**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-Q**





**x** **QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES**


**EXCHANGE
      ACT OF 1934**





**FOR
      THE QUARTERLY PERIOD ENDED JUNE 30, 2008**





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


**EXCHANGE
      ACT**  **OF
      1934**





*COMMISSION
      FILE NUMBER 0-10999*





**COMPOSITE
      TECHNOLOGY CORPORATION**


(Exact
      Name of Registrant as Specified in Its Charter)





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





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




(949)
      428-8500


(Registrant's
      Telephone Number, Including Area Code)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. YES x NO o





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer or a smaller reporting company.
      See definition of “large accelerated filer”, “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act. (Check one)





Large
                accelerated filero
            Accelerated
                filerxNon-accelerated
                filero(Do not
                check if a smaller reporting company)
            Smaller
                reporting companyo





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). YES o NO x





APPLICABLE
      ONLY TO ISSUERS INVOLVED IN BANKRUPTCY


PROCEEDING
      DURING THE PRECEDING FIVE YEARS:





Indicate
      by check mark whether the registrant has filed all documents and reports
      required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange
      Act
      of 1934 subsequent to the distribution of securities under a plan confirmed
      by a
      court. YES x NO o




APPLICABLE
      ONLY TO CORPORATE ISSUERS:





Indicate
      the number of shares outstanding of each of the issuer's classes of common
      stock
      as of: August 8, 2008





CLASS
            
            NUMBER
                OF SHARES OUTSTANDINGCommon
                Stock, par value $0.001 per share
            
            287,508,370
                shares
















**COMPOSITE
      TECHNOLOGY CORPORATION**


Form
      10-Q
      for the Quarter ended June 30, 2008


Table
      of
      Contents





PagePART
                I – FINANCIAL INFORMATIONItem
                1  Financial
                Statements
            3Item
                2    Management's Discussion and Analysis of Financial
                Condition and Results of Operations
            31Item
                3    Quantitative and Qualitative Disclosures About Market
                Risk
            47Item
                4    Controls and Procedures
            47PART
                II – OTHER INFORMATIONItem
                1    Legal Proceedings
            49Item
                1A Risk Factors
            49Item
                2    Unregistered Sales of Equity Securities and the Use of
                Proceeds
            52Item
                3    Defaults Upon Senior Securities
            52Item
                4    Submission of Matters to a Vote of Security
                Holders
            52Item
                5    Other Information
            53Item
                6    Exhibits
            55SIGNATURE
            57INDEX
                TO EXHIBITS
            55




2




**ITEM
      1**


**PART
      1 - FINANCIAL STATEMENTS**


**COMPOSITE
      TECHNOLOGY CORPORATION**


**AND
      SUBSIDIARIES**


**CONSOLIDATED
      BALANCE SHEETS**





June
                30, 2008(unaudited)
            
            September 30, 2007ASSETSCURRENT
                ASSETSCash
                and Cash Equivalents
            
            $
            47,551,966
            
            $
            22,656,834Restricted
                Cash
            
            
            200,000
            
            
            —Accounts
                Receivable, current, net of reserve of $777,503 and
                $595,980
            
            
            12,164,211
            
            
            7,808,986Inventory,
                net
            
            
            44,722,597
            
            
            25,701,855Advanced
                Payments for Turbine Inventory
            
            
            12,083,779
            
            
            12,893,507Assets
                of Discontinued Operations
            
            
            —
            
            
            2,109,394Prepaid
                expenses and Other Current Assets
            
            
            2,931,853
            
            
            3,499,510Total
                Current Assets
            
            
            119,654,406
            
            
            74,670,086Long
                Term Trade Receivables
            
            
            3,626,109
            
            
            2,809,558Property
                and Equipment, net
            
            
            9,470,350
            
            
            7,942,677Goodwill
            
            
            24,218,539
            
            
            24,218,539Intangible
                Assets, net
            
            
            21,643,162
            
            
            22,558,600Other
                Assets
            
            
            1,301,148
            
            
            635,554TOTAL
                ASSETS
            
            $
            179,913,714
            
            $
            132,835,014LIABILITIES
                AND SHAREHOLDERS’ EQUITYCURRENT
                LIABILITIESAccounts
                Payable and Other Accrued Liabilities
            
            $
            44,858,251
            
            $
            20,645,794Deferred
                Revenues and Customer Advances
            
            
            32,730,588
            
            
            35,581,067Warranty
                Provision
            
            
            13,489,905
            
            
            12,522,837Lease
                Obligation – Current
            
            
            —
            
            
            109,021Total
                Current Liabilities
            
            
            91,078,744
            
            
            68,858,719LONG
                TERM LIABILITIESLong
                Term Portion of Deferred Revenues
            
            
            957,185
            
            
            1,136,404Long-Term
                Portion of Warranty Provision
            
            
            2,173,122
            
            
            3,292,628Convertible
                Notes – Long-Term
            
            
            8,455,791
            
            
            9,834,817Total
                Long-Term Liabilities
            
            
            11,586,098
            
            
            14,263,849Total
                Liabilities
            
            
            102,664,842
            
            
            83,122,568COMMITMENTS
                AND CONTINGENCIESSHAREHOLDERS’
                EQUITYCommon
                Stock, $.001 par value 600,000,000 shares authorized 285,540,654
                and
                221,308,350 issued and outstanding
            
            
            285,540
            
            
            221,308Additional
                Paid-in Capital
            
            
            249,710,683
            
            
            189,604,754Accumulated
                Deficit
            
            
            (171,568,224
            )
            
            (139,609,437
            )Accumulated
                Other Comprehensive Loss
            
            
            (1,179,127
            )
            
            (504,179
            )Total
                Shareholders’ Equity
            
            
            77,248,872
            
            
            49,712,446TOTAL
                LIABILITIES AND SHAREHOLDERS’ EQUITY
            
            $
            179,913,714
            
            $
            132,835,014





The
      accompanying notes are an integral part of these financial
      statements




3




**COMPOSITE
      TECHNOLOGY CORPORATION**


**AND
      SUBSIDIARIES**


CONSOLIDATED
      STATEMENTS OF OPERATIONS


FOR
      THE
      THREE MONTHS ENDED JUNE 30, 2008 AND 2007


(UNAUDITED)


AND
      FOR
      THE NINE MONTHS ENDED JUNE 30, 2008 AND 2007


(UNAUDITED)


Three Months ended
                June
                  30, 2008
              
              Three Months ended
                June
                  30, 2007
              
              Nine Months ended
                June
                  30, 2008
              
              Nine Months ended
                June
                  30, 2007Revenue:Product
                  Sales
              
              $
              20,393,798
              
              $
              11,714,423
              
              $
              58,711,420
              
              $
              27,944,047Service
                  Revenue
              
              
              472,796
              
              
              1,187,778
              
              
              1,822,648
              
              
              2,509,432Total
                  Revenue
              
              
              20,866,594
              
              
              12,902,201
              
              
              60,534,068
              
              
              30,453,479Cost
                  of Product Sold
              
              
              19,739,718
              
              
              9,469,259
              
              
              50,846,383
              
              
              23,937,187Cost
                  of Service Revenue
              
              
              1,690,107
              
              
              2,950,980
              
              
              5,011,036
              
              
              6,983,872Gross
                  margin
              
              
              (563,231
              )
              
              481,962
              
              
              4,676,649
              
              
              (467,580
              )OPERATING
                  EXPENSESOfficer
                  compensation
              
              
              858,158
              
              
              378,071
              
              
              1,463,410
              
              
              875,767General
                  and administrative
              
              
              4,159,535
              
              
              3,791,431
              
              
              11,536,351
              
              
              12,918,283Research
                  and development
              
              
              2,855,248
              
              
              1,351,966
              
              
              12,198,293
              
              
              3,998,077Sales
                  and Marketing
              
              
              1,404,430
              
              
              1,266,811
              
              
              3,870,996
              
              
              2,737,061Depreciation
                  & Amortization
              
              
              917,572
              
              
              700,410
              
              
              2,385,752
              
              
              1,982,700Total
                  operating expenses
              
              
              10,194,943
              
              
              7,488,689
              
              
              31,454,802
              
              
              22,511,888LOSS
                  FROM OPERATIONS
              
              
              (10,758,174
              )
              
              (7,006,727
              )
              
              (26,778,153
              )
              
              (22,979,468
              )OTHER
                  INCOME /(EXPENSE)Interest
                  expense
              
              
              (1,846,599
              )
              
              (1,457,287
              )
              
              (3,359,318
              )
              
              (3,447,387
              )Interest
                  income
              
              
              19,477
              
              
              42,416
              
              
              153,471
              
              
              140,461Other
                  income/(expense)
              
              
              (6,016
              )
              
              —
              
              
              68,197
              
              
              273,206Expense
                  related to modification of warrants
              
              
              (553,151
              )
              
              (88,121
              )
              
              (553,151
              )
              
              (373,709
              )Total
                  other income/(expense)
              
              
              (2,386,289
              )
              
              (1,502,992
              )
              
              (3,690,801
              )
              
              (3,407,429
              )Net
                  Loss from Continuing Operations before Income Taxes
              
              
              (13,144,463
              )
              
              (8,509,719
              )
              
              (30,468,954
              )
              
              (26,386,897
              )Income
                  Taxes
              
              
              6,506
              
              
              (91,681
              )
              
              12,632
              
              
              (39,248
              )NET
                  LOSS from Continuing Operations
              
              
              (13,150,969
              )
              
              (8,418,038
              )
              
              (30,481,586
              )
              
              (26,347,649
              )Discontinued
                  Operations (Note 1)(Income)/Loss
                  from Discontinued Operations (including a net loss on sales of
                  $0 and $0
                  for the three and nine months ending June 30, 2008, respectively,
                  and net
                  loss on sales of $0 and $3,889,883 for the three and nine months
                  ending
                  June 30, 2007 respectively)
              
              
              —
              
              
              (294,438
              )
              
              1,477,201
              
              
              (190,805
              )Minority
                  interest in loss of consolidated subsidiary
              
              
              —
              
              
              —
              
              
              —
              
              
              (10,718
              )NET
                  LOSS
              
              
              (13,150,969
              )
              
              (8,123,600
              )
              
              (31,958,787
              )
              
              (26,146,126
              )OTHER
                  COMPREHENSIVE INCOME/(LOSS)Foreign
                  Currency Translation Adjustment net of tax of $0 , $0, $0, and
                  $0
              
              
              (2,222
              )
              
              59,223
              
              
              (674,948
              )
              
              66,644COMPREHENSIVE
                  LOSS
              
              $
              (13,153,191
              )
              $
              (8,064,377
              )
              $
              (32,633,735
              )
              $
              (26,079,482
              )BASIC
                  AND DILUTED LOSS PER SHARELoss
                  from continuing operations
              
              $
              (0.06
              )
              $
              (0.05
              )
              $
              (0.14
              )
              $
              (0.15
              )Loss
                  from discontinued operations
              
              $
              (0.00
              )
              $
              (0.00
              )
              $
              (0.01
              )
              $
              (0.00
              )WEIGHTED-AVERAGE
                  COMMON SHARES OUTSTANDING
              
              
              **235,860,477**
              
              
              **185,004,408**
              
              
              **228,534,651**
              
              
              **180,884,695**





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




4




**COMPOSITE
      TECHNOLOGY CORPORATION**


**AND
      SUBSIDIARIES**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**FOR
      THE NINE MONTHS ENDED JUNE 30, 2008 AND 2007**





For the Nine
              Months ending
              June 30, 2008
            
            For the Nine
              Months ending
              June 30, 2007(unaudited)
            
            (unaudited)CASH
                FLOWS FROM OPERATING ACTIVITIESNet
                loss
            
            $
            (31,958,787
            )
            $
            (26,146,126
            )(Income)/Loss
                from discontinued operations
            
            
            1,477,201
            
            
            (201,523
            )Adjustments
                to reconcile net loss to net cash used in operating
                activities:Depreciation
                & amortization
            
            
            2,385,752
            
            
            1,982,700Amortization
                of prepaid expenses paid in stock
            
            
            210,868
            
            
            646,845Interest
                and deferred finance charge amortization related to detachable warrants
                and fixed conversion features
            
            
            2,362,034
            
            
            2,101,979Expense
                related to fair value of vested options
            
            
            2,175,163
            
            
            1,386,418Issuance
                of common stock for services
            
            
            —
            
            
            248,500Issuance
                of common stock for settlement
            
            
            —
            
            
            165,720Issuance
                of warants for services
            
            
            —
            
            
            164,208Compensation
                expense related to modification of stock warrants
            
            
            553,151
            
            
            373,709Gain
                on sale of equipment
            
            
            (85,979
            )
            
            —Impairment
                on obsolete inventory
            
            
            4,723,000
            
            
            —Changes
                in Assets / Liabilities:Accounts
                receivable
            
            
            (5,171,776
            )
            
            582,939Inventory
            
            
            (23,743,742
            )
            
            (5,561,235
            )Advanced
                payments for inventory
            
            
            809,728
            
            
            —Prepaid
                expenses
            
            
            237,151
            
            
            550,799Restricted
                cash
            
            
            (200,000
            )
            
            —Other
                assets
            
            
            (487,477
            )
            
            723,741Accounts
                payable and accrued expenses
            
            
            25,002,707
            
            
            3,792,954Accrued
                warranty liability
            
            
            (152,438
            )
            
            (386,459
            )Deferred
                revenue
            
            
            (3,029,698
            )
            
            3,337,227Cash
                used in operating activities
            
            
            (24,893,142
            )
            
            (16,237,604
            )CASH
                FLOW FROM INVESTING ACTIVITIESSale
                of equipment
            
            
            110,325
            
            
            —Purchase
                of property and equipment
            
            
            (3,022,333
            )
            
            (4,892,879
            )Cash
                used in investing activities
            
            
            (2,912,008
            )
            
            (4,892,879
            )CASH
                FLOW FROM FINANCING ACTIVITIESProceeds
                from issuance of convertible debentures
            
            
            —
            
            
            21,455,500Proceeds
                from exercise of warrants
            
            
            3,721,301
            
            
            115,000Proceeds
                from issuance of common stock (net of issuing costs of
                $90,593)
            
            
            49,909,407
            
            
            23,455,745Proceeds
                from senior secured debt agreements
            
            
            2,500,001
            
            
            —Proceeds
                from factoring arrangements
            
            
            —
            
            
            1,800,000Proceeds
                from notes payable
            
            
            —
            
            
            500,000Proceeds
                from exercise of options
            
            
            11,600
            
            
            89,600Payments
                on capital lease assets
            
            
            (109,021
            )
            
            (250,999
            )Repayments
                of notes payable and factoring arrangements
            
            
            (2,500,001
            )
            
            (2,300,000
            )Cash
                provided by financing activities
            
            
            53,533,287
            
            
            44,864,846Effect
                of exchange rate changes on cash from continuing
                operations
            
            
            (833,005
            )
            
            (1,838
            )Net
                increase/(decrease) in cash and cash equivalents from continuing
                operations
            
            
            24,895,132
            
            
            23,732,525CASH
                FLOWS FROM DISCONTINUED OPERATIONS:Cash
                used in operating activities – discontinued
                operations
            
            
            —
            
            
            171,917Cash
                used for investing activities – discontinued
                operations
            
            
            —
            
            
            (281,156
            )Cash
                used for financing activities – discontinued
                operations
            
            
            —
            
            
            —Effect
                of exchange rate changes on cash – discontinued
                operations
            
            
            —
            
            
            6,024Net
                increase/(decrease) in cash and cash equivalents from discontinued
                operations
            
            
            —
            
            
            (103,215
            )Total
                net increase/(decrease) in cash and cash equivalents
            
            $
            24,895,132
            
            $
            23,629,310Cash
                and cash equivalents at beginning of period – continuing
                operations
            
            
            22,656,834
            
            
            2,475,132Cash
                and cash equivalents at beginning of period – discontinued
                operations
            
            
            —
            
            
            103,215Cash
                and cash equivalents at beginning of period
            
            $
            22,656,834
            
            $
            2,578,347Cash
                and cash equivalents at end of period – continuing
                operations
            
            
            47,551,966
            
            
            26,207,657Cash
                and cash equivalents at end of period – discontinued
                operations
            
            
            —
            
            
            —Cash
                and cash equivalents at end of period
            
            $
            47,551,966
            
            $
            26,207,657SUPPLEMENTAL
                DISCLOSURES OF CASH FLOW INFORMATIONCASH
                PAID FOR BANKRUPTCY ITEMS
            
            $
            —
            
            $
            316,592INTEREST
                PAID
            
            $
            957,708
            
            $
            714,348INCOME
                TAX PAID
            
            $
            824
            
            $
            1,600





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




5




**Supplemental
      Schedule for Non Cash Financing Activities**




During
      the first nine months of fiscal 2008, the Company issued the
      following:





Between
      October, 2007 and April, 2008, the Company issued 2,073,004 shares of Common
      Stock for the conversion of $2,135,193 of Convertible Debt at a conversion
      price
      of $1.03 per share.





In
      April,
      2008, the Company issued 200,000 shares of Common Stock as a prepayment for
      investor relations services valued at $208,000, the market price on the date
      of
      issuance.




6




**COMPOSITE
      TECHNOLOGY CORPORATION**


**AND
      SUBSIDIARIES**


**NOTES
      TO FINANCIAL STATEMENTS**





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





*Company*





Composite
      Technology Corporation, originally incorporated in Florida and reincorporated
      in
      Nevada, is an Irvine, CA based company operating in two segments: CTC Cable
      (“Cable”) and DeWind (“Wind”). The Cable Segment sells high energy efficiency
      patented composite core conductors known as “ACCC TM conductors” for use in electric transmission and distribution lines. The Wind
      segment sells electricity generating wind turbines under the brand name DeWind.
      ACCC conductor is commercially available in the United States and Canada, China,
      Europe, the Middle East, and South America through direct sales to utilities
      and
      through distribution and purchase agreements.





*Accounting*





The
      accompanying unaudited consolidated financial statements of Composite Technology
      Corporation (the “Company” or “Composite Technology”) have been prepared in
      accordance with accounting principles generally accepted in the United States
      of
      America for interim financial information and with the instructions to Form
      10-Q
      and Rule 10-01 of Regulation S-X. Accordingly, they do not contain all of the
      information and footnotes required for complete financial statements. Interim
      information is unaudited; however, in the opinion of the Company's management,
      the accompanying unaudited, consolidated financial statements reflect all
      adjustments (consisting of normal, recurring adjustments) considered necessary
      for a fair presentation of the Company's interim financial information. These
      financial statements and notes should be read in conjunction with the audited
      financial statements of the Company included in the Company's Annual Report
      on
      Form 10-K/A for the fiscal year ended September 30, 2007 filed with the
      Securities and Exchange Commission on June 4, 2008.





*Discontinued
      Operations*





On
      October 1, 2006, the Company’s wholly owned subsidiary, EU Energy Service GmbH
      (EUES) entered into a recapitalization arrangement whereby 50% of the voting
      stock of EUES was sold to Enertrag AG, a turbine service customer of EUES and
      a
      new entity was created, called E Service. The new entity was operated under
      joint control of both Enertrag and DeWind executives during the quarter ended
      December 31, 2006.





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


Company.




7




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





On
      April
      3, 2008 the Company and Enertrag closed the sale of the remaining 24.9%
      ownership in E Services for 500,000 Euros ($790,250 at April 3, 2008 exchange
      rates). The consolidated financial statements of Composite Technology
      Corporation have been restated to present the E Services operations, assets
      and
      liabilities as discontinued operations.





The
      assets and liabilities of E Services, which consist solely of assets and no
      liabilities, have been classified on the balance sheet as net assets of
      discontinued operations.




