Alternative Construction (ACCY) 10QSB 2007 Q1 Quarterly report (small business)

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-QSB

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

SECURITIES AND EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AN EXCHANGE ACT OF 1934

For the transition period from: __________ to __________

Commission file number 333-128191

ALTERNATIVE CONSTRUCTION COMPANY, INC.

(Exact Name of Registrant as specified in its charter)

FLORIDA	20-1776133
(State of Incorporation)	(IRS Employer Identification Number)

1900 S. Harbor City Boulevard, Suite 315, Melbourne, FL	32901
(Address of Principal Executive Offices)	(Zip Code)

321-308-0834

(Registrant's telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

Common Stock, no par value

(Title of Class)

Check whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 month (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 shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

At May 7, 2007, 6,732,405 shares of the registrant’s common stock (no par value) were outstanding.

Transitional small business disclosure format: Yes o No x

TABLE OF CONTENTS

PART I	FINANCIAL INFORMATION
ITEM I	FINANCIAL STATEMENTS	2
	CONSOLIDATED BALANCE SHEETS:	2
	MARCH 31, 2007 AND DECEMBER 31, 2006
	CONSOLIDATED STATEMENT OF INCOME:
	FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006	4
	CONSOLIDATED STATEMENT OF CASH FLOWS:
	FOR THE THREE MONTHS ENDED MARCH 31, 2007 AND 2006	5
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:
	MARCH 31, 2007	6
ITEM 2	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
	CONDITION AND RESULTS OF OPERATIONS	9
ITEM 3	CONTROLS AND PROCEDURES	14
PART II	OTHER INFORMATION	14
ITEM 1	LEGAL PROCEEDINGS	14
ITEM 2	CHANGES IN SECURITIES	15
ITEM 3	DEFAULTS UPON SENIOR SECURITIES	15
ITEM 4	SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS	15
ITEM 5	OTHER INFORMATION	15
ITEM 6	EXHIBITS	15

ITEM I. FINANCIAL STATEMENTS

ALTERNATIVE CONSTRUCTION COMPANY, INC. and SUBSIDIARIES
Consolidated Balance Sheet
ASSETS
	March 31,		December 31,
	2007		2006
Current Assets
Cash	$	145,681	$	16,700
Accounts Receivable, Net		1,889,480		1,876,211
Due From Factor, Net		109,882		61,196
Inventory		496,350		480,617
Prepaid Expenses		134,416		115,139
Total Current Assets		2,775,809		2,549,863
Property, Plant and Equipment, Net		3,070,817		3,113,689
Total Assets	$	5,846,626	$	5,663,552
See accompanying notes to consolidated financial statements.

2

ALTERNATIVE CONSTRUCTION COMPANY, INC. and SUBSIDIARIES
Consolidated Balance Sheet
LIABILITIES AND STOCKHOLDERS' EQUITY
	March 31,			December 31,
	2007			2006
Current Liabilities
Notes Payable, Current Portion	$	453,323		$	447,448
Accounts Payable and Accrued Expenses		1,133,649			1,059,853
Accrued Payroll and Taxes		60,217			47,376
Capital Leases, Current Portion		23,088			21,942
Billings in Excess of Costs on Uncompleted Contracts		10,980			50,771
Deferred Revenue		163,030			162,892
Total Current Liabilities		1,844,287			1,790,282
Noncurrent Liabilities
Notes Payable, Noncurrent Portion		443,960			460,150
Capital Leases, Noncurrent Portion		81,813			91,749
Total Noncurrent Liabilities		525,773			551,899
Total Liabilities		2,370,060			2,342,182
Minority Interest		(52,985	)		(76,197	)
Stockholders' Equity
Preferred Stock
Series A convertible preferred stock, voting, $1.00 par
value, 1,500,000 shares authorized, 1,500,000 shares
issued and outstanding		1,500,000			1,500,000
Series B convertible preferred stock, voting, $.0001 par
value, 3,500,000 shares authorized, 2,010,000 shares
issued and outstanding		201			201
Series C convertible preferred stock, voting, $.0001 par
value, 1,000,000 shares authorized, 377,358 and 0 shares
issued and outstanding, respectively		38			38
Common Stock
Alternative Construction Company, Inc.: no par value,
100,000,000 shares authorized, 6,732,405 shares issued
and outstanding
Minority Interest in Subsidiaries		400			400
Subscription Receivable		(1	)		(1	)
Additional Paid In Capital		4,323,874			4,323,874
Accumulated Deficit		(2,294,961	)		(2,426,946	)
Total Stockholders' Equity		3,529,551			3,397,567
Total Liabilities and Stockholders' Equity	$	5,846,626		$	5,663,552
See accompanying notes to consolidated financial statements.

