURITIES WOULD BE APPROXIMATELY $17,531,000.
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 23.0% TO APPROXIMATELY
141,259,000 SHARES.

The exercise price or conversion price of outstanding options, warrants and
convertible debentures may be less than the current market price for our common
shares. In the event of the exercise of these securities, a shareholder could
suffer substantial dilution of his or her investment in terms of the percentage
ownership in us as well as the book value of the common shares held. At the
April 8, 2005 market price of $2.60 per share, 26,717,996 shares would be
exercisable or convertible for less than the market prices. Full exercise and
conversion of these below market shares would result in us receiving cash
proceeds of $17,531,000 and would increase the outstanding common shares by
23.0% to approximately 141,259,000 shares.

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

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


                                       28

<PAGE>

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


                                       29

<PAGE>


                                       30

<PAGE>

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

As of December 31, 2004 we did not hold any derivative financial instruments for
speculative or trading purposes. The primary objective of our investment
activities is the preservation of principal while maximizing investment income
and minimizing risk. As of December 31, 2004, we had $9.7 million in cash, cash
equivalents and short-term investments that mature in twelve months or less. Due
to the short duration of these financial instruments, we do not expect that a
change in interest rates would result in any material loss to our investment
portfolio.

ITEM 4: CONTROLS AND PROCEDURES

Based on an evaluation under the supervision and with the participation of the
Company's management, including the Chief Executive Officer, the financial
consultant assisting the acting Chief Financial Officer, and the acting Chief
Operating Officer, the Company's principal executive officer and principal
financial officer has concluded that the Company's disclosure controls and
procedures (as defined under the Securities Exchange Act of 1934, as amended
(Exchange Act)) were not effective as of December 31, 2004 to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.

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


                                       31

<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1 - LEGAL PROCEEDINGS


                                       32

<PAGE>

COMPOSITE TECHNOLOGY CORPORATION V. ACQUVEST, INC., PAUL KOCH, VICTORIA KOCH,
PATRICIA MANOLIS, AND MICHAEL TARBOX

The Orange County Superior Court Case No.03-CC-12640 was filed on October 16,
2003. CTC alleges causes of action for declaratory relief, breach of contract,
fraudulent inducement, rescission, and economic duress arising out of certain
alleged subscription and investment agreements executed between CTC, Acquvest,
Inc., and Patricia Manolis. Purported "finder's fee" agreements are also at
issue involving Paul Koch and Michael Tarbox. The Defendants deny CTC's material
allegations, and Acquvest, Koch, and Manolis filed a Cross-Complaint on
September 16, 2004. The parties stipulated to permit Cross-Complainants to amend
the Cross-Complaint, which was filed on December 17, 2004. CTC has filed a
demurrer to the Amended Cross-Complaint of Acquvest. Trial date has been set for
May 9, 2005.

ASCENDIANT CAPITAL GROUP, LLC, MARK BERGENDAHL, AND BRADLEY WILHITE V. COMPOSITE
TECHNOLOGY CORPORATION AND BENTON H. WILCOXON

The Orange County Superior Court Case No. 03CC13314 was filed on November 4,
2003. Ascendiant, Bergendahl, and Wilhite allege causes of action against
defendants for breach of contract, specific performance, fraud and deceit,
negligent misrepresentations, breach of covenant of good faith and fair dealing,
and declaratory relief arising out of a business advisory and consulting
agreement (the "Agreement") allegedly executed between CTC and Ascendiant. CTC
denies the material allegations, and on November 10, 2003, CTC filed a case in
Orange County Superior Court against Ascendiant, Bergendahl, and Wilhite,
alleging causes of action for declaratory relief, breach of contract, fraudulent
inducement, and economic coercion arising out of the Agreement as well as
various unrelated business agreements between the plaintiffs and Wilcoxon. The
principal parties are Ascendiant, Bergendahl, Wilhite, CTC, and Wilcoxon. On
November 24, 2003, the court entered an order consolidating the cases. On
January 15, 2004, the parties agreed to submit all claims and cross-claims
arising out of the Agreement to binding arbitration before a neutral arbitrator
at JAMS-Orange County. The remaining claims and cross-claims not arising out of
the Agreement remain pending in Orange County Superior Court. The arbitration
commenced on February 9, 2005.