June
                30,
              2008
            
            September
              30, 
                2007Net
                assets of discontinued operations
            
            $
            —
            
            $
            2,109,394





The
      net
      income from operations of E Services has been classified on the statement of
      income as loss from discontinued operations. Summarized results of discontinued
      operations are as follows:





Three
                months ended
              June
                30,
            
            Nine
                months ended
              June
                30,2008
            
            2007
            
            2008
            
            2007Service
                Revenues
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            3,889,883Cost
                of Service Revenues
            
            
            —
            
            
            —
            
            
            —
            
            
            2,612,343Selling,
                General & Administrative Expenses
            
            
            —
            
            
            —
            
            
            —
            
            
            1,237,249Other
                Expenses
            
            
            —
            
            
            —
            
            
            —
            
            
            61,725(Income)/Losses
                from unconsolidated subsidiary accounted for under the equity
                method
            
            
            —
            
            
            (294,438
            )
            
            56,514
            
            
            (212,239
            )Impairment
                of long term assets
            
            
            —
            
            
            —
            
            
            1,420,687
            
            
            —Minority
                Interest in loss of consolidated subsidiary
            
            
            —
            
            
            —
            
            
            —
            
            
            (10,718
            )(Income)/Loss
                from discontinued operations
            
            $
            —
            
            $
            (294,438
            )
            $
            1,477,201
            
            $
            (201,523
            )




E
      Services had previously been accounted for as a Variable Interest Entity (VIE)
      in past accounting periods. For the three months ending December 31, 2006,
      the
      operations were consolidated into the operations of the Company. In January
      2007, the ownership ratio of E Services decreased to 24.9%, the operations
      were
      no longer consolidated and the VIE was accounted for under the equity method.
      The impairment loss recorded during the three and nine months ended June 30,
      2008 represents the write down of the investment to the $790,250 sales value.
      Since October 1, 2006 E Services was operated as a stand-alone entity, generated
      no continuing cash flows and neither the Company nor any of its subsidiaries
      made any allocation of overhead including interest expense. No material
      contingent liabilities were retained after the disposal and no material
      operations activities occurred between June 30, 2008 and the disposal
      date.




8




**REVENUE
      RECOGNITION**





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




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


(1)
      Product revenue which includes revenue from:


a)
            the
                sale of composite core, stranded composite core, core and stranded
                core
                hardware, and other electric utility related
                products.


b)
            the
                sale of electrical generation turbines, related turbine parts, and
                license
                royalties on turbines sold by third
                parties.


(2)
      Service revenue which includes revenue from the service and maintenance of
      turbine generators under service contracts or revenue from billings on a cost
      and materials basis.





In
      addition to the above general revenue recognition principles prescribed by
      SAB
      104, our specific revenue recognition policies for each revenue
      source:





PRODUCT
      REVENUES. Product revenues are recognized when product shipment has been made
      and title has passed to the end user customer. Product revenues consist
      primarily of revenue from the sale of: (i) stranded composite core and related
      hardware to utilities either sold directly by the Company or through a
      distribution agreement, ii) composite core and related hardware sold to a cable
      stranding entity, or iii) turbines, turbine parts, or license rights sold
      to wind farm operators, utilities, and technology licensees. Revenues are
      deferred for product contracts where the Company is required to perform
      installation services until after the installation is complete. Our distribution
      agreements are structured so that our revenue cycle is complete upon shipment
      and title transfer of products to the distributor with no right of
      return.




CTC
        Cable
        sales for the three and nine months ended June 30, 2008 and 2007 consisted
        of
        stranded ACCC conductor and ACCC hardware sold to end user utilities, sales
        of
        ACCC conductor sold to our Chinese distributor, and sales of ACCC conductor
        core
        and ACCC hardware to two of our stranding manufacturers. All ACCC related
        product sales were recognized upon delivery of product and transfer of title.
        There is no right of return for sales of ACCC conductor or ACCC core to our
        Chinese distributor.
  If
        sold
        as ACCC conductor, we offer an insured warranty for up to seven years. Due
        to
        CTC Cable’s inability to self-insure our ACCC conductor partially due to it
        being a new technology, we engaged a third party insurance broker to develop
        the
        industry’s first insured OEM warranty and extended warranty program (“the
        program”), which is underwritten by General Fidelity Insurance Company, a wholly
        owned subsidiary of Bank of America Corporation, the obligations of which
        are
        managed and satisfied by the insurance company. Warranty costs and liabilities
        for our insured ACCC conductor and hardware parts range from zero to seven
        years
        - the first three years of which represent our standard OEM warranty insurance
        that is included with the product; and years four through seven which represent
        extended warranty insurance as opted by the customer that is priced and
        purchased separately, recorded as deferred revenue, then subsequently amortized
        against prepaid extended warranty insurance and recognized as revenue in
        future
        applicable years.
  Except
        for the quarter ended March 31, 2008 when we reduced the value of the Polish
        contract by approximately $249,000 for an insured, extended warranty, the
        amount
        of revenue reduction related to conductor warranties is not
        significant.


DeWind
      Turbine related sales for the three and nine months ended June 30, 2008 and
      2007
      consisted of completed and installed wind turbine units, turbine parts, and
      license fees. For DeWind turbine revenues, for turbine sales, we recognized
      revenues for completed and installed wind turbine units upon the commissioning,
      or operational viability of each wind turbine unit. We recognized revenues
      on
      turbine parts sales upon delivery to the customer and title transfer. We
      recognized revenues on the license fees upon collection of the license fees
      and
      reporting by the licensee of units sold under each license
      agreement.





For
      turbine sales, our contracted sales typically include the turbine and warranty
      services for up to two years after turbine installation and we offer extended
      warranties for an additional fee. One turbine was sold during the three months
      ending June 30, 2008 that did not have a warranty. All other turbines sold
      carried a two year warranty. Our turbine sales are documented by turbine supply
      agreements that specify the contracted value of the turbine, the warranty
      service period, and the timing of cash payments by our customers. Our
      operational history and the value of extended warranties sold allow us to
      provide sufficient vendor specific objective evidence (VSOE) to value the
      warranty included with a wind turbine, generally $25,000 per rated megawatt
      of
      power per year representing expected warranty and availability related
      liabilities during the warranty period. We recognize as revenue the contracted
      turbine value reduced by the value of the warranty portion when the revenue
      cycle is completed as described above. Progress payments and customer deposits
      are recorded as deferred revenues until the revenue cycle is completed. Costs
      incurred and turbine materials purchased during the production of turbines
      in
      completion of the revenue cycle are capitalized into inventory. Operating
      expenses, including indirect costs and administrative expenses, are charged
      as
      incurred to periodic income and not allocated to contract costs.  The value
      of the warranty portion determined by the VSOE is deferred and recognized
      ratably over the life of the warranty service period. For multiple element
      contracts where there is no vendor specific objective evidence (VSOE) or
      third-party evidence that would allow the allocation of an arrangement fee
      amongst various pieces of a multi-element contract, fees received in advance
      of
      services provided would be recorded as deferred revenues until additional
      operational experience or other vendor specific objective evidence becomes
      available, or until the contract is completed.





SERVICE
      REVENUES. Service revenues consist of service and maintenance on our wind
      turbines under flat rate contracts, typically billed in advance on an annual
      or
      semi-annual basis on a flat rate, as a full service contract, typically
      calculated as a rate per kilowatt of generation and billed monthly or quarterly
      in arrears, or as a point of sale service call basis billed on a time and
      materials basis. Service revenues are deferred and recognized ratably over
      the
      life of a flat rate service contract, recognized as billed for full service
      contracts, or for point of delivery services, when the service has been
      provided. Direct costs of uncompleted work related to maintenance or repairs
      activity is capitalized and expensed upon completion.  Billings for
      turbines on a time and materials basis are recorded into revenue as the services
      are delivered.




9




**WARRANTY,
      RETROFIT, AND AVAILABILITY PROVISIONS**





Warranty
      provisions consist of the estimates of the costs and liabilities associated
      with
      the post-sale servicing of our DeWind wind turbines, and the insured costs
      and
      liabilities associated with any post-sales associated with our ACCC conductor
      and related hardware parts.





Warranty
      periods for our wind turbines range from zero to seven years and may include
      parts-only warranties or parts and repair services warranties and may or may
      not
      include revenue guarantees. Warranty conditions are specific to and are governed
      by the turbine supply agreement contract. Warranty related liabilities for
      time
      periods in excess of one year are classified as non-current
      liabilities.





Due
      to
      CTC Cable’s inability to self-insure our ACCC conductor partially due to it
      being a new technology, we engaged a third party insurance broker to develop
      the
      industry’s first insured OEM warranty and extended warranty program (“the
      program”), which is underwritten by General Fidelity Insurance Company, a wholly
      owned subsidiary of Bank of America Corporation. Warranty costs and liabilities
      for our insured ACCC conductor and hardware parts range from zero to seven
      years
      and may include ACCC conductor warranties only or ACCC conductor and hardware
      parts warranties. Warranty conditions are specific to and governed by the
      program. Warranty related liabilities for time periods in excess of one year
      are
      classified as non-current liabilities.





We
      use
      the following terms, all of which are accounted for as warranty related
      liabilities:





(1)
            Warranty
                provisions represent the estimated costs to perform expected future
                repairs of wind turbines, which are covered under a warranty. We
                estimate
                warranty provisions based on the historical cost to provide the services
                under warranty including monitoring, repairs, parts, and insurance
                and
                based on the age of the turbine under warranty. We also include as
                warranty provisions the estimated losses on “full service” contracts where
                we provide full service in exchange for a revenue share of the wind
                power
                produced. For the three months ended June 30, 2008 our estimated
                warranty
                costs averaged approximately $2,000 per turbine per month under warranty
                and as of June 30, 2008 we had approximately 935 turbine – months
                remaining under warranty. In addition, we have recorded approximately
                $1.0
                million for expected loss provisions related to turbines under full
                service contracts into our warranty accrual and which are expected
                to be
                paid or amortized over the next ten years. We amortize the estimated
                warranties ratably over the remaining warranty period against the
                actual
                expenses incurred and we amortize the projected loss provisions against
                the expected future periods of full service losses.(2)
            Retrofit
                provisions represent the estimated future cost to perform significant
                repairs for known defects in turbines that are expected to be incurred
                during the warranty period or were obligated to be repaired while
                a
                turbine was under warranty. Retrofit costs are estimated based on
                management’s projection of the costs to repair the known defects on a
                parts and labor basis. When completed, retrofit provisions are amortized
                against the actual expenses incurred. All retrofit accruals are recorded
                as current liabilities.(3)
            Availability
                penalties represent a combination of i) the calculated revenue guarantees
                under the turbine supply agreement and ii) the estimate of future
                payments
                for revenue guarantees. Actual penalties are calculated under the
                terms of
                each individual contract and represent the guaranteed value of the
                wind
                power generated under the term of the contract. If the turbine delivers
                less than the rated power determined under the contract, subject
                to
                minimum wind conditions, DeWind is obligated under some contracts
                to
                reimburse the wind turbine purchaser for the shortfall subject to
                contract
                or turbine maximums, as applicable. Actual availability penalties
                are
                recorded as current liabilities although such penalties are often
                disputed
                as to the amounts due and then subsequently mediated or negotiated
                and
                which often results in payments made in excess of one year. Estimated
                penalties are determined by past availability histories and management
                estimates of the required revenue reimbursement on a per turbine
                basis and
                calculated using the expected availability rate multiplied by the
                number
                of months remaining under warranty. Estimated availability penalties
                are
                amortized against actual availability penalties incurred ratably
                over the
                remaining warranty period. As of June 30, 2008 we have estimated
                availability penalties accrued of approximately $1,400 per turbine
                per
                month remaining under warranty. For warranty periods in excess of
                one
                year, the estimated availability penalty is recorded as a long term
                liability.(4)
            Insured
                warranty liabilities represent the cost of the insurance premiums
                associated for both i) the standard three-year OEM warranty included
                with
                the purchase of ACCC product for all domestic (U.S. and Canada) and
                all
                international sales, with the exception of sales to China which do
                not
                include any insured coverage; and ii) the optional extended warranty
                plans, which range from years four through seven post-sale. The cost
                of
                the OEM premium is charged to costs of sales in the year of sale,
                accrued
                as insured warranty liability, and subsequently amortized against
                the
                prepaid premium over the term of the warranty period. Insured extended
                warranty plans, as opted by the customer, are recorded as insured
                extended
                warranty liability and amortized against the prepaid premium over
                the
                future term of the extended warranty period.




10




*Estimates*





The
      preparation of our financial statements conforms with accounting principles
      generally accepted in the United States of America, which requires management
      to
      make estimates and judgments in applying our accounting policies that have
      an
      important impact on our reported amounts of assets, liabilities, revenue,
      expenses and related disclosures at the date of our financial statements. On
      an
      on-going basis, management evaluates its estimates including those related
      to
      accounts receivable, inventories, stock-based compensation, warranty, retrofit
      and availability provisions and goodwill and intangibles. Management bases
      its
      estimates and judgments on historical experience and on various other factors
      that are believed to be reasonable under the circumstances, the results of
      which
      form the basis for making judgments about the carrying values of assets and
      liabilities that are not readily apparent from other sources. Actual results
      may
      differ from management’s estimates. We believe that the application of our
      critical accounting policies requires significant judgments and estimates on
      the
      part of management.   We believe that the estimates, judgments and
      assumption upon which we rely are reasonable, and based upon information
      available to us at the time that these estimates, judgments and assumptions
      are
      made. These estimates, judgments and assumptions can affect the reported amounts
      of assets and liabilities as of the date of the financial statements as well
      as
      the reported amounts of revenues and expenses during the period presented.
      To
      the extent there are material differences between these estimates, judgments
      or
      assumptions and actual results, our financial statements will be affected.
      In
      many cases, the accounting treatment of a particular transaction is specifically
      dictated by GAAP and does not require management's judgment in its application.
      There are also many areas in which management's judgment in selecting among
      available alternatives would produce a materially different result.








Our
      key
      estimates we use that rely upon management judgment include:


-
            the
                estimates pertaining to the likelihood of our accounts receivable
                collectability, These estimates primarily rely upon past payment
                history
                by customer and management judgment on the likelihood of future payments
                based on the current business condition of each customer and the
                general
                business environment.-
            the
                estimates pertaining to the valuation of our inventories. These estimates
                primarily rely upon the current order book for each product in inventory
                along with management’s expectations and visibility into future sales of
                each product in inventory.-
            the
                assumptions used to calculate fair value of our stock based compensation,
                primarily the volatility component of the Black-Scholes-Merton option
                pricing model used to value our warrants and our employee and non-employee
                options. This estimate relies upon the past volatility of our share
                price
                over time.-
            the
                warranty, retrofit and availability provisions for our wind turbines.
                These estimates rely primarily on the past history of repairs and
                maintenance, turbine downtime and incurred availability charges as
                calculated under the terms of each contract, and management judgment
                on:
                i) the likelihood of customer claims for availability based on past
                history, ii) the likelihood of proactively solving or preventing
                similar
                repair, warranty, or availability expenses in the future, and iii)
                the
                projected recovery of sub-warranty claims, insurance claims, and
                other
                mitigating reimbursements.-
            goodwill
                and intangible valuation. These estimates rely primarily on financial
                models reviewed by senior management which incorporate business
                assumptions made by management on the underlying products and technologies
                acquired in the DeWind acquisition and the likelihood that the values
                assigned during the initial valuations will be recoverable over time
                through increased revenues, profits, and enterprise
                value.





Except
      as
      noted in this document, the methodology and assumptions used for the estimates
      pertaining to the activity during the nine months ended June 30, 2008 are
      consistent with those used for the estimates included in our Form 10-K/A for
      the
      year ended September 30, 2007 filed on June 4, 2008.





*Reclassifications*





Certain
      balances were reclassified to conform with current period
      presentation.





During
      the prior six months ended March 31, 2008, due to its materiality, the Company
      reclassified advanced payments for turbine inventory, previously included in
      inventory, as a separate line item on the balance sheet. This balance represents
      payments made to suppliers in advance for inventory not yet received as of
      the
      balance sheet date.





Additionally,
      during the same period, the Company recorded $200,000 of restricted cash as
      security to establish a standby letter of credit as required by a supplier
      for
      the purchase of inventory.




11




*Recent
      Pronouncements*




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


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





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


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





**Statement
      No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (SFAS
      161)**


In
      March,
      2008, the FASB issued Statement of Financial Accounting Standards No. 161, *Disclosures
      about Derivative Instruments and Hedging Activities* (SFAS
      161). SFAS 161 amends and expands the disclosure requirements of SFAS 133 by
      providing additional disclosure on the use of derivative instruments including
      qualitative disclosures about fair value amounts of gains and losses on
      derivative instruments, and disclosures about credit-risk-related contingent
      features in derivative agreements. SFAS 161 is effective for periods beginning
      on or after November 15, 2008. We are currently evaluating the impact that
      SFAS
      161 will have on our consolidated financial statements.




**Statement
      No. 162, “The Hierarchy of Generally Accepted Accounting Principles” (SFAS
      162)**


In
      May 2008, the FASB issued SFAS
      No. 162,*The
      Hierarchy of Generally Accepted Accounting Principles*(SFAS
      162). SFAS 162 identifies the sources of accounting principles and the framework
      for selecting the principles used in the preparation of financial statements
      of
      nongovernmental entities that are presented in conformity with generally
      accepted accounting principles (the GAAP hierarchy). SFAS 162 will become
      effective 60 days following the SEC’s approval of the Public Company
      Accounting Oversight Board amendments to AU Section 411, “The Meaning
      of Present Fairly in Conformity With Generally Accepted Accounting Principles.”
We do not currently expect the adoption ofSFAS
      162
      to have a material effect on our consolidated results of operations and
      financial condition.





*Significant
      new accounting policies adopted or implemented during the nine months ended
      June
      30, 2008*




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




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




12




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




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




During
      the three and nine months ended June 30, 2008, the Company’s federal returns
      were selected for examination by the Internal Revenue Service (IRS) for prior
      fiscals years ended September 30, 2001 through 2005, all years in which net
      losses were reported and filed.  As of June 30, 2008, the IRS has not
      proposed any significant adjustments to the Company’s tax positions. Currently,
      the Company is not able to reasonably estimate the amount by which the liability
      for unrecognized tax benefits may increase or decrease during the next 12 months
      as a result of the ongoing IRS audit. However, the Company does not anticipate
      any adjustments that would result in a material change to its financial
      position. Payments relating to any proposed assessments arising from the 2001
      through 2005 audits will not be made until a final agreement is reached between
      the Company and the IRS on such assessments or upon a final resolution resulting
      from the administrative appeals process or judicial action.





The
      Company recognizes potential accrued interest and penalties related to uncertain
      tax positions in income tax expense. During the three and nine months ended
      June
      30, 2008, the Company did not recognize any amount in potential interest and
      penalties associated with uncertain tax positions. To the extent interest and
      penalties are not assessed with respect to uncertain tax positions, amounts
      accrued will be reduced and reflected as a reduction of the overall income
      tax
      provision.





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





**NOTE
      2 - GOING CONCERN**





The
      Company has received a report from its independent auditors for the year ended
      September 30, 2007 that includes an explanatory paragraph describing the
      uncertainty as to the Company's ability to continue as a going concern. These
      consolidated financial statements contemplate the ability to continue as such
      and do not include any adjustments that might result from this
      uncertainty.




13




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





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





Commercial
      orders: To date, since inception for our Cable products and since the
      acquisition of DeWind, we have received orders including revenues recognized
      and
      unfilled orders for approximately $58 million in ACCC conductor products and
      $248 million of Wind turbines. We will require a significant increase in
      customer orders at sufficient profit margin levels to cover our expenses and
      generate sufficient cash from operations.





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





Between
      May and June, 2008 we closed a financing transaction for an equity investment
      totaling $50 million. Although our cash position as of June 30, 2008 was $47.6
      million, based on the expected cash spending required for our DeWind wind
      turbine business, without cash receipts from wind turbine revenue orders our
      cash balance may not be sufficient to fund the required turbine parts purchases
      and costs of operations for the next four calendar quarters based on our current
      business plans. If sufficient cash down payments from turbine revenue orders
      do
      not materialize or if our CTC Cable business, which is heavily reliant upon
      one
      customer should suffer the loss of this customer, we anticipate that additional
      cash is needed to fund operations beyond December, 2008 and to the extent
      required, the Company intends to continue the practice of issuing stock, debt
      or
      other financial instruments for cash or for payment of services until our cash
      flows from the sales of our primary products is sufficient to provide cash
      from
      operations or if we believe such a financing event would be a sound business
      strategy.