3

ALTERNATIVE CONSTRUCTION COMPANY, INC. and SUBSIDIARIES
Consolidated Statement of Income
For the Three Months Ended March 31,
	2007			2006
Sales	$	1,723,940		$	2,049,840
Cost of Sales		1,176,185			1,276,502
Gross Profit		547,755			773,338
Operating Expenses		380,567			684,358
Income From Operations		167,188			88,980
Interest Expense		(35,204	)		(69,888	)
Income Tax Benefit		-			13,475
Net Income Before Minority Interest		131,984			32,567
Minority Interest in Subsidiary		(23,212	)		21,696
Net Income	$	108,772		$	54,263
Basic and diluted based upon
13,915,794 weighted average
shares outstanding	$	0.01
Basic and diluted based upon
10,514,350 weighted average
shares outstanding				$	0.01
See accompanying notes to consolidated financial statements.

4

ALTERNATIVE CONSTRUCTION COMPANY, INC. and SUBSIDIARIES
Consolidated Statement of Cash Flows
For the Three Months Ended March 31,
	2007			2006
Cash Flows From Operating Activities:
Net Income	$	131,984		$	32,567
Adjustments to Reconcile Net Income to Net
Cash Used By Operating Activities:
Depreciation and Amortization		45,038			42,327
Minority Interest		23,212			(21,696	)
Decrease (Increase) In:
Accounts Receivable, Net		(13,269	)		182,401
Due from Factor, Net		(48,686	)		17,675
Inventories		(15,733	)		37,757
Prepaid Expenses and Other Current Assets		(19,277	)		(37,913	)
Increase (Decrease) In:
Accounts payable, accrued expenses and taxes payable		86,637			(398,554	)
Billings in Excess of Costs on Uncompleted Contracts		(39,791	)		-
Deferred Revenue		138			(65,803	)
Net Cash Used By Operating Activities		150,253			(211,239	)
Cash Flows From Investing Activities:
Acquisition of Property, Plant and Equipment		(2,166	)		(27,071	)
Net Cash Used By Investing Activities		(2,166	)		(27,071	)
Cash Flows From Financing Activities:
Issuance of Notes Payable, Line of Credit and Capital Leases		-			75,000
Repayment of Notes Payable, Line of Credit and Capital Leases		(19,105	)		(74,561	)
Reclass to Bad Debt and Payment, Net, of Notes Receivable		-			120,000
Net Cash Provided By Financing Activities		(19,105	)		120,439
Net Increase in Cash		128,982			(117,871	)
Cash at Beginning of Year		16,700			133,547
Cash at End of Period	$	145,681		$	15,676
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest	$	35,204		$	38,082
Taxes Paid	$	-		$	-
See accompanying notes to consolidated financial statements.

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ALTERNATIVE CONSTRUCTION COMPANY, INC. and SUBSIDIARIES

Notes to Consolidated Financial Statements

March 31, 2007

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Operation

The financial information included herein is unaudited; however, such information reflects all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim period. The results of operations for the three months ended March 31, 2007 are not necessarily indicative of the results to be expected for the full year. The accompanying unaudited consolidated financial statements and footnotes have been condensed and, therefore, do not contain all required disclosures. Reference should be made to the Company’s annual audited financial statement for the year ended December 31, 2006.

Basis of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Alternative Construction Technologies Corporation (“ACT”), and its majority owned subsidiaries, Universal Safe Structures, Inc. (“USS”) (80%), and ProSteel Builders Corporation (“PSB”) (80%). All significant inter-company transactions have been eliminated in consolidation. Inter-company transactions include the loans from the parent to its subsidiaries.