                                       33

<PAGE>

J.P. TURNER & COMPANY, L.L.C. V. COMPOSITE TECHNOLOGY CORPORATION

J.P. Turner & Company, L.L.C. ("J.P. Turner") initiated an arbitration before
the National Association of Securities Dealers in February 2004 alleging
Composite Technology Corporation ("CTC") breached a finder's agreement by
failing to pay certain fees to J.P. Turner. CTC disputes that any breach of the
agreement took place and denies that J.P. Turner made any introductions of
investors to CTC which directly lead to financing. CTC has filed a counterclaim
against J.P. Turner alleging claims of fraud against J.P. Turner arising out of
misrepresentations made by J.P. Turner concerning an investment opportunity.
J.P. Turner seeks $200,000 in monetary damages, a warrant to purchase $200,000
common shares of CTC at an exercise price equal to the closing bid on December
17, 2003, pre-judgment interest as of December 18, 2003, reasonable attorneys'
fees and costs. CTC seeks compensatory damages in an amount according to proof,
punitive damages, and reasonable attorneys' fees and costs based upon its
counterclaims. CTC filed its Statement of Answer and Counterclaims on May 17,
2004. The matter is presently set for hearing at the end of February 2005.

ADAM DEVONE V. COMPOSITE TECHNOLOGY CORPORATION, ET AL.

On September 10, 2004, Adam Devone filed a Complaint in Orange County Superior
Court (Case No. 04-CC-09321) against Donner, Evan Wride and Global Research,
Inc., Nutek, Inc., Zeta Centauri, Inc., Sherpa Financial & Investigations, Inc.
and Multiplyingchurches.org, Inc. (collectively, the "Donner Parties") and CTC.
Devone alleges a variety of claims against the Donner Parties based upon alleged
contractual breaches and tortuous conduct related to a $200,000 loan made
between Devone and the Donner Parties. CTC is only party to the last two causes
of action for Imposition of Constructive Trust and Declaratory Relief. Devone
did not seek monetary damages or costs against CTC. On October 8, 2004, CTC
filed an Answer to the Complaint. On October 20, 2004, Multiplyingchurches.org,
Inc. ("MC Org") filed a Cross-Complaint against CTC, Adam Devone, Sheryl Lyn
Devone (Plaintiff's wife) and Roes 1-100 alleging claims for breach of contract
against CTC and Roes 51-100 and tortious interference with contract against
Plaintiff, his wife and Roes 1-50. MC Org alleges that CTC breached a warrant
agreement by failing to issue shares thereunder and sought unspecified damages
and an injunction compelling CTC to issue shares under the warrant agreement.
CTC filed an Answer to MC Org's Cross-Complaint on November 19, 2004. On
December 30, 2004, MC Org filed a request for dismissal of all claims against
CTC pursuant to a settlement reached between MC Org and CTC. Pursuant to a
confidential settlement agreement entered into by all parties named in this
matter, a Notice of Settlement was filed on February 1, 2005 indicating that a
dismissal of the Complaint would be filed within 10 days.

MICHAEL TARBOX V. COMPOSITE TECHNOLOGY CORPORATION, ET AL.

Michael Tarbox ("Tarbox") filed this action on October 13, 2004 in Orange County
Superior Court (Case No. 04-CC-10345) against Paul Koch, Acquvest, CTC and Doe
Defendants. Tarbox alleges that Koch made fraudulent transfers to Acquvest and
the Doe defendants for the purpose of avoiding the debt owed to Tarbox. Tarbox
alleges that CTC securities were intended to serve as security for a debt owed
by Koch to Tarbox. Tarbox alleges that Defendants were not bona fide purchasers
of the CTC securities since they were receiving such securities for the benefit
of Tarbox. Tarbox further alleges that CTC breached an agreement to pay him a
finder's fee in connection with investments made by Koch. Tarbox alleges that
CTC's breach has caused him to suffer damages in excess of $750,000. CTC denies
Tarbox's material allegations. On November 14, 2004, CTC filed a demurrer to the
Complaint. Tarbox filed a First Amended Complaint. CTC filed an Answer to the
First Amended Complaint.