14




**NOTE
      3 – BALANCE SHEET DETAILS**





*Accounts
      Receivable*




Accounts
      Receivable consisted of the following at June 30, 2008 and September 30,
      2007:




June 30,
              2008
            
            September 30,
              2007(unaudited)Turbine
                products and service receivables
            
            $
            10,906,698
            
            $
            8,148,472Unbilled
                receivables
            
            
            1,949,602
            
            
            1,867,009Cable
                products receivables
            
            
            3,711,523
            
            
            1,199,043Gross
                Receivables
            
            $
            16,567,823
            
            $
            11,214,524Reserves
            
            
            (777,503
            )
            
            (595,980
            )Net
                receivables
            
            $
            15,790,320
            
            $
            10,618,544Portion
                relating to greater than one year, net of reserves of $356,719 and
                $0
            
            
            3,626,109
            
            
            2,809,558$
            12,164,211
            
            $
            7,808,986





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





*Inventories
      and Advanced Payments for Turbine Inventory*




Inventories
      and advanced payments for turbine inventory consisted of the following at June
      30, 2008 and September 30, 2007:




June 30, 2008
              
              September 30, 2007(unaudited)Raw
                  Materials and Turbine Parts
              
              $
              34,761,292
              
              $
              12,590,808Work
                  in Progress
              
              
              9,301,605
              
              
              10,621,287Finished
                  Goods
              
              
              2,827,979
              
              
              3,984,804Gross
                  Inventory
              
              $
              46,890,876
              
              $
              27,196,899Reserves
              
              
              (2,168,279
              )
              
              (1,495,044
              )Net
                  Inventory
              
              $
              44,722,597
              
              $
              25,701,855Advanced
                  Payments for Turbine Inventory
              
              $
              12,083,779
              
              $
              12,893,507





Advanced
      payments for turbine inventory represents payments made to suppliers in advance
      for inventory not yet received as of the balance sheet date.





Due
      to
      the closure of our former production facility in Lubeck, Germany, we identified
      approximately 3.02 million Euros ($4,723,000 at June 30, 2008 exchange rates)
      of
      turbine parts, primarily for D6 and D4 units that we impaired and charged to
      cost of sales for the quarter ended June 30, 2008.




15




*Property
      and Equipment*




Property
      and equipment consisted of the following at June 30, 2008 and September 30,
      2007:




Estimated
                Useful
                  Lives
              
              June 30, 2008
              
              September 30, 2007(unaudited)Office
                  furniture and equipment
              
              3-10
                  yrs
              
              $
              1,486,101
              
              $
              1,240,703Production
                  equipment
              
              3-10
                  yrs
              
              
              7,036,528
              
              
              5,923,236Wind
                  turbines in production
              
              20
                  yrs
              
              
              3,685,895
              
              
              3,320,536Automobiles
              
              3-5
                  yrs
              
              
              41,685
              
              
              26,301Leasehold
                  improvements
              
              7
                  yrs
              
              
              1,657,315
              
              
              424,184Total
                  Property
              
              
              
              
              $
              13,907,524
              
              $
              10,934,960Accumulated
                  depreciation
              
              
              
              
              
              (4,437,174
              )
              
              (2,992,283
              )Property,
                  net
              
              
              
              
              $
              9,470,350
              
              $
              7,942,677





*Intangible
      Assets*




There
      were no additions to our acquisition-related intangible assets during the six
      month period ending June 30, 2008. Information regarding our acquisition-related
      intangible assets are as follows:




**Gross Carrying**
              **Amount**
            
            **Accumulated Amortization**
            
            **Net Carrying**
              **Amount******
            
            **September 30,**
            
            **Sept 30,**
            
            ****
            
            **June
                30,**
            
            **June
                30,****2007**
            
            **2007**
            
            **Amortized**
            
            **2008**
            
            **2008**(unaudited)Supply
                Agreements
            
            $
            12,347,000
            
            $
            —
            
            $
            (165,000
            )
            $
            (165,000
            )
            $
            12,182,000Tech
                Transfer Agreements
            
            
            3,131,000
            
            
            —
            
            
            (466,938
            )
            
            (466,938
            )
            
            2,664,062Tradename
            
            
            7,553,000
            
            
            (472,400
            )
            
            (283,500
            )
            
            (755,900
            )
            
            6,797,100Service
                Contracts
            
            
            1,442,000
            
            
            (1,442,000
            )
            
            —
            
            
            (1,442,000
            )
            
            —Subtotal,
                Intangible Assets
            
            $
            24,473,000
            
            $
            (1,914,400
            )
            $
            (915,438
            )
            $
            (2,829,838
            )
            $
            21,643,162




Amortization
      expense of other acquisition-related intangible assets was $915,438 and $978,000
      for the nine months ended June 30, 2008 and 2007, respectively. Our
      acquisition-related intangible assets are amortized on a per turbine unit
      shipped basis for the Supply and Technology Transfer Agreements, over the life
      of the underlying service contracts expiring through 2009, and on a 20 year
      straight line basis for the tradename.




Estimated
      amortization expense for other acquisition-related intangible assets on our
      June
      30, 2008 balance sheet for the fiscal years ending September 30, is as
      follows:




Remainder
                of 2008
            
            $
            606,9172009
            
            
            3,506,1082010
            
            
            4,291,7172011
            
            
            4,452,8202012
            
            
            3,595,000Thereafter
            
            
            5,190,600Total
            
            $
            21,643,162




16




*Accounts
      Payable and Accrued Liabilities*




Accounts
      Payable and Accrued Liabilities consisted of the following at June 30, 2008
      and
      September 30, 2007:




June 30, 2008
              
              September 30, 2007(unaudited)Trade
                  Payables
              
              $
              41,941,500
              
              $
              15,161,739Legal
                  Provision
              
              
              1,378,025
              
              
              2,072,434Accrued
                  Acquisition Costs
              
              
              250,000
              
              
              318,502Accrued
                  Payroll
              
              
              879,741
              
              
              1,014,702Accrued
                  Interest
              
              
              200,848
              
              
              —Due
                  to Affilliates
              
              
              —
              
              
              1,848,521Deferred
                  Rents
              
              
              208,137
              
              
              227,059Other
                  Accruals
              
              
              —
              
              
              2,837Total
                  Accounts Payable and Accrued Liabilities
              
              $
              44,858,251
              
              $
              20,645,794





*Deferred
      Revenues and Customer Deposits*




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




The
      following table sets forth an analysis of deferred revenues and customer
      deposits as of June 30, 2008 and September 30, 2007:




June 30, 2008
              
              September 30, 2007(unaudited)Customer
                  advances on turbines and turbine parts sales
              
              $
              29,963,875
              
              $
              30,352,975Deferred
                  revenues – Other turbine related
              
              
              2,618,151
              
              
              4,030,602Deferred
                  revenues – Cable Sales
              
              
              1,105,747
              
              
              2,333,894Total,
                  Deferred revenues & customer advances
              
              $
              33,687,773
              
              $
              36,717,471Balance
                  included in current liabilities
              
              
              32,730,588
              
              
              35,581,067Long
                  Term Deferred Revenues
              
              $
              957,185
              
              $
              1,136,404




17




*Warranty
      Reserve*




Warranties
      relate to the product warranty, retrofit accruals, and availability guarantees
      for our wind turbines and insured warranties for our ACCC conductor and hardware
      parts. We accrue for our product warranty costs at the time of shipment. Product
      warranty costs for our turbines are estimated based upon our historical
      experience and specific identification of product requirements. We amortize
      the
      estimated warranties for our turbines ratably over the remaining warranty period
      against the actual expenses incurred and we amortize the projected loss
      provisions against the expected future periods for full service losses. Costs
      associated with our ACCC conductor and hardware parts are based on the cost
      of
      insurance as governed by our underwritten OEM warranty and extended warranty
      program, and are amortized against the prepaid cost over the term of the
      related warranty period. See also Note 1 for further discussion on
      warranties.




The
      following table sets forth an analysis of warranty reserve activity as of June
      30, 2008.




June
                30, 2008(unaudited)Balance
                at September 30, 2007
            
            $
            15,815,465Additional
                reserves recorded to expense or as a reduction of revenue
            
            
            4,551,802Reserves
                utilized
            
            
            (4,704,240
            )Balance
                at June 30, 2008
            
            $
            15,663,027Less
                Amount classified as current liabilities
            
            
            13,489,905Long
                Term Warranty Liability at June 30, 2008
            
            $
            2,173,122




**NOTE
      4 – OPERATING SEGMENTS**




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




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




CTC
      conducts its operations in the following two business segments: CTC Cable
      Division and DeWind Turbine Division. The segments have been organized on the
      basis of products. All of each segment’s product revenues relate to external
      customers. See also the analysis in Item 2 Management Discussion and
      Analysis.




ACCC
      Cable Division


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




18






DeWind
      Turbine Division


The
      Wind
      division operates under the brand name DeWind. Located in Lubeck Germany with
      sales operations in Dallas, Texas and Irvine, California, the DeWind Division
      produces, services, and sells DeWind turbines in the 1.25 and 2.0 Megawatt
      range.





Segment
      information for the three months ended June 30, 2008 and 2007 is as
      follows:





**Corporate**
            
            **Cable**
            
            **Turbine**
            
            **Total****Three
                Months Ended:****June
                30, 2008**Revenues
            
            $
            —
            
            $
            6,651,385
            
            $
            14,215,209
            
            $
            20,866,594Operating
                income (loss)
            
            
            (2,444,777
            )
            
            73,601
            
            
            (9,336,998
            )
            
            (11,708,174
            )Total
                assets
            
            
            41,034,991
            
            
            13,333,503
            
            
            125,545,220
            
            
            179,913,714Goodwill
            
            
            —
            
            
            —
            
            
            24,218,539
            
            
            24,218,539Capital
                expenditures
            
            
            —
            
            
            (1,485,972
            )
            
            (1,536,361
            )
            
            (3,022,333
            )Depreciation
                & amortization
            
            
            —
            
            
            196,662
            
            
            720,910
            
            
            917,572**June
                30, 2007**Revenues
            
            $
            —
            
            $
            7,396,781
            
            $
            5,505,420
            
            $
            12,902,201Operating
                income (loss)
            
            
            (1,551,587
            )
            
            (5,377
            )
            
            (5,159,043
            )
            
            (6,716,007
            )Total
                assets
            
            
            20,564,694
            
            
            10,971,677
            
            
            93,163,398
            
            
            124,699,769Goodwill
            
            
            —
            
            
            —
            
            
            26,300,496
            
            
            26,300,496Capital
                expenditures
            
            
            —
            
            
            (722,713
            )
            
            (4,170,166
            )
            
            (4,892,879
            )Depreciation
                & amortization
            
            
            —
            
            
            190,478
            
            
            509,932
            
            
            700,410




The
      Company operates and markets its services and products on a worldwide basis
      with
      its principal markets as follows:





Three Months EndedJune
                30, 2008
            
            June
                30, 2007Revenue
                allocation by geographic region based on location of
                customer:
            
            Cable
            
            Turbine
            
            Consolidated
            
            Cable
            
            Turbine
            
            ConsolidatedEurope
            
            $
            333,810
            
            $
            7,697,858
            
            $
            8,031,668
            
            $
            2,541
            
            $
            2,106,924
            
            $
            2,109,465China
            
            
            6,179,965
            
            
            6,385,876
            
            
            12,565,841
            
            
            6,552,501
            
            
            3,070,924
            
            
            9,623,425South
                America
            
            
            —
            
            
            131,474
            
            
            131,474
            
            
            —
            
            
            327,572
            
            
            327,572North
                America
            
            
            137,611
            
            
            —
            
            
            137,611
            
            
            841,739
            
            
            —
            
            
            841,739Total
                Revenue
            
            $
            6,651,386
            
            $
            14,215,208
            
            $
            20,866,594
            
            $
            7,396,781
            
            $
            5,505,420
            
            $
            12,902,201




June
                30, 2008
            
            September 30, 2007Long-lived
                assets (including goodwill and intangible assets) by geographic region
                based on location of operations:
            
            Cable
            
            Turbine
            
            Consolidated
            
            Cable
            
            Turbine
            
            ConsolidatedEurope
            
            $
            —
            
            $
            52,206,073
            
            $
            52,206,073
            
            $
            —
            
            $
            54,938,907
            
            $
            54,938,907United
                States
            
            
            3,125,978
            
            
            —
            
            
            3,125,978
            
            
            2,312,833
            
            
            —
            
            
            2,312,833Total
                long-lived assets (including goodwill and intangible
                assets)
            
            $
            3,125,978
            
            $
            52,206,073
            
            $
            55,332,051
            
            $
            2,312,833
            
            $
            54,938,907
            
            $
            57,251,740





During
      the quarter, three customers in China represented 56.8% of revenues (two
      customers from our DeWind segment and one customer from our Cable segment at
      27.2% and 29.6%, respectively) and two customers in Europe with 34.5% of
      revenues (both from our DeWind segment). No other customer represented greater
      than 5% of consolidated revenues.




19





**NOTE
      5 –
      EQUITY BASED COMPENSATION**





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





The
      values of the financial instruments are estimated using the Black-Scholes-Merton
      (Black-Scholes) option pricing model. Key assumptions used during the nine
      months ended June 30, 2008 and 2007 to value options and warrants granted are
      as
      follows:




**Nine
                Months Ended****June
                30,****2008**
            
            **2007**Risk
                Free Rate of Return
            
            
            1.79-4.29
            %
            
            4.7-4.97
            %Volatility
            
            
            66-88
            %
            
            83-98
            %Dividend
                yield
            
            
            0
            %
            
            0
            %Expected
                life
            
            
            0-4
                yrs
            
            
            0-5
                yrs


20





Our
      computation of expected volatility for the nine months ended June 30, 2008
      is
      based on historical and volatility over the expected life of the options
      granted. Our computation of expected life is based on historical exercise
      patterns. The interest rate for periods within the contractual life of the
      award
      is based on the U.S. Treasury yield curve in effect at the time of
      grant.




On
        March
        29, 2006, the Securities and Exchange Commission published Staff Accounting
        Bulletin No. 107 (SAB 107), which provides the Staff’s views on a variety of
        matters relating to stock-based payments. On
        December 21, 2007, the Securities and Exchange Commission published Staff
        Accounting Bulletin No. 110 (SAB 110), which provides the Staff’s views on
        matters relating to share-based payments. In particular, SAB 110 allows for
        an
        extension past December 31, 2007 for the use of a simplified method in
        developing an estimate of the expected term of “plain vanilla” share options in
        accordance with SFAS 123R. SAB 107 and SAB 110 require stock-based compensation
        to be classified in the same expense line items as cash compensation.
        Information about stock-based compensation included in the results of operations
        for the quarters and nine months ending June 30, 2008 and 2007 is as
        follows:




**Three Months**
              **Ended**
            
            **Three Months**
              **Ended**
            
            **Nine Months**
              **Ended**
            
            **Nine Months**
              **Ended****June 30**
            
            **June 30**
            
            **June 30**
            
            **June 30****2008**
            
            **2007**
            
            **2008**
            
            **2007**Cost
                of Product Sold
            
            $
            17,643
            
            $
            7,434
            
            $
            47,279
            
            $
            53,455Officer
                Compensation
            
            
            613,831
            
            
            118,017
            
            
            724,084
            
            
            228,280Selling
                and marketing
            
            
            107,184
            
            
            223,052
            
            
            317,280
            
            
            421,878Research
                and development
            
            
            229,462
            
            
            18,935
            
            
            517,784
            
            
            109,231General
                and administrative
            
            
            329,317
            
            
            295,282
            
            
            568,736
            
            
            573,574Totals
            
            $
            1,297,437
            
            $
            662,720
            
            $
            2,175,163
            
            $
            1,386,418





As
      of
      June 30, 2008, there was $7.9 million of total unrecognized compensation cost
      related to non-vested share-based compensation arrangements related to stock
      options. The costs are expected to be recognized over a weighted-average period
      of 2.3 years.





Significantly
      all of our existing options are subject to time of service vesting. Our stock
      options vest either on an annual or a quarterly basis for options subject to
      time of service vesting or for specific performance for option vesting tied
      to
      performance criteria. For the remainder of fiscal 2008, we expect stock based
      compensation expense related to employee stock options of approximately
      $2,100,000 before income taxes. Such amounts may change as a result of
      additional grants, forfeitures, modifications in assumptions and other
      factors.




21





The
      following table summarizes the Stock Plan stock option activity as of June
      30,
      2008:




Number
              of****Options
            
            Average
              Exercise
              PriceOutstanding,
                September 30, 2007
            
            
            15,019,870
            
            $
            0.91Granted
            
            
            4,045,000
            
            $
            1.72Exercised
            
            
            10,000
            
            $
            1.16Cancelled
            
            
            (126,600
            )
            $
            1.50OUTSTANDING,
                June 30, 2008
            
            
            18,928,270
            
            $
            1.08EXERCISABLE,
                June 30, 2008
            
            
            10,352,313
            
            $
            0.85




The
      weighted-average remaining contractual life of the options outstanding at June
      30, 2008 was 3.6 years. The exercise prices of the options outstanding at June
      30, 2008 ranged from $0.25 to $2.09, and information relating to these options
      is as follows:




Range****of
              Exercise
              Prices
            
            Stock****Options
              Outstanding
            
            Stock
              Options
              Exercisable
            
            Weighted
              Average
              Remaining
              Contractual
              Life****in****years
            
            Weighted
              Average
              Exercise****Price
              of****Options
              Outstanding
            
            Weighted****Average
              Exercise****Price****of
              Options
              Exercisable$0.25-0.49
            
            
            1,613,216
            
            
            1,613,216
            
            
            3.5
            
            $
            0.29
            
            $
            0.29$0.50-$0.99
            
            
            3,075,000
            
            
            3,032,500
            
            
            4.1
            
            $
            0.62
            
            $
            0.62$1.00-$1.49
            
            
            10,315,054
            
            
            5,220,472
            
            
            3.5
            
            $
            1.06
            
            $
            1.06$1.50-$2.09
            
            
            3,925,000
            
            
            486,125
            
            
            3.5
            
            $
            1.80
            
            $
            1.87Total
            
            
            18,928,270
            
            
            10,352,313




22





**NOTE
      6 –
      EQUITY**




**COMMON
      STOCK**





COMMON
      STOCK PLACEMENT





On
      May 9,
      2008 the Company agreed to sell up to $50,000,000 of the Company’s Common Stock
      to Credit Suisse Securities (Europe) Limited. The transaction was structured
      to
      provide for an immediate investment of $10,000,000 received on May 9, 2008
      in
      exchange for 13,333,333 shares of Common Stock at a price per share of $0.75
      with an option to purchase up to an additional 45,454,544 shares of common
      stock
      at a price per share of $0.88 per share for total potential proceeds of an
      additional $40,000,000. The option would expire on June 30, 2008 if not
      exercised. On June 27, 2008 Credit Suisse exercised the option in full and
      the
      Company received $40,000,000 in cash from the option exercise. The Company
      valued the option using the Black-Scholes-Merton option pricing model at
      $4,013,650 using a volatility of 65%, a risk free rate of 1.79%, a dividend
      rate
      of 0% and a market price of $0.88 per share. The Company incurred approximately
      $90,593 in fees associated with this transaction. The
      Company evaluated the treatment of these options under the guidelines of SFAS
      133 and determined that the option was not a derivative instrument and should
      therefore be accounted for as a component of equity.





DEBT
      CONVERSIONS, OPTION EXERCISES, AND WARRANT EXERCISES





During
      the nine months ended June 30, 2008 the Company issued a total of 5,244,425
      shares for the exercise of options and warrants and for the conversion of
      convertible debt as follows:





Between
      October, 2007 and April, 2008, the Company issued 2,073,004 shares of Common
      Stock for the conversion of $2,135,192 of Convertible Debt at a conversion
      price
      of $1.03 per share.





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





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





SERVICES





In
      April,
      2008 the Company issued 200,000 shares of common stock in exchange for investor
      relations services to be provided between April, 2008 and December, 2010. The
      Company recorded the issuance as a prepaid expense valued at $208,000, the
      market price on the date of issuance of $1.04, which is the fair value of the
      services to be provided.





**WARRANTS**





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




The
      following table summarizes the Warrant activity for the nine months ending
      June
      30, 2008:





Number
              of Warrants
            
            Weighted-Average
              Exercise PriceOutstanding,
                September 30, 2007
            
            
            32,449,107
            
            $
            1.30Granted
            
            
            2,250,000
            
            $
            0.99Impact
                of Anti-Dilution protection
            
            
            542,272
            
            
            —Exercised
            
            
            3,161,423
            
            $
            1.18Cancelled
            
            
            —
            
            $
            —OUTSTANDING,
                June 30, 2008
            
            
            32,079,956
            
            $
            1.21EXERCISABLE,
                June 30, 2008
            
            
            32,079,956
            
            $
            1.21




23





The
      following table summarizes the warrants issued, outstanding, and exercisable
      as
      of June 30, 2008:




Warrant Series
              
              Grant Date
              
              Strike
                Price
              
              Expiration Date
              
              Warrants
                remaining
              
              Proceeds if
                Exercised
              
              Call
                feature“December
                  2003”
              
              
              Dec., 2003
              
              $
              2.04
              
              
              December, 2008
              
              
              120,000
              
              $
              244,800
              
              
              (E
              )August,
                  2004 Debenture warrants
              
              
              Aug, 2004
              
              $
              1.28
              (A)
              
              August, 2008
              
              
              3,221,471
              
              
              4,123,482
              
              
              NoneDebenture
                  Amend
              
              
              Nov, 2004
              
              $
              1.28
              (A)
              
              August, 2008
              
              
              1,083,592
              
              
              1,386,998
              
              
              NoneSeries
                  T
              
              
              Sept, 2004
              
              $
              1.00
              
              
              July, 2008
              
              
              160,000
              
              
              160,000
              
              
              NoneSeries
                  U
              
              
              Sept, 2004
              
              $
              1.83
              
              
              August, 2008
              
              
              512,362
              
              
              937,622
              
              
              (F
              )October,
                  2005 DIP Series 1
              
              
              Oct, 2005
              
              $
              1.17
              (B)
              
              October, 2008
              
              
              1,030,608
              
              
              1,205,811
              
              
              NoneOctober,
                  2005 DIP Series 2
              
              
              Oct, 2005
              
              $
              1.27
              (C)
              
              October, 2008
              
              
              1,034,803
              
              
              1,314,200
              
              
              None2006
                  Series A1
              
              
              Mar, 2006
              
              $
              1.55
              
              
              March, 2009
              
              
              150,000
              
              
              232,500
              
              
              None2006
                  Series A2
              
              
              Mar, 2006
              
              $
              0.75
              (D)
              
              March, 2009
              
              
              1,966,005
              
              
              1,474,505
              
              
              None2006
                  Series B
              
              
              Various 2006
              
              $
              2.00
              
              
              May, 2009
              
              
              2,191,466
              
              
              4,382,932
              
              
              (G
              )2006
                  Series C
              
              
              May, 2006
              
              $
              1.25
              
              
              December, 2010
              
              
              200,000
              
              
              250,000
              
              
              None2006
                  Series D
              
              
              May, 2006
              
              $
              1.50
              
              
              December, 2010
              
              
              200,000
              
              
              300,000
              
              
              None2006
                  Series E
              
              
              May, 2006
              
              $
              1.75
              
              
              December, 2010
              
              
              200,000
              
              
              350,000
              
              
              None2007
                  Series F
              
              
              Nov, 2006
              
              $
              1.10
              
              
              November, 2009
              
              
              220,000
              
              
              242,000
              
              
              None2007
                  Convertible Debt
              
              
              Feb, 2007
              
              $
              1.06
              (A)
              
              February, 2010
              
              
              7,367,815
              
              
              7,809,884
              
              
              None2007
                  Convertible Debt Fees
              
              
              Mar, 2007
              
              $
              1.00
              (A)
              
              February, 2010
              
              
              1,316,833
              
              
              1,316,833
              
              
              None2007
                  Factoring
              
              
              Mar, 2007
              
              $
              1.06
              
              
              February, 2009
              
              
              1,800,000
              
              
              1,908,000
              
              
              NoneJune
                  PIPE Series 1
              
              
              Jun, 2007
              
              $
              1.27
              (A)
              
              June, 2010
              
              
              5,490,100
              
              
              6,972,427
              
              
              NoneJune
                  PIPE Series 2
              
              
              Jun, 2007
              
              $
              1.28
              (A)
              
              June, 2010
              
              
              1,564,901
              
              
              2,003,073
              
              
              None2008
                  Debt Series 1
              
              
              May, 2008
              
              $
              0.96
              (A)
              
              May, 2011
              
              
              1,125,000
              
              
              1,080,000
              
              
              None2008
                  Debt Amendment
              
              
              May, 2008
              
              $
              0.99
              (A)
              
              May, 2011
              
              
              1,125,000
              
              
              1,113,750
              
              
              NoneTotal
              
              
              
              
              
              
              
              
              
              
              
              32,079,956
              
              $
              38,808,817




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





(B)
      Subject to anti-dilution provisions. Price reset under a weighted average 115%
      of “new issue price” reset in May, 2008. Certain future warrant issuances with
      exercise prices below $1.02 per warrant may result in weighted average price
      re-set and additional issuances of warrants.





(C)
      Subject to anti-dilution provisions. Price reset under a weighted average 125%
      of “new issue price” reset in May, 2008. Certain future warrant issuances with
      exercise prices below $1.02 per warrant may result in weighted average price
      re-set and additional issuances of warrants.





(D)
      Subject anti-dilution provisions. Certain future equity or equity equivalent
      issuances below $0.75 per share may result in a price reset to 100% of the
      new
      issue price and additional issuances of warrants.





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





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





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




24





On
      May 9,
      2008 we closed a common stock subscription and option transaction consisting
      of
      13,333,333 shares of common stock for a $10,000,000 cash investment at $0.75
      per
      share and an option for an additional cash investment of 45,454,544 shares
      of
      common stock for a $40,000,000 cash investment at $0.88 per share. On May 5,
      2008 and May 23, 2008 we issued a total of 2,250,000 warrants under the May
      5,
      2008 debt agreement. The combination of the issuance of the common shares,
      the
      investment option, and the warrants resulted in the triggering of anti-dilution
      protection of the following series resulting in exercise price decreases and
      additional warrant issuances:




Price prior
              to reset
            
            Reset
              price
            
            Warrants
              issued prior to
              dilutive
              issuance
            
            Additional
              Warrants
              issued
            
            Reduction in
              Cash ProceedsAugust,
                2004 Debenture warrants
            
            $
            1.40
            
            $
            1.28
            
            
            3,221,471
            
            
            —
            
            $
            386,842Debenture
                Amend
            
            $
            1.40
            
            $
            1.28
            
            
            1,083,592
            
            
            —
            
            
            130,031October,
                2005 DIP Series 1
            
            $
            1.21
            
            $
            1.17
            
            
            996,538
            
            
            34,070
            
            
            —October,
                2005 DIP Series 2
            
            $
            1.31
            
            $
            1.27
            
            
            1,003,207
            
            
            31,596
            
            
            —2006
                Series A2
            
            $
            0.99
            
            $
            0.75
            
            
            1,489,399
            
            
            476,606
            
            
            —2007
                Convertible Debt
            
            $
            1.11
            
            $
            1.06
            
            
            7,367,815
            
            
            —
            
            
            368,3912007
                Convertible Debt Fees
            
            $
            1.03
            
            $
            1.00
            
            
            1,316,833
            
            
            —
            
            
            39,505June
                PIPE Series 1
            
            $
            1.39
            
            $
            1.27
            
            
            5,490,100
            
            
            —
            
            
            658,812June
                PIPE Series 2
            
            $
            1.40
            
            $
            1.28
            
            
            1,564,901
            
            
            —
            
            
            187,7882008
                Debt Series 1
            
            $
            0.99
            
            $
            0.96
            
            
            1,125,000
            
            
            —
            
            
            33,750Total
            
            
            
            
            
            
            
            
            
            
            
            542,272
            
            $
            1,805,119





There
      was
      no further impact to the price of any warrants on June 27, 2008 as a result
      of
      the option exercise to purchase 45,454,544 shares of common stock for
      $40,000,000.





We
      valued
      the price changes and additional warrants issued using the Black-Scholes-Merton
      option-pricing model. We recorded expense related to modification of warrants
      for the combination of the fair value of any additional warrants issued and
      the
      difference between the fair value of the warrants prior to the exercise price
      reset and after the exercise price reset. The total expense related to warrant
      modifications was $553,151. We recorded an additional $44,991 of debt discount
      as discussed in Note 7 to record the fair value of those warrants associated
      with the remaining Convertible Debt principal. We used the following assumptions
      to value the warrants affected:





Dividend
      rate = 0%


Risk
      free
      return between 1.80% and 2.3%


Market
      price of $0.88 per share


Volatility
      of between 66% and 84%





Time
      to
      maturity was the remaining life of the warrant series in question of between
      0.27 and 3 years.





In
      April,
      2008 the Company extended the life of the 2006 Series C, Series D, and Series
      E
      warrants by one year to December 31, 2010 as additional consideration for public
      relations work to be performed through December 31, 2010. The Company recorded
      additional prepaid expense of $109,189 for the three warrant series representing
      the difference in fair value before and after the modification. We used the
      following assumptions for the fair value calculations:





Dividend
      rate = 0%


Risk
      free
      return of 2.3%


Market
      price of $0.99 per share


Volatility
      of between 70% and 84%


Time
      to
      maturity of between 1.73 and 2.73 years





Management
      has reviewed and assessed the warrants issued during the nine months ended
      June
      30, 2008 and determined that they do not qualify for treatment as derivatives
      under SFAS 133.




25





**LOSS
      PER SHARE**





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





The
      following common stock equivalents were excluded from the calculation of diluted
      loss per share for the three and nine months ended June 30, 2008 and 2007 since
      their effect would have been anti-dilutive:




June
                302008
            
            2007Options
                for common stock
            
            
            18,928,270
            
            
            15,450,136Warrants
            
            
            32,079,956
            
            
            34,665,242Convertible
                Debentures, if converted
            
            
            10,037,280
            
            
            25,449,79161,045,506
            
            
            75,565,169




26




**NOTE
      7 – DEBT
      AND NOTES PAYABLE**





Between
      October, 2007 and April, 2008, a total of $2,135,193 of principal of the
      February, 2007 convertible debt was converted into 2,073,092 shares of common
      stock of the Company at a conversion price of $1.03 per share.





On
      May 9,
      2008 the combined effect of the issuance of 13,333,333 common shares at $0.75
      per share, the warrants issued in conjunction with the senior secured debt
      financing, and the option to purchase 45,454,544 shares at $0.88 per share
      resulted in the conversion price of the remaining principal to decrease from
      $1.03 to $1.00. On May 9, 2008 the Company recorded an additional $302,257
      of
      convertible debt discount consisting of $257,266 relating to the intrinsic
      value
      of the additional shares issuable upon full conversion of the remaining debt
      and
      $44,991 relating to the difference in fair value for the affiliated convertible
      debt warrants price adjustments as described in Note 6. The additional debt
      discount will be amortized to interest expense over the remaining life of the
      convertible debt.





A
      total
      of $10,037,280 of principal of the February, 2007 convertible debt remained
      at
      June 30, 2008 convertible at a current conversion price of $1.00 per share
      into
      10,037,280 shares, if fully converted.





On
      May 5,
      2008 the Company entered into a bridge financing structured as a Senior Secured
      Debt Facility, which allowed for borrowings of up to $5,000,000 in exchange
      for
      cash interest consideration and 2,250,000 warrants with a term of three years
      and a $0.99 exercise price. On May 5, 2008, the Company borrowed $2,500,001
      under the facility and issued an initial 1,125,000 warrants. The remaining
      $2,499,999 would become available for borrowing upon the satisfaction of the
      perfection of security interests in certain of the Company’s assets and which
      had been expected to become available within two weeks of the signature of
      the
      Facility. For any amounts drawn, the Company was required under the facility
      to
      pay six months cash interest regardless of the length of time the debt was
      outstanding. On May 9, 2008, as described in Note 6, the Company closed on
      the
      equity financing for $10,000,000 and pursuant the terms of the Senior Debt
      Facility was required to repay the initial drawdown in full which occurred
      on
      May 12, 2008 along with the required cash interest. Subsequent to the repayment
      of the initial draw, a dispute arose over the requirement under the facility
      as
      to whether the Company was required to draw the additional $2,499,999 under
      the
      terms of the Facility. In exchange for a release from all obligations under
      the
      Facility including the requirement to draw the additional funds which would
      then
      require additional payment of cash interest and including the release of the
      security interests in certain assets of the Company, on May 23, 2008 the Company
      and the lender agreed to terminate the facility in exchange for the issuance
      of
      the warrants associated with the second drawdown. Accordingly, the Company
      issued the final 1,125,000 warrants at $0.99 exercise price per warrant and
      terminated the facility. The Company recorded all warrants issued, financing
      fees, and cash interest as interest expense during the quarter ended June 30,
      2008. The Company valued the 2,250,000 warrants issued at the fair value of
      $1,044,900 using the Black-Scholes-Merton option-pricing model with a life
      of
      three years, volatility of 84%, a risk free rate of 2.3% and a dividend yield
      of
      0%. The
      Company evaluated the treatment of these options under the guidelines of SFAS
      133 and determined that the option was not a derivative instrument and should
      therefore be accounted for as a component of equity.





The
      following table summarizes the Company’s debt structure as of June 30, 2008 and
      September 30, 2007:





June 30, 2008
            
            September 30, 2007(unaudited)Senior
                Convertible 8% Notes due January, 2010 net of discount of $1,581,489
                and
                $2,337,656
            
            $
            8,455,791
            
            $
            9,834,817Capital
                Leases
            
            
            —
            
            
            109,021Total
                Debt
            
            $
            8,455,791
            
            $
            9,943,838Less
                balance included in current liabilities
            
            
            —
            
            
            109,021Long
                Term Debt
            
            $
            8,455,791
            
            $
            9,834,817




27




**NOTE
      8 –
      COMMITMENT AND CONTINGENCIES**





Please
      refer to the Commitment and Contingencies Note number 17 on page 79 of our
      Form
      10-KA filed on June 4, 2008 for a detailed listing of our commitments and
      contingencies. There were no material changes other than in the ordinary course
      of business and as updated in the Off Balance Sheet disclosure in Item 2
      below.





During
      the quarter and nine months ended June 30, 2008, our purchasing efforts
      increased after having negotiated frame supply contracts during the nine months
      ending June 30, 2008 and the prior fiscal year 2007 with numerous vendors for
      the purchase of wind turbine components for delivery in fiscal years 2008 and
      2009. These contracts are considered to be in the ordinary course of business
      under ordinary payment terms. Material purchase commitments as of June 30,
      2008
      are estimated at $10 million. Advanced payments made for turbine inventory
      under
      these contracts are included as a separate line item on our balance sheet,
      which
      totaled $12,083,779 as of June 30, 2008.





During
      the quarter ended June 30, 2008, recent supply chain delays affected production
      schedules for ten D8 units to be sold to South America that had been scheduled
      to ship in the quarter ending September 30, 2008. These turbines are now
      expected to ship in the quarter ending December 31, 2008. We have accrued likely
      delivery penalties of 5% of the contracted value of these turbines, or
      approximately $950,000 into cost of sales for the quarter ended June 30, 2008
      to
      accrue for this estimated penalty. We currently have no potential significant
      penalties of a similar nature for any of our remaining turbine
      contracts.





**NOTE
      9 – LITIGATION**





Please
      refer to the Form 10-K/A filed on June 4, 2008 for detailed descriptions of
      the
      following litigation cases. The following updates to our litigation cases
      occurred between October 1, 2007 and August 8, 2008.





**A.
      Enable Growth Partners, Enable Opportunity Partners, and Pierce Diversified
      Strategy Master Fund (collectively “Enable”) v. Composite Technology
      Corporation**




On
      November 7, 2007, oral arguments were heard on our motion to dismiss. On May
      12,
      2008 Justice Bernard J. Fried of the Supreme Court of the State of New York
      granted our motion to dismiss and ordered that the case be closed. On June
      3,
      2008 Enable filed a Notice of Appeal and Pre-Argument Statement and now has
      up
      to nine months to perfect their appeal. The Company is insured for any
      additional legal fees associated with any appeal.




**B.
      FKI Engineering Ltd., FKI plc, and Brush Electrical Machines Ltd (collectively
      “FKI”) v. the Company and certain of its wind segment subsidiaries (here
      referred to as “DeWind”); DeWind v. FKI.**





Between
      May, 2007 and November, 2007 work was performed on the statutory audits
      underlying the claim between DeWind and FKI and which have not been completed
      pending resolution of the capital accounts issue. During these audits, the
      auditors have identified issues relating to the capital reserve accounts and
      what DeWind claims were improper loan repayments of the German subsidiary prior
      to the sale of DeWind by FKI. DeWind believes these issues provide additional
      support to the Company’s claims.





On
      December 7, 2007 a hearing was conducted to hear arguments on FKI’s motion for
      summary judgment of their claims for the FKI bond calls and the Brush claim.
      FKI
      received approval of a summary judgment on their positions consisting of a
      net
      judgment of 1,415,000 Euros plus interest and costs estimated at approximately
      164,000 Euros on the FKI bond call claim and 650,000 Euros plus interest and
      costs of approximately 115,000 Euros for a total judgment of approximately
      2,344,000 Euros ($3,700,000 at June 30, 2008 exchange rates).





Subsequent
      to the December 7, 2007 hearing, FKI and DeWind met in January, 2008 to resolve
      all differences related to the FKI bond claim, the Brush Claim, and the Capital
      Accounts claim. We conducted settlement talks in January, 2008 without reaching
      agreement on all issues. Subsequent to these talks, the Company made a 153,000
      Euro ($219,000 at January, 2008 exchange rates) progress payment on the FKI
      claims in exchange for additional time to prepare a revised settlement proposal
      that was provided on February 15, 2008. FKI rejected the settlement proposal.
      In
      April, 2008 mediation meetings to explore settlement of the Brush claim were
      held. No settlement was finalized at these meetings. If mediation is
      unsuccessful, additional legal proceedings on the Brush claim are scheduled
      in
      May, 2008.





Since
      the
      December, 2007 hearing, during the quarter ended June 30, 2008 additional court
      costs totaling 265,000 Euros ($419,000 at June 30, 2008 exchange rates)
      primarily related to a change of venue of the capital accounts claim and which
      have been recorded as General and Administrative expense.




28





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




In
      April,
      2008 DeWind filed an amended counterclaim for the capital reserve accounts
      matter against FKI for 37,672,950 Euros ($59,477,000 at June 30, 2008 exchange
      rates) representing loans that DeWind contends were illegally repaid to FKI
      from
      DeWind between June, 2004 and June, 2005, plus statutory interest calculated
      since July, 2006 estimated to be in excess of 3,500,000 Euros ($5,525,000 at
      June 30, 2008 exchange rates), and additional attorney and court costs estimated
      to be approximately 400,000 Pounds Sterling ($798,000 at June 30, 2008 exchange
      rates), and inestimable restitution, tax indemnity, and other
      damages.





In
      July,
      2008 DeWind, FKI, related counsel, and the presiding judge of the High Court
      of
      Justice, Queen’s Bench Division, Commercial Court in the UK conducted a case
      management conference and set a tentative date for trial in April,
      2009.





The
      resolution of the capital reserve accounts issues is not reasonably estimable
      at
      this time and no contingent asset has been recorded to date for any future
      funds
      potentially receivable from FKI, if any, to resolve the capital reserve account
      issues.




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





There
      were no changes to the Zephyr case between October 1, 2007 and August 8,
      2008.


29





**NOTE
      10 –
      RELATED PARTIES**





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





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





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





For
      the
      three and nine months ended June 30, 2008, we recorded consulting fees of
      $125,000 and $375,000, respectively. In addition, we paid $17,983 and $124,882
      of reimbursable expenses for the three and nine months ended June 30, 2008,
      representing pass-through expenses for incidental expenses as well as patent
      and
      intellectual property related fees. All balances were expensed to Research
      and
      Development expenses. As of June 30, 2008 we had a balance due of $94,274 to
      TMA
      and TMG combined.