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

On December 31, 2004, Jeremiah O'Keeffe ("Plaintiff") filed suit against C.
William Arrington and Composite Technology Corporation ("Defendants") in the
District Court of Dallas, Texas (Case No. 04-13004-A). Plaintiff alleges causes
of action for breach of agreement and quantum meruit, arising out of an alleged
failure to compensate Plaintiff for unspecified services provided to Defendants.
Plaintiff seeks compensatory damages, including the transfer of 5,500,000 shares
of common stock, $22,880,000 in monetary damages, attorneys' fees, interest and
costs. The Company and Mr. Arrington deny the claims and intend to vigorously
defend against them.


                                       34

<PAGE>

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

During the first quarter of fiscal 2005, the Company issued 1,083,592 warrants
to four accredited investors in connection with an amendment to the Company's
August, 2004 Debenture issue. Each warrant entitles the holder to purchase
shares of common stock at $3.23 per share and expires on November 19, 2008.

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

ITEM 3 - DEFAULTS ON SENIOR SECURITIES

None

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

Our 2004 annual meeting of stockholders (the "2004 Annual Meeting") was held on
October 28, 2004 at our offices at 2026 McGaw Avenue, Irvine, California 92614.
Three proposals, as described in our Proxy Statement dated September 23, 2004,
were voted on at the meeting. Following is a brief description of the matters
voted upon and the results of the voting:

1. Election of Directors:

            Nominee:                   Number of Shares:

            Benton H Wilcoxon          For 85,628,589
                                       Withheld 650,355
                                       Against  391,005

            C. William Arrington       For 85,628,589
                                       Withheld 650,355
                                       Against 391,005

2. Approval of an increase in the number of shares subject to the 2002
Non-Qualified Stock Compensation Plan by 15 million shares.

            For                 Against         Abstain
            54,736,200          5,963,476       25,970,323

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

            For                 Against         Abstain
            85,655,736          173,621         840,642



ITEM 5 - OTHER INFORMATION

None


                                       35

<PAGE>



ITEM 6 - EXHIBITS

(a) Index to Exhibits


Number      Description

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

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

3.1(3)      Articles of Incorporation of the Registrant.

3.2(12)     Bylaws of Registrant.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       36

<PAGE>

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

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

10.17(14)   Letter Agreement between Composite Technology Corporation and
            Midsummer Investment, Ltd., Bristol Investment Fund, Ltd., Islandia,
            L.P. and Omicron Trust dated January 21, 2005.

10.18(15)   Letter Agreement between Composite Technology Corporation and ATEL
            Ventures, Inc., dated December 16, 2004.

10.19(15)   Master Lease Agreement between Composite Technology Corporation and
            IFC Credit Corporation dated May 7, 2004, as amended.

10.20(15)   Consulting Agreement by and between Composite Technology
            Corporation, CTC Cable Corporation and Global American Energy Inc.,
            dated March 31, 2003.

10.21(15)   License Agreement between Composite Technology Corporation and W.
            Brandt Goldsworthy & Associates, Inc., dated February 6, 2003.

10.22(15)   Consulting Agreement by and between Composite Products Development,
            Inc., George Korzeniowski and Composite Technology Corporation,
            dated March 1, 2002.

10.23(15)   Consulting Agreement by and between Composite Support & Solutions,
            Inc. and Composite Technology Corporation.

10.24(15)   Firm Fixed Price Billable Services Agreement Terms and Conditions
            between EPRI Solutions, Inc. and Composite Technology Corporation,
            dated February 2003.

10.25(15)   Research Agreement between University of Southern California and
            Composite Technology Corporation, dated June 23, 2003.

10.26(15)   Joint Development Agreement between FCI SA and Composite Technology
            Corporation, dated November 5, 2003.

10.27(15)   Consulting Agreement between David C. Bryant and Composite
            Technology Corporation, dated February 21, 2003.

10.28(15)   Employee Confidentiality and Assignment Agreement between David C.
            Bryant and Composite Technology Corporation, dated February 21,
            2005.

21(7)       Subsidiaries of the Registrant.

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

(14) Incorporated herein by reference to Form 10-Q filed with the U.S.
Securities and Exchange Commission on February 14, 2005.

(15) Incorporated herein by reference to Form 10-KSB/A filed with the U.S.
Securities and Exchange Commission on August 8, 2005.

                                       37

<PAGE>

                                    SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Amendment No. 2 to 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 31, 2006


                                       38