**NOTE
      11 - SUBSEQUENT EVENTS**





Subsequent
      to June 30, 2008 through August 8, 2008, the Company issued 1,967,716 shares
      for
      the conversion of $1,000,000 of convertible debt at $1.00 per share and the
      exercise of 967,716 warrants for which the Company received $736,037 in cash
      proceeds. The effect of the conversions was to reduce the principal balance
      of
      the Company’s convertible debt by $1,000,000 from $10,037,280 to $9,037,280 as
      of August 8, 2008.





On
      August
      4, 2008 the Company’s wholly owned subsidiary signed a turbine supply agreement
      with Energy Farming Ontario for the purchase of 10 units of DeWind 90 meter
      hub
      version of the D8.2 2 megawatt turbine which is expected to be ready for
      commercial delivery in the third calendar quarter of 2009 and is expected to
      be
      called the D9.2. The agreement calls for payment of $2,355,000 per turbine
      unit
      and additional services of $300,000 for a total contract value of $23,850,000.
      Each turbine unit consists of a D9.2 turbine nacelle and a D9.2 blade set.
      The
      agreement calls for a 1% payment upon signature of the contract and an
      additional 9% payment to be received by September, 2008. Additional cash
      payments are called for beginning in 2009.





On
      August
      6, 2008 the Company’s Board of Directors approved a total of 6,750,000 options
      issued under the Company’s 2008 Stock option plan to six individuals including
      2,200,000 options for Benton Wilcoxon, the Company’s Chief Executive Officer,
      1,000,000 options for Domonic J. Carney, the Company’s Chief Financial Officer,
      1,250,000 options for Marvin Sepe, the Company’s Chief Operating Officer, and
      800,000 options for Mike McIntosh, the Company’s Business Strategy and
      Intellectual Property Consultant and a member of the Company’s Board of
      Directors.





All
      options granted have an exercise price of $1.25 per share. Vesting of all
      options granted will have an initial vesting condition requirement that the
      Company’s DeWind segment sell a minimum of 20 DeWind D8.2 or 9.2 turbine units.
      Thereafter, the vesting shall be in equal installments over three years from
      the
      initial vesting date.


30


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





You
      should read the following discussion and analysis of our financial condition
      and
      results of operations together with our interim financial statements and the
      related notes appearing at the beginning of this report. The interim financial
      statements and this Management's Discussion and Analysis of Financial Condition
      and Results of Operations should be read in conjunction with the financial
      statements and notes thereto for the year ended September 30, 2007 and the
      related Management's Discussion and Analysis of Financial Condition and Results
      of Operations, both of which are contained in our Annual Report on Form 10-K/A
      filed with the Securities and Exchange Commission on June 4,
      2008.





The
      following discussion and other parts of this Form 10-Q contain forward-looking
      statements that involve risks and uncertainties. Forward-looking statements
      can
      be identified by words such as “anticipates,” “expects,” “believes,” “plans,”
and similar terms. Our actual results could differ materially from any future
      performance suggested in this report as a result of factors, including those
      discussed in “Factors That May Affect Future Operating Results” and elsewhere in
      this report and in our Annual Report on Form 10-K/A for the fiscal year ended
      September 30, 2007. All forward-looking statements are based on information
      currently available to Composite Technology Corporation and we assume no
      obligation to update such forward-looking statements, except as required by
      law.
      Service marks, trademarks and trade names referred to in this Form 10-Q are
      the
      property of their respective owners.





**OVERVIEW**





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





The
      quarter ended June 30, 2008 represented continued progress on our growth
      initiatives in both of our two operating divisions. We continued to lay the
      groundwork for rapid revenue growth in our DeWind Division and we opened up
      key
      new markets for our ACCC products sold in our CTC Cable Division. During and
      subsequent to quarter end, we continued our strategy of reducing our operations
      in Europe by selling the remaining ownership of the legacy service business,
      accounted for as discontinued operations, and in July, 2008 management began
      to
      implement the strategy to close all turbine manufacturing in Germany. Finally,
      near the June 30, 2008 quarter end, we closed a significant equity financing
      transaction, which served to better capitalize the Company.





**Corporate**





During
      the quarter, our corporate efforts focused on obtaining financing to fund the
      growth of our two businesses. On May 5, 2008 we closed a $5,000,000 Bridge
      financing structured as a Senior Debt facility. We drew down $2,500,000 on
      this
      facility, which was repaid on May 12, 2008 after the first phase of the Credit
      Suisse transaction was closed. On May 9, 2008 we successfully closed a financing
      that ultimately raised $50,000,000 from Credit Suisse Securities (Europe)
      Limited. This transaction was a direct placement of equity by a renewable energy
      fund managed by Credit Suisse out of the United Kingdom and which incurred
      no
      broker fees or finder’s fees. The transaction was in two phases, the first was
      an initial investment on May 9, 2008 of $10,000,000 in exchange for 13,333,333
      shares, or $0.75 a share. The first $10,000,000 investment included an option
      for up to an additional $40,000,000 investment at a price of $0.88 per share
      or
      45,454,455 shares exercisable through June 30, 2008. Credit Suisse conducted
      due
      diligence in May and June, 2008 consisting of detailed technical reviews of
      the
      products and technology in our CTC Cable and DeWind business and discussions
      with management. On June 26, 2008 Credit Suisse exercised the entire $40,000,000
      share option. After their investment Credit Suisse Securities (Europe) Limited
      owned approximately 23.7% of the issued and outstanding shares of the Company.





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


31


**Consolidated
      Revenues, Gross Margins, and EBITDAS**





On
      a
      consolidated basis, revenues for the three months ended June 30 increased by
      $8.0 million or 62% from $12.9 million in 2007 to $20.9 million in 2008. The
      increase was due to a $9.4 million increase in turbine product sales offset
      by a
      $0.7 decrease in cable product sales and a decrease of $0.7 million in turbine
      service related sales. The turbine product increase is due to a $4.9 million
      increase due to more turbine units sold at higher price points, higher sales
      of
      turbine parts to Chinese customers of $2.0 million, and $2.4 million in license
      fees recognized related to our licensees in China. The decrease in cable product
      sales is due to a change from sales of higher priced ACCC conductor sales in
      2007 to lower priced but higher margin ACCC conductor core products in 2008.
      In
      the June, 2008 quarter we recognized revenues on 1,084 kilometers of ACCC
      products as compared to 389 kilometers in the June, 2007 quarter, representing
      a
      178% increase in kilometers shipped. The decrease in turbine service related
      revenue is due to fewer turbines under warranty and lower amortization of
      deferred service revenues.





On
      a
      consolidated basis, revenues for the nine months ended June 30 increased by
      $30.0 million or 99% from $30.5 million in 2007 to $60.5 million in 2008. The
      increase was due to a $14.3 million increase in turbine product sales, an
      increase of $16.4 million of cable product sales, and a decrease of $0.7 million
      of turbine service related revenues. The increase in turbine product sales
      consists of $7.5 million of turbines sold due to 3 more turbine units sold
      at
      higher price points, $2.5 million increase in turbine parts, and $4.3 million
      increase in license fees. The cable product sale increase was driven by a 312%
      increase in the number of kilometers of ACCC products sold, or an increase
      from
      747 kilometers for the nine months ended June 30, 2007 to 3,080 kilometers
      for
      the June 30 2008 period. The decrease in turbine service related revenue is
      due
      to fewer turbines under warranty and lower amortization of deferred service
      revenues.


Consolidated
        gross margins decreased by $1.1 million from $0.5 million or 3.7% of revenues
        for the three months ended June 30, 2007 to negative $0.6 million for the
        three
        months ended June 30, 2008 or negative 2.7% of revenues. The margin decrease
        is
        due to the net effect of an increase in cable margins from 28.6% in the 2007
        quarter to 41.8% in the 2008 quarter due to a change to primarily ACCC conductor
        core in the June, 2008 quarter and a decrease in turbine product margins
        from
        3.0% to negative 15.0%. One non-recurring issue impacted the June 2008 turbine
        product margins. In June, 2008 the Company’s DeWind segment recorded a $5.1
        million charge to impair inventory originally acquired with the DeWind
        acquisition that was held at its Lubeck Germany production facility. In July,
        2008 management determined that the Lubeck production facility will be closed
        in
        the September, 2008 quarter and adjusted all turbine parts inventory to net
        salvage value. Excluding these charges, gross margins would have been $3.0
        million or 21.9% of revenues. This increase in the adjusted margin is due
        to
        increased high margin license fees, higher sales of turbine parts, and an
        improvement in margins on turbine units sold. In the June 2007 quarter, all
        turbines sold were accounted for under acquisition accounting rules that
        required them to be valued at liquidation cost. Turbine revenues for the
        June
        2008 quarter were sold on a historical cost basis.
 
 Consolidated
        gross margins increased $5.2 million from negative $0.5 million or negative
        1.5%
        of revenues for the nine months ended June 30, 2007 to $4.7 million or 7.7%
        of
        revenues for the similar June 30, 2008 period. The margin increase is due
        to the
        combined effect of an increase of $6.4 million from the cable segment a decrease
        in turbine product margins of $2.4 million and an increase of $1.3 million
        in
        margins for turbine service. The cable margin increase from $3.3 million
        or 28.1
        % of revenues to $9.7 million or 34.3% of revenues is due to increased sales
        of
        higher margin ACCC core products. The turbine product margin decrease of
        $2.5
        million from $0.7 million or 4.4% of revenues to negative $1.8 million or
        negative 5.9% of revenues is due to the June,2008 quarter charges described
        above. Excluding these charges, margins for the nine months ended June 30,
        2008
        would have been $3.4 million or 11.1% of revenues which are due to increased
        high margin license fees, higher sales of turbine parts, and an improvement
        in
        margins on turbine units sold. The margin improvement for the turbine service
        is
        due to lower expenses related to warrant and availability and include a $1.6
        million reversal of previously accrued warranty expenses.




32


The
      following table is a reconciliation of consolidated  “non-GAAP” EBITDAS
      discussed above for the three and nine months ended June 30, 2008 and 2007.
      Management believes that “non-GAAP” EBITDAS provides an important decision
      metric due to the large amount of non-cash expenses incurred by the Company
      and
      its subsidiaries. We believe that EBITDAS is a meaningful proxy for the
      operating cash flow activities since it excludes non-cash charges for
      depreciation and for stock based compensation charges that historically have
      been dependent on the vesting schedules of the underlying options granted rather
      than the operations of the business.





(Unaudited)
            
            **Three months ended June 30,****Consolidated**
            
            **2008**
            
            **2007**Net
                loss from continuing operations
            
            $
            (13,150,969
            )
            $
            (8,418,038
            )Interest,
                taxes, depreciation, amortization and stock-based compensation
                (ITDAS):Interest
            
            
            1,827,122
            
            
            1,414,871Taxes
            
            
            6,506
            
            
            (91,681
            )Depreciation
                and amortization
            
            
            917,572
            
            
            700,410Stock-based
                compensation and warrant modification
            
            
            1,850,588
            
            
            750,841Total
                ITDAS
            
            $
            4,601,788
            
            $
            2,774,441“Non-GAAP”
                EBITDAS
            
            $
            (8,549,181
            )
            $
            (5,643,597
            )




(Unaudited)
            
            **Nine months ended June 30,****Consolidated**
            
            **2008**
            
            **2007**Net
                loss from continuing operations
            
            $
            (30,481,586
            )
            $
            (26,347,649
            )Interest,
                taxes, depreciation, amortization and stock-based compensation
                (ITDAS):Interest
            
            
            3,205,847
            
            
            3,306,926Taxes
            
            
            12,632
            
            
            (39,248
            )Depreciation
                and amortization
            
            
            2,385,752
            
            
            1,982,700Stock-based
                compensation and warrant modification
            
            
            2,728,314
            
            
            1,760,127Total
                ITDAS
            
            $
            8,332,545
            
            $
            7,010,505“Non-GAAP”
                EBITDAS
            
            $
            (22,149,041
            )
            $
            (19,337,144
            )




Our
      net
      losses for the quarter and nine months ended June 30, 2008 were impacted by
      the
      non-recurring non-cash charges related to potential delay penalties and
      inventory reserves described above related to the DeWind segment. Excluding
      those charges, adjusted consolidated EBITDAS loss for the three and nine months
      ended June 30, 2008 would be $3.4 million and $17.0 million respectively.





**DeWind
      Division**


The
      DeWind division operates under the brand name DeWind, which has manufactured
      and
      sold wind turbines since 1995 from Lubeck, Germany. Currently, DeWind is
      operated from the Company’s Irvine offices with sales operations in Irvine,
      California, Dallas, Texas and Lubeck, Germany. Production, Engineering, and
      R&D operations are in Irvine, California and Lubeck, Germany. DeWind has
      contract assembly operations with TECO Westinghouse Motor Co. in Round Rock,
      Texas. The DeWind Division produces, services, and sells DeWind turbines in
      the
      1.25 and 2.0 Megawatt range worldwide. We acquired DeWind during the EU Energy
      acquisition on July 3, 2006. Accordingly, we have incorporated DeWind’s
      operations into our financial results since that date.




33




**RECENT
      DEVELOPMENTS**




Our
      DeWind June 30, 2008 quarterly revenues of $14.2 million represents the sale
      of
      3 turbines totaling 4.5 megawatts of generation at an average price of $1.6
      million per megawatt in addition to $2.4 million of license fees, $4.0 million
      in parts sales receipts from our Chinese licensees, and $0.5 million of turbine
      service revenue. Revenues increased 158% over the prior year’s quarter of $5.5
      million and 29% over the March, 2008 quarter of $11.0 million. Gross turbine
      product margins were affected a non-recurring charge for $5.1 million primarily
      the write off of inventory held at the German production facility related to
      D6
      parts acquired during the EU Energy acquisition. Excluding these charges,
      turbine product related gross margins including license fees would be $3.0
      million or 21.9% of turbine product revenues excluding the legacy service
      related operations. Excluding license fees and non-recurring charges, turbine
      related gross margins would be $0.5 million or 4.7% of comparable turbine
      standalone revenues of $11.3 million. Management believes that the presentation
      of these non-GAAP measures provide readers of this discussion with better
      insight into the current product sales margins of our DeWind
      turbines.


The
        DeWind operating loss for the quarter ended June 30, 2008 increased $0.3
        million
        to $8.5 million from the prior quarter’s $8.2 million on the net effect of
        decreased margins of $3.2 million, primarily due to the non-recurring issue
        described above, offset by improving turbine unit margins and license fee
        revenues, and decreased expenses of $2.4 million primarily related to reduced
        spending on our D8.2 prototype installed in Sweetwater, TX. As compared to
        the
        quarter ended June 30, 2007, operating loss increased $3.2 million from $5.2
        million in the June, 2007 quarter due to a $1.7 million decrease in gross
        margin
        and an increase of $2.1 million in operating expenses. The gross margin decrease
        was primarily due to the non-recurring charges of $6.1 million offset by
        $2.4
        million in license fees, turbine and turbine parts unit margin improvement
        of
        $0.8 million from $0.1 million to $0.9 million, and a decrease in legacy
        turbine
        warranty and availability charges. The operating expenses increase consisted
        of
        $1.4 million of additional development and operations investment in our D8.2
        model turbine and enhancements on the D8.2 model to extend the rotor to provide
        a 90 meter model in 2009 in addition to an increase of $0.3 million caused
        by
        the 16% devaluation of the dollar to the Euro as compared to 2007, $0.2 million
        in increased SFAS 123R stock compensation expenses, and $0.2 million in
        depreciation and amortization expense.


We
      believe that our sales efforts for our D8.2 turbines were previously hampered
      by
      three issues, each of which has been recently resolved. Our efforts over the
      past several quarters have resulted in substantial improvement in the salability
      and for the ability of our customers to obtain financing for our D8.2 turbine.
      In April, 2008 we achieved full worldwide DEWI certification for our 60 hertz
      D8.2 prototype located in Sweetwater, TX. Also in April, 2008 we completed
      the
      creation of a five year warranty package including sub-warranties for the major
      drive-train components and including full mechanical breakdown coverage
      underwritten by Zurich American Insurance Co. Finally, we believe that the
      closing of the equity financing on May 9, 2008 and the full exercise of their
      option on June 26, 2008 provides DeWind with a substantial financial partner
      that we believe will provide our D8.2 customers with sufficient assurance
      of the financial stability of DeWind.





The
      issues outside of DeWind’s control that management believes have, or could be
      hampering turbine sales are the current ongoing credit crisis and, in the U.S.,
      the risk that the wind energy production tax credit is scheduled to expire
      on
      December 31, 2008. Despite these issues, management sees very strong demand
      for
      our D8.2 turbines.





During
      the quarter, we continued our strategy to reduce our turbine operations in
      Europe. On April 3, 2008 we sold the remaining 24.9% ownership of E Services
      to
      Enertrag for 500,000 Euros ($790,250 at April 3, 2008 exchange rates). As
      described in Note 1, we restated our financial statements to present the
      operations of E Services as discontinued operations. In June 2008 we enhanced
      our relationship with TECO Westinghouse, which will include TECO Westinghouse
      taking a greatly increased role in the purchase of turbine component parts
      including utilization of TECO’s economies of scale for bulk purchasing as well
      as increased internal controls and inventory reporting. We began the process
      of
      transitioning the turbine supply chain purchasing during the June, 2008 quarter.





Subsequent
      to quarter end, due to the increased role for TECO, the high cost of maintaining
      the facility and turbine production in Europe, as well as the sale of the
      remainder of the E Services entity, we determined in July 2008 that we would
      no
      longer support the fulfillment of our turbines out of our former production
      facility in Lubeck, Germany. This facility had formerly supported E Services
      through parts storage and staging as well as for the prototype fulfillment
      for
      our D8.2 unit and for most of our European deliveries. We intend to fulfill
      future European orders either through our Chinese licensees for our older D6
      turbines or through TECO for our D8 and D8.2 turbines. As a result of the
      closure of the Lubeck manufacturing location, we recorded expenses consisting
      substantially of reserves for turbine parts that we charged to cost of sales
      for
      the quarter ended June 30, 2008. We have not completed our analysis of the
      costs
      involved to close the Lubeck manufacturing facility and we may incur additional
      expenses relating to exiting our European manufacturing. We intend to keep
      our
      Lubeck professional offices, which provides office space for our sales,
      marketing, research, and development personnel.




34





In
      April,
      2008 we filed an amended counterclaim against the FKI parties, as discussed
      in
      Note 9 for approximately 36 million Euros ($60 million at March, 2008 exchange
      rates) plus statutory interest and court costs in excess of 3.5 million Euros
      ($5 million). We conducted a discussion hearing with the presiding judge in
      July, 2008 and tentatively set a trial date for April, 2009. To date, we have
      incurred approximately $400,000 in legal expenses, classified to DeWind General
      and Administration expenses and our estimate of legal fees and costs associated
      with this case is estimated to be an additional $500,000. We have not recorded
      an accrual for these additional legal fees.





In
      the
      March, 2008 quarter, we announced the sale of 40 D8 turbines to S&M CZ
      s.r.o, our existing customer in the Czech Republic for a total of 61,440,000
      Euros ($97 million at June 30, 2008 exchange rates). The first 16 D8 units
      are
      covered under a Bank Guarantee, which would allow us to draw up to approximately
      $17 million as advance payments. The drawdown on the January, 2008 order is
      dependent on the delivery of the remaining seven D6 turbine units ordered by
      this customer in January, 2007. Delivery on the D6 units was delayed due to
      a
      supply delay on the D6 blades. We delivered two of the D6 units prior to June
      30, 2008 and expect the remainder to be delivered during the quarter ended
      September 30, 2008. The D8 turbines were originally scheduled for delivery
      beginning in late 2008 and 2009 but with the delays we now expect the earliest
      delivery to be in early 2009.





As
      of
      June 30, 2008 we had contracted order backlog for approximately $130 million
      of
      turbines, turbine parts, and turbine technology license fees for delivery within
      the next twelve months. Included in this backlog are orders for ten D8 units
      to
      be sold to South America that had been scheduled to ship in the quarter ending
      September 30, 2008. Recent supply chain delays have modified the shipment date
      and these turbines are now expected to ship in the quarter ending December
      31,
      2008. We have accrued the likely delivery penalties of 5% of the contracted
      value of these turbines, or approximately $1.0 million into cost of sales for
      the quarter ended June 30, 2008 to accrue for this estimated
      penalty.





Since
      June 30, 2008 we have signed approximately $30 million in additional turbine
      orders including $6 million order for 3 D6 units to be fulfilled out of one
      of
      our Chinese licensees. In August 2008 we signed our first contract to purchase
      a
      newer version of our D8.2 90 meter rotor turbine, expected to be commercially
      available in late 2009. This contract is worth a minimum of approximately $24
      million and which calls for a 1% payment upon signature with a total of 10%
      paid
      to DeWind as a hold fee payable by September 30, 2008. The contract is for
      10
      nacelle and blade set units without towers and calls for additional cash
      payments upon notice to proceed, which is expected to be in early 2009. On
      an
      equivalent basis to orders including towers, these orders represent potential
      revenue per megawatt of approximately $1.5 million per megawatt of generated
      power.





We
      have
      not as yet closed a substantial sales contract for D8.2 units that are currently
      available for sale. Excluding the two prototype units, we have signed sales
      contracts for two D8.2 units including the one unit commissioned in February,
      2008 at high elevation in Argentina and one unit sold in the US and scheduled
      for delivery later in 2008.




35


The
      following table is a reconciliation of DeWind only “non-GAAP” EBITDAS discussed
      above for the three and nine months ended June 30, 2008 and 2007. Management
      believes that “non-GAAP” EBITDAS provides an important decision metric due to
      the large amount of non-cash expenses incurred by the Company and its
      subsidiaries. We believe that EBITDAS is a meaningful proxy for the operating
      cash flow activities since it excludes non-cash charges for depreciation and
      for
      stock based compensation charges that historically have been dependent on the
      vesting schedules of the underlying options granted rather than the operations
      of the business.


(Unaudited)
              
              **Three months ended June 30,****DeWind
                  Segment Only**
              
              
              **2008**
              
              
              **2007**Net
                  loss from continuing operations
              
              $
              (8,499,345
              )
              $
              (4,812,881
              )Interest,
                  taxes, depreciation, amortization and stock-based compensation
                  (ITDAS):Interest
              
              
              99,825
              
              
              39,957Taxes
              
              
              6,506
              
              
              (91,681
              )Depreciation
                  and amortization
              
              
              720,910
              
              
              509,932Stock-based
                  compensation and warrant modification
              
              
              204,301
              
              
              --Total
                  ITDAS
              
              $
              1,031,542
              
              $
              458,208“Non-GAAP”
                  EBITDAS
              
              $
              (7,467,803
              )
              $
              (4,354,673
              )
  (Unaudited)
              
              **Nine
                  months ended June 30,****DeWind
                  Segment Only**
              
              
              **2008**
              
              
              **2007**Net
                  loss from continuing operations
              
              $
              (25,455,741
              )
              $
              (14,835,497
              )Interest,
                  taxes, depreciation, amortization and stock-based compensation
                  (ITDAS):Interest
              
              
              150,107
              
              
              (132,050
              )Taxes
              
              
              11,808
              
              
              (39,343
              )Depreciation
                  and amortization
              
              
              1,778,324
              
              
              1,386,592Stock-based
                  compensation and warrant modification
              
              
              228,737
              
              
              --Total
                  ITDAS
              
              $
              2,168,976
              
              $
              1,215,199“Non-GAAP”
                  EBITDAS
              
              $
              (23,286,765
              )
              $
              (13,620,298
              )
 
 Our
        net
        losses for the quarter and nine months ended June 30, 2008 were impacted
        by the
        non-recurring non-cash charges for inventory impairments described above.
        Excluding those charges, adjusted DeWind segment EBITDAS loss for the three
        and
        nine months ended June 30, 2008 would be $2.3 million and $18.1 million
        respectively.


**ACCC
      Cable Division**


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




36


**RECENT
      DEVELOPMENTS**





The
      Cable
      Division had its third consecutive quarter of profitability on ACCC conductor
      product revenues of $6.7 million on shipments of 1,084 kilometers of ACCC
      products and which consisted primarily of higher margin, lower priced ACCC
      conductor core. While the June, 2008 quarterly revenues represented a decrease
      of 10% sequentially over the June 2007 quarter of $7.4 million and a 36%
      decrease over the March, 2008 quarter, ACCC conductor product shipments of
      1,084
      kilometers in the June quarter represent a 28% increase over the March, 2008
      quarter of 847 kilometers and a 178% increase over the June, 2007 quarter of
      389
      kilometers. Cable margins of $2.8 million increased $0.1 million from the March,
      2008 quarter and represented 41.8% of revenues as compared to 25.8% of revenues
      in the March, 2008 quarter and were primarily due to sales of ACCC conductor
      core to our Chinese customer. Cable operating expenses were $2.7 million
      including non-cash stock option and depreciation charges of $0.5 million for
      positive “non-GAAP” EBITDAS (Earnings before Interest, Taxes, Depreciation, and
      Stock charges) of $0.5 million for the quarter. Revenues for the nine months
      ended June 30, 2008 were $28.1 million, an increase of $16.4 million or 140%
      over revenues of $11.7 million for the nine months ended June 30, 2007 and
      represent a 312% increase of kilometers shipped to 3,080 kilometers in 2008
      as
      compared to 748 kilometers in 2007. Cable margins for the nine months ended
      June
      30, 2008 of $9.7 million or 34.3% of revenues is an increase of $6.4 million
      from $3.3 million or 28.1% of revenues for the nine months ended June 30, 2007.
      The margin improvement is the result of higher margin ACCC conductor core sales
      in 2008 as compared to higher sales price but lower margin ACCC conductor
      products sold in 2007. Operating expenses increased by $0.6 million due to
      increased sales costs and non-recurring charges in the March 2008 quarter
      related to development of additional sources of composite core
      resins.





At
      the
      end of the quarter at June 30, 2008, we had a non-cancelable order backlog
      for
      our cable products of $11 million including approximately $7 million of high
      margin ACCC core and $4.1 million of lower margin ACCC conductor and ACCC
      hardware.





The
      Cable
      division’s sales focus continues to be to develop new relationships in targeted
      markets including Europe, South and Latin America and the Middle East and on
      fulfilling our long term supply agreement with our Chinese conductor licensee
      Jiang-Su New Far East. During the quarter we completed the installation of
      our
      largest order to date in Poland and made additional initial sales into Spain
      and
      Indonesia. Subsequent to quarter end, we expanded our relationship with Lamifil
      n.v., one of our ACCC stranders, to allow for Lamifil to sell finished ACCC
      conductor directly to their customers. This revised arrangement will allow
      CTC
      Cable to sell to Lamifil the higher margin ACCC conductor core. We currently
      have commercially delivered or have commercial orders to deliver ACCC products
      into China, the U.S., Indonesia, Poland, Spain, Mexico, and most recently,
      through Lamifil, in Belgium. All of these new markets represent the culmination
      of several years of testing and certification procedures and opens these markets
      to additional orders in the future. We are excited about the opportunities
      that
      these new markets present and we consider our initial sales to be further proof
      of worldwide adoption of ACCC conductors.





The
      enhanced relations with Lamifil was made possible by obtaining approval from
      our
      warranty insurance partner to add the ACCC conductor stranded by Lamifil
      and Jiang-su Far East to our warranty program. This development is expected
      to
      help facilitate additional sales to new customers by making better use of those
      stranders' current customer relationships.





The
      focus
      of our cable operations during the three and nine month period ending June
      30,
      2008 has been to increase production to manage the large influx of orders from
      our new markets as well as produce ACCC core for deliveries under our China
      agreement. Our current production capacity utilizes eight pultruder machines,
      each capable of producing up to 700 km of core per year. CTC Cable ran these
      existing machines at nearly full capacity during the quarter ended June 30,
      2008. During the September, 2008 quarter we expect to complete the installation
      of ten additional pultruder machines and to retrofit our existing eight machines
      for greater capacity. The combination is expected to bring our production
      capability to in excess of 18,000 km of ACCC core production per year,
      sufficient capacity to provide in excess of $100 million in ACCC core revenue
      per year.





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




37


The
      following table is a reconciliation of CTC Cable only “non-GAAP” EBITDAS
      discussed above for the three and nine months ended June 30, 2008 and 2007.
      Management believes that “non-GAAP” EBITDAS provides an important decision
      metric due to the large amount of non-cash expenses incurred by the Company
      and
      its subsidiaries. We believe that EBITDAS is a meaningful proxy for the
      operating cash flow activities since it excludes non-cash charges for
      depreciation and for stock based compensation charges that historically have
      been dependent on the vesting schedules of the underlying options granted rather
      than the operations of the business.




(Unaudited)
            
            **Three months ended June 30,****Cable
                Segment Only**
            
            **2008**
            
            **2007**Net
                income/(loss) from continuing operations
            
            $
            73,501
            
            $
            (5,377
            )Interest,
                taxes, depreciation, amortization and stock-based compensation
                (ITDAS):Interest
            
            
            100
            
            
            —Taxes
            
            
            —
            
            
            —Depreciation
                and amortization
            
            
            196,662
            
            
            190,478Stock-based
                compensation
            
            
            261,788
            
            
            256,418Total
                ITDAS
            
            $
            458,550
            
            $
            446,896“Non-GAAP”
                EBITDAS
            
            $
            532,051
            
            $
            441,519




(Unaudited)
            
            **Nine months ended June 30,****Cable
                Segment Only**
            
            **2008**
            
            **2007**Net
                income/(loss) from continuing operations
            
            $
            2,378,141
            
            $
            (2,543,034
            )Interest,
                taxes, depreciation, amortization and stock-based compensation
                (ITDAS):Interest
            
            
            100
            
            
            —Taxes
            
            
            —Depreciation
                and amortization
            
            
            607,428
            
            
            596,108Stock-based
                compensation
            
            
            815,286
            
            
            621,918Total
                ITDAS
            
            $
            1,422,814
            
            $
            1,218,026“Non-GAAP”
                EBITDAS
            
            $
            3,800,955
            
            $
            (1,325,008
            )




38




**RESULTS
      OF OPERATIONS**





Revenues,
      Cost of Revenues, and Gross Margins:





During
      the quarter ended June 30, 2008, the geographical allocation of consolidated
      revenues was:





China
            
            
            60.2
            %Europe
            
            
            38.5
            %South
                America
            
            
            0.6
            %North
                America
            
            
            0.7
            %




During
      the quarter, three customers in China represented 56.8% of revenues (two
      customers from our DeWind segment and one customer from our Cable segment at
      27.2% and 29.6%, respectively) and two customers in Europe with 34.5% of
      revenues (both from DeWind). No other customer represented greater than 5%
      of
      consolidated revenues.





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


Three Months Ended June
                  30,2008
              2007(unaudited)
              
              
              Cable
                  Segment
              
              
              Wind
                  Segment
              
              
              Total
              
              
              Cable
                  Segment
              
              
              Wind
                  Segment
              
              
              TotalProduct
                  Sales -Cable
              
              $
              6,651,385
              
              $
              —
              
              $
              6,651,385
              
              $
              7,396,781
              
              $
              —
              
              $
              7,396,781Product
                  Sales - Turbines
              
              
              —
              
              
              13,742,413
              
              
              13,742,413
              
              
              —
              
              
              4,317,642
              
              
              4,317,642Other
                  Turbine Related Revenue
              
              
              —
              
              
              472,796
              
              
              472,796
              
              
              —
              
              
              1,187,778
              
              
              1,187,778Total
                  Revenues
              
              $
              6,651,385
              
              $
              14,215,209
              
              $
              20,866,594
              
              $
              7,396,781
              
              $
              5,505,420
              
              $
              12,902,201Cost
                  of Sales - Cable
              
              $
              3,870,871
              
              $
              —
              
              $
              3,870,871
              
              $
              5,281,480
              
              $
              —
              
              $
              5,281,480Cost
                  of Sales - Turbines
              
              
              —
              
              
              15,868,847
              
              
              15,868,847
              
              
              —
              
              
              4,187,779
              
              
              4,187,779Cost
                  of Sales - Turbine Service
              
              
              —
              
              
              1,690,107
              
              
              1,690,107
              
              
              —
              
              
              2,950,980
              
              
              2,950,980Total
                  Cost of Sales
              
              $
              3,870,871
              
              $
              17,558,954
              
              $
              21,429,825
              
              $
              5,281,480
              
              $
              7,138,759
              
              $
              12,420,239Gross
                  Margin - Cable
              
              $
              2,780,514
              
              $
              —
              
              $
              2,780,514
              
              $
              2,115,301
              
              $
              —
              
              $
              2,115,301Gross
                  Margin % - Cable
              
              
              41.8
              %
              
              —
              
              
              41.8
              %
              
              28.6
              %
              
              —
              
              
              28.6
              %Gross
                  Margin - Turbines
              
              
              —
              
              
              (2,126,434
              )
              
              (2,126,434
              )
              
              —
              
              
              129,863
              
              
              129,863Gross
                  Margin % - Turbines
              
              
              —
              
              
              -15.5
              %
              
              -15.5
              %
              
              —
              
              
              3.0
              %
              
              3.0
              %Gross
                  Margin - Turbine Service
              
              
              —
              
              
              (1,217,311
              )
              
              (1,217,311
              )
              
              —
              
              
              (1,763,202
              )
              
              (1,763,202
              )Gross
                  Margin % - Turbine Service
              
              
              —
              
              
              -257.5
              %
              
              -257.5
              %
              
              —
              
              
              -148.4
              %
              
              -148.4
              %Total
                  Gross Margin
              
              $
              2,780,514
              
              $
              (3,343,745
              )
              $
              (563,231
              )
              $
              2,115,301
              
              $
              (1,633,339
              )
              $
              481,962Total
                  Gross Margin %
              
              
              41.8
              %
              
              -23.5
              %
              
              -2.7
              %
              
              28.6
              %
              
              -29.7
              %
              
              3.7
              %Nine Months Ended June
                  30,2008
              2007(unaudited)
              
              
              Cable
                  Segment
              
              
              Wind
                  Segment
              
              
              Total
              
              
              Cable
                  Segment
              
              
              Wind
                  Segment
              
              
              TotalProduct
                  Sales -Cable
              
              $
              28,137,446
              
              $
              —
              
              $
              28,137,446
              
              $
              11,743,783
              
              $
              —
              
              $
              11,743,783Product
                  Sales - Turbines
              
              
              —
              
              
              30,573,974
              
              
              30,573,974
              
              
              —
              
              
              16,200,264
              
              
              16,200,264Other
                  Turbine Related Revenue
              
              
              —
              
              
              1,822,648
              
              
              1,822,648
              
              
              —
              
              
              2,509,432
              
              
              2,509,432Total
                  Revenues
              
              $
              28,137,446
              
              $
              32,396,622
              
              $
              60,534,068
              
              $
              11,743,783
              
              $
              18,709,696
              
              $
              30,453,479Cost
                  of Sales - Cable
              
              $
              18,477,906
              
              $
              —
              
              $
              18,477,906
              
              $
              8,446,855
              
              $
              —
              
              $
              8,446,855Cost
                  of Sales - Turbines
              
              
              —
              
              
              32,368,477
              
              
              32,368,477
              
              
              —
              
              
              15,490,332
              
              
              15,490,332Cost
                  of Sales - Turbine Service
              
              
              —
              
              
              5,011,036
              
              
              5,011,036
              
              
              —
              
              
              6,983,872
              
              
              6,983,872Total
                  Cost of Sales
              
              $
              18,477,906
              
              $
              37,379,513
              
              $
              55,857,419
              
              $
              8,446,855
              
              $
              22,474,204
              
              $
              30,921,059Gross
                  Margin - Cable
              
              $
              9,659,540
              
              $
              —
              
              $
              9,659,540
              
              $
              3,296,928
              
              $
              —
              
              $
              3,296,928Gross
                  Margin % - Cable
              
              
              34.3
              %
              
              —
              
              
              34.3
              %
              
              28.1
              %
              
              —
              
              
              28.1
              %Gross
                  Margin - Turbines
              
              
              —
              
              
              (1,794,503
              )
              
              (1,794,503
              )
              
              —
              
              
              709,932
              
              
              709,932Gross
                  Margin % - Turbines
              
              
              —
              
              
              -5.9
              %
              
              -5.9
              %
              
              —
              
              
              4.4
              %
              
              4.4
              %Gross
                  Margin - Turbine Service
              
              
              —
              
              
              (3,188,388
              )
              
              (3,188,388
              )
              
              —
              
              
              (4,474,440
              )
              
              (4,474,440
              )Gross
                  Margin % - Turbine Service
              
              
              —
              
              
              -174.9
              %
              
              -174.9
              %
              
              —
              
              
              -178.3
              %
              
              -178.3
              %Total
                  Gross Margin
              
              $
              9,659,540
              
              $
              (4,982,891
              )
              $
              4,676,649
              
              $
              3,296,928
              
              $
              (3,764,508
              )
              $
              (467,580
              )Total
                  Gross Margin %
              
              
              34.3
              %
              
              -15.4
              %
              
              7.7
              %
              
              28.1
              %
              
              -20.1
              %
              
              -1.5
              %





39




CABLE
      REVENUES. Product revenues for the quarter ended June 30, 2008 of $6.7 million
      consisted of over 1,080 kilometers of ACCC conductor core, and related ACCC
      hardware products sold primarily to Jiangsu New Far East Cable Company in China.
      Cable revenues decreased $0.7 million or 10% for the quarter and increased
      $16.4
      million or 140% for the nine months ended June 30, 2008, compared to the same
      periods in prior year. The decrease in revenue for the current quarter were
      primarily due to a change in product mix since product deliveries in 2007 were
      primarily higher sales price ACCC conductor while 2008 sales were lower priced
      ACCC core, a decrease in North American sales by $0.7 million as compared to
      the
      prior years quarter, offset by new customer sales to Poland for $0.3 million.
      The increase in revenue for the nine months ended June 30, 2008, were primarily
      due to an increase in sales to China of $12.2 million, sales to Poland for
      $6.5
      million, offset by a decrease in North American sales by $2.4 million, as
      compared to the same period in prior year.





Cost
      of
      Sales and resultant Gross Margin on cable revenues for the three and nine months
      ended June 30, 2008 represent materials, labor, freight, and allocated overhead
      costs to produce ACCC conductor, ACCC conductor core, and related hardware.
      Cable gross margin increased $0.7 million or 31.4% for the quarter and $6.4
      million or 193% for the nine months ended June 30, 2008, compared to the same
      periods in prior year. Margin percentages for current quarter increased by
      13.2%
      and 6.2% for the nine months ended June 30, 2008 compared to the same periods
      in
      prior year. The current quarter gross margin increase is primarily attributed
      to
      sales of ACCC conductor core, which represented 83.7% of the current quarter
      sales mix in the June, 2008 quarter. Year to date gross margin improvements
      are
      primarily due to a higher proportion of current year revenues from higher margin
      ACCC core product.





TURBINE
      REVENUES. Turbine revenues for the quarter ended June 30, 2008 of $13.7 million
      consisted of sales of $7.2 million to Europe and $6.4 million of sales to China.
      The European sales consisted of two D6 turbines for $3.5 million to an existing
      customer and one D8 turbine for $3.7 million to a new customer. The $6.4 million
      of sales to China consisting of $4.0 million in turbine parts sales and $2.4
      million in turbine license fees. Turbine revenues for the quarter ended June
      30,
      2007 consisted of $2.3 million of turbine sales to Europe and $2.0 million
      of
      turbine parts sales to China. Turbine revenues for the nine months ended June
      30, 2008 of $30.5 million represents $17.8 million of turbine sales, $8.3
      million of parts sales to China, and $4.3 million of license fees from China.
      For the comparable nine months ending June, 2007, revenues of $16.2 million
      consisted of $10.4 million of turbine sales and $5.8 million of parts sales
      to
      China.





Cost
      of
      sales for the quarter ended June 30, 2008 increased $12.6 million from prior
      year and included one-time non-recurring costs $6.1 million – $4.7 million
      associated with the closure of the Lubeck manufacturing location; $1.0 million
      in estimated delay penalties associated with recent supply chain delays, and
      approximately $0.3 million in other one-time charges (discussed under the Recent
      Developments section of the DeWind segment above). Excluding these one-time
      charges, cost of sales for the current quarter and resultant positive gross
      margin is reflective of the combination of high margin license and parts sales
      revenues to our Chinese partners, low but positive margin sales of the D6 and
      D8.2 turbines sold in the quarter, and additional loss provisions recorded
      related to delivery delays on the D6 turbines that were delayed to our Czech
      customer due to the supply chain delay described above.





Turbine
      product cost of sales and margins for the nine months ended June 30, 2008 of
      negative $2.8 million is reflective of the one time charges described above
      of
      $6.0 million. Excluding those one time charges, positive margins of $3.2 million
      are reflective of the higher margin license fees and turbine parts sales and
      unit turbine sales in the March and June, 2008 quarters of approximately 5%
      of
      revenues offset by negative margins in the December, 2007 quarter for product
      sales. Cost of sales for the turbines and related revenues for the periods
      between the acquisition date of DeWind in July, 2006 until the December 31,
      2007
      quarter were determined under the guidance of SFAS 141 acquisition accounting
      which required us to record cost of sales at liquidation value less a nominal
      profit margin and an estimate of these costs through the one year anniversary
      of
      the acquisition of July 2006. As a result, the gross profit for the quarter
      and
      nine months ending June 30, 2007 is largely this nominal profit margin in
      addition to the margin generated by the sale of other turbine parts and for
      the
      addition of additional costs required in excess of the estimate made for future
      turbine deliveries. We do not believe that these margin percentages are
      necessarily indicative of future profit margins of turbines produced by DeWind
      subsequent to the acquisition for our projected D6, D8, or D8.2
      sales.





TURBINE
      SERVICE REVENUES. Turbine service revenues for the quarter ended June 30, 2008
      of $0.5 million consisted of amortized deferred service and maintenance revenues
      and service billings related to turbines that were not transferred to the now
      discontinued E Services entity, typically for turbines recently ending their
      warranty periods. Turbine service revenues for the quarter ended June 30, 2007
      of $1.2 million represents primarily amortization of deferred maintenance
      revenues for those turbines remaining under warranty which were not transferred
      to E Service. The increase in revenues is due to increased service billings
      for
      customers rolling off their warranty period who purchased maintenance services
      subsequent to their warranty termination.


40


Cost
      of
      revenues for turbine service represents the labor, parts, supplies, and overhead
      related to the servicing of turbines and the net effect of changes in our
      turbine availability and warranty provisions. Cost of revenues for the three
      months ending June 30, 2008 decreased by $1.2 million or 42.7% due to lower
      charges related to warranty and availability provisions that were recorded
      in
      the June, 2007 quarter. Cost of revenues for the nine months ended June 30,
      2008
      decreased by $1.9 million or 27.3% in large part due to a reversal of $1.6
      million of previously accrued warranty and availability penalties in the March,
      2008 quarter.





OPERATING
      EXPENSES





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





Consolidated
      operating expenses increased $2.7 million or 36.1% from $7.5 million in the
      quarter ended June 30, 2007 to $10.2 million in the current quarter, and $8.9
      million or 39.7% from $22.5 million in the nine months ended June 30, 2007
      to
      $31.5 million in the current nine month period. The current quarter increase
      of
      $2.7 million is due to Cable operating expense increase of $0.6 million
      primarily associated with increased R&D expenses related to development of
      redundant resin suppliers; Corporate operating expense increase of $0.9 million
      primarily related to increased stock-compensation expense, and increased legal
      and accounting fees related to an IRS audit, our financings, and the filing
      of
      our registration statement; and DeWind operating expense increase of $1.5
      million consisting primarily related to costs associated with development of
      our
      D8.2 prototype of $2.5 million, and the net effect of development and operations
      costs increased in the US DeWind operations offset by decreased costs in the
      DeWind Germany operations. The increase from the nine months ended June 30,
      2007
      to June 30, 2008 of $9.3 million is due to: $7.1 million of DeWind development
      costs primarily associated with the D8.2 60 hertz prototype and development
      of
      the new 90 meter DeWind turbine; $0.6 million in additional CTC Cable
      development related to redundant resin suppliers; $1.0 million in additional
      cash basis sales expenses related to higher revenue levels; $0.9 million in
      additional non-cash stock compensation charges, $0.4 million in additional
      depreciation and amortization; and $0.3 million due to additional officer’s cash
      compensation caused by an increase to three from two officers for most of 2007
      offset by a decrease in General and Administrative expenses of $1.0 million
      related to DeWind legacy turbine receivables reserves.





A
      substantial amount of our DeWind segment cost structure is paid in Euros and
      between June 30, 2007 and June 30, 2008 the US dollar depreciated against the
      Euro by 17% from $1.3473 to $1.5787 Dollars to the Euro. If the exchange rates
      had remained constant, consolidated operating expenses would have decreased
      by
      approximately $0.3 million and $0.7 million for the three and nine months ended
      June 30, 2008.


41


The
      following table provides a comparative analysis of operating
      expenses.




Three Months Ended June
                30,2008
            
            2007(unaudited)
            
            Corporate
            
            Cable
            
            DeWind
            
            Total
            
            Corporate
            
            Cable
            
            DeWind
            
            TotalOfficer
                Compensation
            
            $
            858,158
            
            $
            —
            
            $
            —
            
            $
            858,158
            
            $
            378,071
            
            $
            —
            
            $
            —
            
            $
            378,071General
                and Administrative
            
            
            1,586,619
            
            
            419,518
            
            
            2,153,398
            
            
            4,159,535
            
            
            1,464,236
            
            
            498,312
            
            
            1,828,883
            
            
            3,791,431Research
                and Development
            
            
            —
            
            
            1,285,193
            
            
            1,570,055
            
            
            2,855,248
            
            
            —
            
            
            672,591
            
            
            679,375
            
            
            1,351,966Sales
                and Marketing
            
            
            —
            
            
            805,540
            
            
            598,890
            
            
            1,404,430
            
            
            —
            
            
            759,297
            
            
            507,514
            
            
            1,266,811Depreciation
                and Amortization
            
            
            —
            
            
            196,662
            
            
            720,910
            
            
            917,572
            
            
            —
            
            
            190,478
            
            
            509,932
            
            
            700,410Total
                Operating Expenses
            
            $
            2,444,777
            
            $
            2,706,913
            
            $
            5,043,253
            
            $
            10,194,943
            
            $
            1,842,307
            
            $
            2,120,678
            
            $
            3,525,704
            
            $
            7,488,689




Nine Months Ended June
                30,2008
            
            2007(unaudited)
            
            Corporate
            
            Cable
            
            DeWind
            
            Total
            
            Corporate
            
            Cable
            
            DeWind
            
            TotalOfficer
                Compensation
            
            $
            1,463,410
            
            $
            —
            
            $
            —
            
            $
            1,463,410
            
            $
            875,767
            
            $
            —
            
            $
            —
            
            $
            875,767General
                and Administrative
            
            
            3,808,162
            
            
            1,280,798
            
            
            6,447,391
            
            
            11,536,351
            
            
            4,083,985
            
            
            1,290,703
            
            
            7,543,595
            
            
            12,918,283Research
                and Development
            
            
            —
            
            
            2,994,050
            
            
            9,204,243
            
            
            12,198,293
            
            
            —
            
            
            2,124,406
            
            
            1,873,671
            
            
            3,998,077Sales
                and Marketing
            
            
            —
            
            
            2,473,752
            
            
            1,397,244
            
            
            3,870,996
            
            
            —
            
            
            1,828,745
            
            
            908,316
            
            
            2,737,061Depreciation
                and Amortization
            
            
            —
            
            
            607,428
            
            
            1,778,324
            
            
            2,385,752
            
            
            —
            
            
            596,108
            
            
            1,386,592
            
            
            1,982,700Total
                Operating Expenses
            
            $
            5,271,572
            
            $
            7,356,028
            
            $
            18,827,202
            
            $
            31,454,802
            
            $
            4,959,752
            
            $
            5,839,962
            
            $
            11,712,174
            
            $
            22,511,888




OFFICER
      COMPENSATION. Officer compensation represents CTC corporate expenses and
      consists primarily of salaries, consulting fees paid in cash, and the fair
      value
      of stock grants issued to officers of the Company. Officer compensation
      increased $480,087 or 127.0% in the current quarter from $378,071 for the
      quarter ended June 30, 2007, and $587,643 or 67.1% in the current nine months
      from $875,767 for the nine months ended June 30, 2007. The increase for the
      quarter and nine months is due primarily to increased stock-compensation
      recorded in the current quarter due to increases in amounts vested as compared
      to prior year.





GENERAL
      AND ADMINISTRATIVE EXPENSES. General and administrative expenses consisted
      primarily of salaries and employee benefits for administrative personnel,
      facilities costs, stock listing fees, insurance expenses, legal, professional
      and consulting expenses, and expenses related to reserves for uncollectible
      receivables. G&A expense increased $0.4 million or 9.7% in the current
      quarter from $3.8 million for the quarter ended June 30, 2007, and decreased
      $1.4 million or 10.7% in the current nine months from $12.9 million for the
      nine
      months ended June 30, 2007. The increase in G&A expenses for the quarter is
      due primarily to legal costs of approximately $0.4 million associated with
      the
      bridge financing, as discussed in the Note 7 above, and additional G&A
      expenses for USA wind operations of approximately $0.3 million with no
      comparable expenses in prior year offset by a decrease in European litigation
      related expenses from the prior year. The decreases in G&A expenses for the
      nine months were due primarily to decreases in FKI litigation discussed in
      Note
      9 above of $1.7 million, a decrease in corporate G&A due to reduction in
      non-recurring legal fees, offset by current quarter increases mentioned
      above.


42




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





Research
      and development expenses increased $1.5 million or 111% in the current quarter
      from $1.4 million for the quarter ended June 30, 2007, and $8.2 million or
      205%
      in the current nine months from $4.0 million for the nine months ended June
      30,
      2007. The current quarter increase is due to an increase in the Cable segment
      of
      approximately $0.6 million and an increase in the DeWind segment of $0.9
      million. $7.3 million or 89% of the $8.2 million increase in the current nine
      months as compared to the prior year nine months is primarily attributed to
      our
      DeWind segment. The current quarter increase in Cable R&D is related
      primarily to $0.4 million in costs associated with additional supply sourcing
      efforts of composite core resins, and $0.1 million due to increases in stock
      compensation charges. The current quarter increase in DeWind R&D
      expenses is primarily related to additional R&D expenses for USA Wind
      operations of approximately $0.4 million with no comparable expenses in prior
      year, and additional consultant fees and R&D costs of approximately $0.4
      million related to current investment in our wind business for development
      of
      our D8.2 prototype and extended blade development and cold weather
      package.





SALES
      AND
      MARKETING EXPENSE. Sales and marketing expense consisted primarily of salaries
      and commissions for sales and marketing personnel, expenses for consultants,
      equipment, travel, and printed marketing literature and sales materials. Sales
      and Marketing expenses increased $137,619 or 10.9% in the current quarter from
      $1.3 million in the quarter ended June 30, 2007, and increased $1.1 million
      in
      the current nine months from $2.7 million in the nine months ended June 30,
      2007. The current quarter increase of $0.1 million was primarily due a
      combination of marginal increases in the Cable segment from sales commissions
      due to higher sales and the DeWind segment due to additional headcount related
      expenses.





DEPRECIATION
      & AMORTIZATION EXPENSE. Depreciation expense consisted of depreciation on
      capitalized equipment, leasehold improvements, and other capital assets and
      amortization of acquired intangibles. The depreciation and amortization expense
      increased by approximately $217,000 or 31.0% for the current quarter from
      approximately $700,000 for the quarter ended June 30, 2007, and increased
      approximately $403,000 or 20.3% for the current nine months from $2.0 million
      for the nine months ended June 30, 2007. The increase in the quarter was
      primarily due to higher amortization of intangibles from our DeWind segment
      compared to prior year, in line with expected turbine deliveries. The increase
      in the nine months increase was due to primarily to higher depreciable fixed
      assets than in prior year.





INTEREST
      EXPENSE. Interest expense consists of interest paid and payable on the Company's
      capital lease obligations, the cash interest payable on Company’s Debentures and
      Notes and the amortization of the Convertible Note discount recorded for the
      value of the warrants and conversion features issued in conjunction with the
      Convertible Notes. Interest expense increased $0.4 million or 26.7% in the
      current quarter from $1.5 million in the quarter ended June 30, 2007, and
      increased approximately $88,000 or 2.6% in the current nine months from $3.4
      million for the nine months ended June 30, 2007. The increase in the current
      quarter is primarily due to non-cash interest expense from the issuance of
      warrants related to the bridge financing structured as a Senior Secured Debt
      Facility discussed in Note 7 above, in exchange for a release from all
      obligations under the Facility including the requirement to draw the additional
      funds which would then require additional payment of cash interest and including
      the release the security interests in certain assets of the Company. This
      resulted in current quarter non-cash interest expense of $1.0 million, which
      was
      offset by a reduction in non-cash amortization of debt discount for the quarter
      of $0.6 million and lower cash interest paid on lower debt balances. The
      increases in the nine months are primarily due to increases in non-cash
      amortization of debt discount and lower cash interest paid on lower debt
      balances .
      Prior
      year expenses related to the amortization of warrants issued, amortization
      of
      debt discount associated with the issuance of warrants as part of the $22.8
      million February 2007 Convertibles Notes and cash interest on the Convertible
      Notes payable. As of June 30, 2008 our debt balance consisted of approximately
      $10.0 million principal at 8% interest, with $1.6 million of unamortized debt
      discounts, for a net debt balance of $8.4 million.


43




INCOME
      TAXES. We made no provision for income taxes in the three months ending June
      30,
      2008 due to net losses incurred. We have determined that due to our continuing
      operating losses as well as the uncertainty of the timing of profitability
      in
      future periods, we should fully reserve our deferred tax assets. As of June
      30,
      2008, our deferred tax assets continued to be fully reserved. We will continue
      to evaluate, on a quarterly basis, the positive and negative evidence affecting
      the realization of our deferred tax assets.




**Net
      Loss**





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





**Three Months Ended June
                30,**
            
            **Nine
                months Ended June 30,****2008**
            
            **2007**
            
            **2008**
            
            **2007**Corporate
            
            $
            (4,725,125
            )
            $
            (3,305,342
            )
            $
            (8,881,187
            )
            $
            (8,767,595
            )Cable
            
            
            73,501
            
            
            (5,377
            )
            
            2,378,141
            
            
            (2,543,034
            )Dewind
            
            
            (8,499,345
            )
            
            (4,812,881
            )
            
            (25,455,741
            )
            
            (14,835,497
            )Total
            
            $
            (13,150,969
            )
            $
            (8,123,600
            )
            $
            (31,958,787
            )
            $
            (26,146,126
            )





Our
      net
      loss increased $5.0 million or 61.9% in the current quarter from $8.1 million
      for the quarter ended June 30, 2007. The increase for the quarter and nine
      months was due primarily to improvements in Corporate and Cable operations
      from
      increased sales volume and margins in Cable, and decreases in operating and
      interest expenses in Corporate, as mentioned above, in addition to the
      non-recurring R&D expenses related to our D8.2 US
      prototype.


44


**LIQUIDITY
      AND CAPITAL RESOURCES**





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





For
      the
      nine months ended June 30, 2008, we had a net loss from continuing operations
      of
      $30.5 million. At June 30, 2008 we had $47.6 million of cash and cash
      equivalents, which represented an increase of $24.9 million from September
      30,
      2007. The increase was due to cash used in operations of $24.9 million,
      cash used in investing activities for the purchase of property, plant and
      equipment of $2.9 million, offset by $3.7 million provided by financing
      activities, primarily net proceeds of $3.7 million from the exercise of warrants
      issued in conjunction with our convertible note offering in February 2007,
      and
      $49.9 million in net proceeds from our equity offering to Credit
      Suisse.





Cash
      used in operations during the nine months ended June 30, 2008 of $24.9
      million was the result of operating losses, offset by depreciation,
      amortization, and non-cash compensation expenses and working capital
      requirements, most significantly related to the purchase of turbine inventory
      parts. In particular, during the nine months ending June 30, 2008, we made
      considerable investments in our Turbine business to purchase turbine
      parts.





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




On
      May 9,
      2008, we received $10.0 million in cash from Credit Suisse Securities (Europe)
      Ltd. in connection with an equity financing of 13,333,333 shares of our common
      stock. On June 27, 2008 Credit Suisse exercised their option to purchase an
      additional 45,454,544 shares of our common stock for $40.0 million in cash.
      We
      incurred approximately $0.1 million in legal fees and other expenses related
      to
      the combination of the two equity investments.





**CAPITAL
      EXPENDITURES**





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





**EFFECTS
      OF INFLATION**





We
      are
      subject to inflation and other price risks arising from price fluctuations
      in
      the market prices of the various raw materials that we use to produce our
      products including the price of aluminum. Price risks are managed through
      cost-containment measures. Since we anticipate passing through the risk of
      market fluctuations of the price of aluminum to our customers, as is the
      practice in the cable industry, we do not believe that inflation risk or other
      price risks with respect to raw materials used to produce our products are
      material to our business, financial position, results of operations or cash
      flows.


45


**OFF
      BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS**





There
      are
      no off balance sheet arrangements. The following table summarizes our
      contractual obligations (including interest expense) and commitments as of
      June
      30, 2008:





Contractual
                Obligations
            
            Total
            
            Less than 1year
            
            1-3 years
            
            More than 3
              YearsDebt
                Obligations
            
            $
            10,037,280
            
            $
            —
            
            $
            10,037,280
            
            $
            —Operating
                Lease Obligations
            
            
            3,060,290
            
            
            1,291,537
            
            
            1,768,753
            
            
            —Purchase
                Commitments
            
            $
            10,000,000
            
            $
            10,000,000
            
            $
            —
            
            $
            —





Not
      included in the table above are amounts included on our balance sheet under
      warranty liabilities. Our turbine warranty generally provides for payment of
      services for turbine related repairs as well as provides for compensation for
      availability penalties. Availability penalties are wind generating revenue
      guarantees payable in cash to wind farm operators if their turbine under
      warranty fails to meet minimum wind generation levels. As of June 30, 2008,
      we
      had accrued availability penalties relating to incurred and measured wind
      generating guarantees totaling $6,718,444 which are payable upon the resolution
      of the underlying claims. We currently classify all such payments as less than
      one year.


46




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





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





As
      of
      June 30, 2008 we did not hold any derivative financial instruments for
      speculative or trading purposes. The primary objective of our investment
      activities is the preservation of principal while maximizing investment income
      and minimizing risk. As of June 30, 2008, we had $47.6 million in cash, cash
      equivalents and short-term investments that mature in twelve months or less.
      Due
      to the short duration of these financial instruments, we do not expect that
      a
      change in interest rates would result in any material loss to our investment
      portfolio.





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





**ITEM
      4: CONTROLS AND PROCEDURES**





Based
      on
      an evaluation under the supervision and with the participation of the Company's
      management, including the Chief Executive Officer, the Chief Financial Officer
      and the Chief Operating Officer, the Company's principal executive officer
      and
      principal financial officer have concluded that the Company's disclosure
      controls and procedures (as defined under the Securities Exchange Act of 1934,
      as amended (Exchange Act)) were not effective as of June 30, 2008 to ensure
      that
      information required to be disclosed by the Company in reports that it files
      or
      submits under the Exchange Act is recorded, processed, summarized and reported
      within the time periods specified in Securities and Exchange Commission rules
      and forms.





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





Entity
      level Processes and weaknesses. As of September 30, 2007, the following material
      weaknesses existed related to general processes and weaknesses for the entity
      taken as a whole:





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





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





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





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


47




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





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





Inventory
      Processes. As of September 30, 2007, the following material weaknesses existed
      related to ineffective controls over our inventory processes:





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





o
      During
      our 2007 assessment, we noted that there were insufficient cycle counts of
      Turbine related parts for our Interim Reporting Periods.





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





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





During
      the three and nine months ended June 30, 2008 the Company improved the internal
      control structure and addressed the identified material weaknesses as
      follows:





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





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





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





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


48





There
      were no changes in our internal control over financial reporting during the
      quarter or nine months ended June 30, 2008 that has materially affected, or
      is
      reasonably likely to materially affect, our internal control over financial
      reporting, other than the remediation measures which are described
      above.





SingerLewak
      LLP, our independent registered public accounting firm, has audited management's
      assessment of the effectiveness of the Company's internal control over financial
      reporting as of September 30, 2007 and 2006 as stated in their report which
      appears in the Annual Report on Form 10-K/A filed June 4, 2008.





**PART
      II - OTHER INFORMATION**





**ITEM
      1 - LEGAL PROCEEDINGS**





There
      have been no material changes to the Legal Proceedings described in Form 10-K/A
      filed June 4, 2008 except as noted in Footnote 9 to the financial statements
      in
      this document.





**ITEM
      1A. RISK FACTORS**





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





The
      following risk factors have changed or have been updated for recent information
      as compared to the Risk Factors listed in Form 10-K/A filed on June 4, 2008
      and such risk factors should be read in conjunction with the risk factors listed
      in such Form 10-K/A filed on June 4, 2008.





WE
      EXPECT
      FUTURE LOSSES AND OUR FUTURE PROFITABILITY IS UNCERTAIN.


Prior
      to
      acquiring Transmission Technology Corporation, or TTC, in November 2001, we
      were
      a shell corporation having no operating history, revenues from operations,
      or
      assets since December 31, 1989. We have recorded approximately $49 million
      in
      ACCC product sales since inception and we have $50 million in Turbine and
      related services revenues since the acquisition of DeWind on July 3, 2006.
      Historically, we have incurred substantial losses and we may experience
      significant quarterly and annual losses for the foreseeable future. We may
      never
      become profitable. If we do achieve profitability, we may not be able to sustain
      or increase profitability on a quarterly or annual basis. We expect the need
      to
      significantly increase our product development and product prototype and
      equipment prototype production expenses, as necessary. As a result, we will
      need
      to generate significant revenues and earnings to achieve and maintain
      profitability.


49
  WE
      HAVE A
      SIGNIFICANT PORTION OF OUR CURRENT REVENUES AND ORDER BOOKINGS WITH A SMALL
      NUMBER OF CUSTOMERS.


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





OUR
      INDEPENDENT AUDITORS HAVE ISSUED A QUALIFIED REPORT AS OF AND FOR THE YEAR
      ENDED
      SEPTEMBER 30, 2007 WITH RESPECT TO OUR ABILITY TO CONTINUE AS A GOING CONCERN,
      AND WE MAY NEVER ACHIEVE PROFITABILITY.


Since
      inception, our accountants have issued a report relating to our audited
      financial statements which contains a qualification with respect to our ability
      to continue as a going concern because, among other things, our ability to
      continue as a going concern is dependent upon our ability to generate profitable
      operations in the future or to obtain the necessary financing to meet our
      obligations and repay our liabilities from normal business operations when
      they
      come due. There is no guarantee that the products will be accepted or provide
      a
      marketable advantage, and therefore, no guarantee that the commercialization
      will ever be profitable. For the nine months ended June 30, 2008 we had a net
      loss from continuing operations of $30,481,586 and negative cash flows from
      continuing operations of $24,893,142. For the year ended September 30, 2007, we
      had a net loss of $44,483,482 and negative cash flows from operations of
      $21,839,550. For the fiscal year ended September 30, 2006, we had a net loss
      of
      $28,523,192 and negative cash flows from operations of $6,263,703. For the
      fiscal year ended September 30, 2005, we had a net loss of $40,163,407 and
      negative cash flows from operations of $12,449,211.





IF
      WE
      CANNOT RAISE CAPITAL WHEN IT IS NEEDED, WE MAY BE REQUIRED TO REDUCE OR SUSPEND
      OPERATIONS OR GO OUT OF BUSINESS ALTOGETHER.


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




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


As
      of
      July 30, 2008, Benton H Wilcoxon, our Chairman of the Board and Chief
      Executive Officer, and Credit Suisse Securities (Europe) Limited in the
      aggregate beneficially own or control approximately 31% of the outstanding
      common stock. As a result, these persons have substantial influence in
      determining the outcome of any corporate matters submitted to our shareholders
      for approval, including mergers, consolidations and the sale of all or
      substantially all of our assets, election of directors and other significant
      corporate actions. They also have the power to prevent or cause a change in
      control. The interests of these shareholders may differ from the interests
      of
      the other shareholders, and may limit the ability of other shareholders to
      affect our management and affairs.


50




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





Over
      the
      past 18 months, the US Dollar has significantly weakened against foreign
      currencies, notably the Euro. When the Company purchased the DeWind subsidiary
      in July, 2006, the Dollar to Euro exchange rate was approximately $1.29 to
      the
      Euro. As of June 30, 2008 the exchange rate was $1.58 to the Euro for a 22.5%
      decline in the dollar from July 3, 2006 to June 30, 2008. We currently do not
      hedge our foreign currency risk.





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


**We
        have closed our manufacturing facility in Lubeck, Germany and intend to have
        D8
        and D8.2 products manufactured from the TECO Westinghouse facility in Texas.
        We
        may incur additional costs as a result of this closure and our reliance upon
        TECO creates additional risks.**
 
 We
        have
        decided to close our manufacturing facility in Lubeck, Germany.  In
        connection with this facility closing, we have expensed costs related to
        reserve
        for turbine parts. We may incur additional costs including without limitation,
        layoff related expenses.
  As
        a
        result of this manufacturing facility closure, while our D6 turbines would
        be
        manufactured from our Chinese licenses.  we would be primarily dependent on
        our TECO facility for manufacturing of our latest D8 and D8.2 turbines. If
        TECO
        were to go out of business or otherwise become unable to meet its manufacturing
        commitments, the process of locating and qualifying alternate sources could
        require up to several months, during which time our production could be delayed.
        Such delays could have a material adverse effect on our business, operating
        results and financial condition.


**Risks
      Related To Our Securities**





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


The
      market price of our common stock may be subject to significant fluctuations
      in
      response to our operating results, announcements of new products or market
      expansions by us or our competitors, changes in general conditions in the
      economy, the financial markets, the electrical power transmission and
      distribution industry, or other developments and activities affecting us, our
      customers, or our competitors, some of which may be unrelated to our
      performance. The sale or attempted sale of a large amount of common stock into
      the market may also have a significant impact on the trading price of our common
      stock. During the last 12 months, the closing bid prices for our common stock
      have fluctuated from a high of $2.16 to a low of $0.70. Fluctuations in the
      trading price or liquidity of our common stock may adversely affect our ability
      to raise capital through future equity financings.





AS
      OF
      AUGUST 7, 2008, 37,253,095 COMMON SHARES ARE ISSUABLE UPON EXERCISE OF ALL
      OUTSTANDING OPTIONS, WARRANTS AND CONVERSION OF CONVERTIBLE NOTES FOR LESS
      THAN
      THE MARKET PRICE OF $1.18 PER SHARE. CASH PROCEEDS RESULTING FROM THE FULL
      EXERCISE AND CONVERSION OF THESE SECURITIES WOULD BE APPROXIMATELY $26,494,512.
      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 13.0% TO APPROXIMATELY
      324,761,000 SHARES.





The
      exercise price or conversion price of outstanding options, warrants and
      convertible notes may be less than the current market price for our common
      shares. In the event of the exercise of these securities, a shareholder could
      suffer substantial dilution of his, her or its investment in terms of the
      percentage ownership in us as well as the book value of the common shares held.
      At the August 7, 2008 market price of $1.18 per share, 37,253,095 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 $26,494,512and would increase the outstanding common shares by
      13.0%
      to approximately 324,761,000 shares.


51




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





Between
      July 3, 2008 and August 8, 2008 the Company issued 947,429 shares of common
      stock in exchange for conversions of convertible debt and exercises of warrants
      as follows:





Between
      July 3, 2008 and August 7, 2008, the Company issued 750,000 shares of its common
      stock, registered for resale under a Form S-3, to one accredited investor upon
      the conversion of $750,000 of convertible debt at a conversion price of $1.00
      per share.





Between
      July 8, 2008 and July 18, 2008, the Company issued 156,429 shares of its common
      stock, registered for resale under a Form S-3, to two accredited investors
      upon
      the exercise of a like number of warrants at $0.75 per warrant. The Company
      received $117,322 in cash proceeds from these exercises. On August 4, 2008
      the
      Company issued 25,000 shares of its common stock, registered for resale under
      a
      Form S-3, to upon the exercise of a like number of warrants at $1.00 per
      warrant. The warrants were originally issued in conjunction with the February
      2007 Convertible Debt offering. The Company received $25,000 in cash proceeds
      from this exercise. On July 17, 2008 the Company issued 16,000 shares of
      unregistered common stock upon the exercise of a like number of warrants at
      $1.00 per warrant. The warrants were originally issued in 2004 in exchange
      for
      services related to a capital lease financing. The Company received $16,000
      in
      cash proceeds from this exercise.





The
      Company relied upon the exemption from registration as set forth in Section
      4(2)
      of the Securities Act for the issuance of these securities. The recipients
      took
      their securities for investment purposes without a view to distribution and
      had
      access to information concerning the Company and its 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**




None


52




**ITEM
      5 - OTHER INFORMATION**




**Departure
      of Directors or Certain Officers; Election of Directors; Appointment of Certain
      Officers; Compensatory Arrangements of Certain Officers**





On
      August
      6, 2008 the Company’s Compensation Committee and Board of Directors modified the
      compensation of its officers and granted additional options to purchase shares
      of the Company’s common stock to these officers and one director who also
      functions as a business advisor and intellectual property attorney and
      consultant. The following table shows the increases in compensation and option
      grants. The option grants were approved by the Compensation Committee and Board
      of Directors on August [ ], 2008.





All
      base
      salary compensation increases are effective only after the Company’s DeWind
      Subsidiary has sold a minimum of 20 units of the 2 megawatt D8.2 or D9.2
      turbines. As of August 6, 2008 this condition had not been met.





Benton
      H
      Wilcoxon, Chief Executive Officer


·
            Increase
                of base salary from $400,000 per year to $500,000 per
                year;·
            Eligibility
                for 2009 annual incentive of 80% of base salary at 100% payout ratio.
                Annual incentive targets to be established by September 30, 2008
                by the
                Compensation Committee·
            Grant
                of an additional 2,200,000 options under the 2008 option plan with
                an
                exercise price of $1.25 per share.





Marvin
      Sepe, Chief Operating Officer


·
            Increase
                of base salary from $325,000 per year to $375,000 per
                year;·
            Eligibility
                for 2009 annual incentive of 60% of base salary at 100% payout ratio.
                Annual incentive targets to be established by September 30, 2008
                by the
                Compensation Committee·
            Grant
                of an additional 1,250,000 options under the 2008 option plan with
                an
                exercise price of $1.25 per share.





Domonic
      J. Carney, Chief Financial Officer


·
            Increase
                of base salary from $275,000 per year to $325,000 per
                year;·
            Eligibility
                for 2009 annual incentive of 50% of base salary at 100% payout ratio.
                Annual incentive targets to be established by September 30, 2008
                by the
                Compensation Committee·
            Grant
                of an additional 1,000,000 options under the 2008 option plan with
                an
                exercise price of $1.25 per share.





Mike
      McIntosh, Intellectual Property & Business Strategy Advisor and
      Director


·
            Grant
                of an additional 800,000 options under the 2008 option plan with
                an
                exercise price of $1.25 per share.





Option
      vesting conditions: The options shall vest in three equal annual installments
      from the grant date. The options shall have a change of control vesting
      acceleration provision.


53





After
      these grants, on August 6, 2008 the three officers and Mr. McIntosh have the
      following option positions:





**Officer
                or Director**
            
            **Options Granted**
            
            **Exercise Price**
            
            **Vested Options (1)**
            
            **Unvested Options (1)**Benton
                Wilcoxon
            
            
            635,216
            
            $
            0.35
            
            
            635,216
            
            
            —CEO
            
            
            2,000,000
            
            $
            1.00
            
            
            666,666
            
            
            1,333,3342,200,000
            
            $
            1.25
            
            
            —
            
            
            2,200,000Total
            
            
            4,835,216
            
            
            
            
            
            1,301,882
            
            
            3,533,334Marvin
                Sepe
            
            
            400,000
            
            $
            1.04
            
            
            266,666
            
            
            133,334COO
            
            
            600,000
            
            $
            1.01
            
            
            400,000
            
            
            200,000500,000
            
            $
            1.30
            
            
            166,666
            
            
            333,3341,250,000
            
            $
            1.25
            
            
            —
            
            
            1,250,000Total
            
            
            2,750,000
            
            
            
            
            
            833,332
            
            
            1,916,668Domonic
                J. Carney
            
            
            500,000
            
            $
            0.90
            
            
            500,000
            
            
            —CFO
            
            
            250,000
            
            $
            1.01
            
            
            166,666
            
            
            83,334500,000
            
            $
            1.30
            
            
            166,666
            
            
            333,3341,000,000
            
            $
            1.25
            
            
            —
            
            
            1,000,000Total
            
            
            2,250,000
            
            
            
            
            
            833,332
            
            
            1,416,668Mike
                McIntosh
            
            
            325,000
            
            $
            1.04
            
            
            243,415
            
            
            81,585Director
            
            
            1,000,000
            
            $
            1.00
            
            
            416,668
            
            
            583,332800,000
            
            $
            1.25
            
            
            —
            
            
            800,000Total
            
            
            2,125,000
            
            
            
            
            
            660,083
            
            
            1,464,917




(1)
                As of August 6, 2008




54




**ITEM
      6 - EXHIBITS**




**EXHIBIT
      INDEX**


Number
              
              Description3.1(1)
              
              Articles
                  of Incorporation of the Company3.2(2)
              
              Certificate
                  of Amendment to Articles of Incorporation3.2(3)
              
              Bylaws
                  of Composite Technology Corporation, as modified January 6,
                  200610.1(4)
              
              Agreement
                  by and among Enertrag AG and EU Energy Ltd. dated as of September
                  27,
                  200610.2(5)
              
              Agreement
                  by and among EU Energy Inc., GE Infrastructure Technology, LLC
                  and GE
                  Infrastructure Technology International Inc. dated as of October
                  6,
                  200610.3(6)
              
              Strategic
                  Alliance Agreement by and between the Registrant and TECO-Westinghouse
                  Motor Company dated as of November 27, 200610.4(7)
              
              Modification
                  of Agreement dated September 27, 2006 by and among Enertrag and
                  the
                  Registrant’s wholly owned subsidiary DeWind Turbines regarding E. Service
                  GmbH dated as of January 19, 2007 (English translation)10.5(8)
              
              Distribution
                  Agreement by and between the Registrant’s wholly owned subsidiary CTC
                  Cable Corporation and Far East Composite Technology Company dated
                  as of
                  January 30, 200710.6(9)
              
              Securities
                  Purchase Agreement dated as of February 12, 2007 by and among the
                  Registrant and the investors set forth therein10.7(9)
              
              Form
                  of Senior Convertible Debenture10.8(9)
              
              Form
                  of Warrant10.9(9)
              
              Registration
                  Rights Agreement dated as of February 12, 2007 by and among the
                  Registrant
                  and the investors set forth therein10.10(10)
              
              Consulting
                  Agreement dated as of April 1, 2007 between the Registrant and
                  Michael Porter. Appointment of Officers10.11(11)
              
              Settlement
                  agreement dated as of May 3, 2007 between DeWind GmbH and De Wind
                  Holdings Limited, each subsidiaries of EU Energy Ltd. which was
                  acquired
                  by the Registrant in July 2006 and FKI plc, FKI Engineering Limited,
                  and
                  Brush Electrical Machines Limited10.12(12)
              
              Securities
                  Purchase Agreement dated as of June 11, 2007 by and among the Registrant
                  and the investors set forth therein10.13(12)
              
              Form
                  of Warrant10.14(12)
              
              Registration
                  Rights Agreement dated as of June 11, 2007 by and among the Registrant
                  and
                  the investors set forth therein10.15(13)
              
              Securities
                  Purchase Agreement dated as of June 18, 2007 by and among the Registrant
                  and the other parties listed therein10.16(13)
              
              Form
                  of Warrant10.17(13)
              
              Registration
                  Rights Agreement dated as of June 18, 2007 by and among the Registrant
                  and
                  the other parties listed therein10.18(13)
              
              Wind
                  Turbine Agreement, dated as of June 15, 2007, by and between DeWind,
                  Inc.
                  and Enerserve Limited10.19(14)
              
              Letter
                  Agreement dated as of October 31, 2007 between the Registrant and
                  John P
                  Mitola10.20(14)
              
              Option
                  Agreement dated as of October 31, 2007 between the Registrant and
                  John P
                  Mitola10.21(15)
              
              Factoring
                  agreement by and between the Registrant and Bradley Rotter dated as
                  of December 31, 200610.22(16)
              
              Sales
                  Agreement, effective as of January 30, 2008 by and between S&M CZ
                  s.r.o. and DeWind Ltd. (English translation)10.23(17)
              
              Financing
                  Agreement, effective as of May 5, 2008 by and between the Registrant
                  and
                  ACF CTC, L.L.C10.24(17)
              
              Form
                  of Warrant10.25(17)
              
              Subscription
                  Agreement, effective as of May 9, 2008 by and between the Registrant
                  and
                  Credit Suisse Securities (Europe) Ltd10.26(17)
              
              Call
                  Option Deed by and between the Registrant and Credit Suisse Securities
                  (Europe) Ltd.10.26(18)
              
              Subscription
                  Agreement, effective as of June 26, 2008 by and between the Registrant
                  and
                  Credit Suisse Securities (Europe) Ltd31.1(19)
              
              Rule
                  13a-14(a) / 15d-14(a)(4) Certification of Chief Executive
                  Officer31.2(19)
              
              Rule
                  13a-14(a) / 15d-14(a)(4) Certification of Chief Financial
                  Officer32.1(19)
              
              Section
                  1350 Certification of Chief Executive Officer32.2(19)
              
              Section
                  1350 Certification of Chief Financial
                  Officer


55




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





(2)
      Incorporated herein by reference to Form 8-K filed with the U.S. Securities
      and
      Exchange Commission on December 18, 2007.





(3)
      Incorporated herein by reference to Form 8-K filed with the U.S. Securities
      and
      Exchange Commission on January 12, 2006.





(4)
      Incorporated herein by reference to Form 8-K filed with the U.S. Securities
      and
      Exchange Commission on September 27, 2006.





(5)
      Incorporated herein by reference to Form 8-K filed with the U.S. Securities
      and
      Exchange Commission on October 6, 2006.





(6)
      Incorporated herein by reference to Form 8-K filed with the U.S. Securities
      and
      Exchange Commission on November 30, 2006.





(7)
      Incorporated herein by reference to Form 8-K filed with the U.S. Securities
      and
      Exchange Commission on January 25, 2007.





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





(9)
      Incorporated herein by reference to Form 8-K filed with the U.S. Securities
      and
      Exchange Commission on February 13, 2007.





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





(11)
      Incorporated herein by reference to Form 8-K filed with the U.S. Securities
      and
      Exchange Commission on May 9, 2007.





(12)
      Incorporated herein by reference to Form 8-K filed with the U.S. Securities
      and
      Exchange Commission on June 14, 2007.





(13)
      Incorporated herein by reference to Form 8-K filed with the U.S. Securities
      and
      Exchange Commission on June 21, 2007.





(14)
      Incorporated herein by reference to Form 8-K filed with the U.S. Securities
      and
      Exchange Commission on November 6, 2007.





(15)
      Incorporated herein by reference to Form 10-Q filed with the U.S. Securities
      and
      Exchange Commission on February 14, 2007.





(16)
      Incorporated herein by reference to Form 8-K filed with the U.S. Securities
      and
      Exchange Commission on February 5, 2008.





(17)
      Incorporated herein by reference to Form 8-K filed with the U.S. Securities
      and
      Exchange Commission on May 9, 2008.





(18)
      Incorporated herein by reference to Form 8-K filed with the U.S. Securities
      and
      Exchange Commission on July 2, 2008.





(19)
      Filed herewith.


56





**SIGNATURE**





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





**COMPOSITE
      TECHNOLOGY CORPORATION**


(Registrant)





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





*August
      11, 2008*


57