Accounts Receivable

Accounts receivable are uncollateralized customer obligations due for products sold. The accounts receivable are due under normal trade terms requiring payment within 30 days from the invoice date. Management reviews accounts receivable to determine if any receivables will potentially be uncollectible and any balances determined to be uncollectible are written off. Although no assurance can be given as to the collectibility of the accounts receivable, based on the information available, management has recorded a reserve for bad debt as a precautionary measure. As of March 31, 2007, the allowance for doubtful accounts receivable had a balance of $149,157. The reserve at December 31, 2006 was $149,157.

ACT utilizes the accounts receivable factoring service provided by The Hamilton Group (“Hamilton”) for a significant percentage of its receivables. Under the terms of the Sale of Accounts Factoring and Security Agreement, Hamilton provides advances of 80% of the receivable they purchase for a fee compounded daily. The factoring fees for the three months ended March 31, 2007 was $46,313 and $113,840 for the three months ended March 31, 2006. As of March 31, 2007, Hamilton had purchased $324,683 of receivables, and they had advanced $259,747 to the Company, for a net due from factor of $109,882.

PSB utilized the accounts receivable factoring service provided by Hamilton for a portion of its receivables. Under the terms of the Sale of Accounts Factoring and Security Agreement, Hamilton provides advances of 80% of the receivable they purchase for a fee compounded daily. The factoring fee for the year ended December 31, 2006 was $40,948. As of December 31, 2006, Hamilton had no outstanding activity as the Hamilton account was closed for new activity on July 5, 2006.

Effective July 5, 2006, PSB contracted with CyberFactor, LLC (“CyberFactor”) to utilize their accounts receivable factoring service provided by CyberFactor for a portion of its receivables. Under the terms of the Sale of Accounts Factoring and Security Agreement, CyberFactor provides advances of 80% of the receivable they purchase for a fee compounded daily. The factoring fee for the three months ended March 31, 2007 was $22,874 of which $20,735 was billed back to two customers for reimbursement under their separate agreements. As of March 31, 2007, CyberFactor had purchased $372,062 of receivables, and they had advanced $297,649 to PSB, for a net due from factor of $57,933.

NOTE 2 - NOTES RECEIVABLE

The Company had one note receivable with Peter Baker as of December 31, 2006. The original amount was $300,000. As of December 31, 2006, the principal balance was $275,000 as a payment in the amount of $25,000 was received. This amount was advanced to Mr. Baker as a loan commitment fee that was for a line of credit of $3,000,000 that never was finalized. The note was payable in full as of June 30, 2007 with interest at prime plus 3%. As of December 31, 2006, the Company determined that based upon certain factors, the balance may be uncollectible and wrote off the note.

6

6

ALTERNATIVE CONSTRUCTION COMPANY, INC. and SUBSIDIARIES

Notes to Consolidated Financial Statements

March 31, 2007

NOTE 3 - PROPERTY AND EQUIPMENT

Property and equipment are summarized by major classification as follows:

Useful lives	March 31, 2007		December 31, 2006
Computer equipment - 5 years	$	61,383	$	59,768
Furniture and fixtures - 5 years		6,487		6,487
Land, building and improvement - 20 years		1,069,056		1,069,056
Machinery and equipment - 20 years		2,297,837		2,297,286
Total		3,434,763		3,432,597
Less: Accumulated depreciation and
amortization		363,946		318,908
Total	$	3,070,817	$	3,113,689

Depreciation expense for the three months ended March 31, 2007 and the year ended December 31, 2006, are $45,038 and $174,677, respectively.

NOTE 4 - LONG-TERM DEBT TABLE

			Balance at
Debt holder	Due date		March 31, 2007
Notes payable :
Dell Financial Services		January 2010	$	14,866
Antoinette Pace		June 2007		117,702
Edward Beshara		June 2007		101,500
Anotoinette Pace and James Beshara		June 2007		200,000
M & T Mortgage Corporation		April 2020		399,000
Merchants and Planters Bank		Open		9,844
Merchants and Planters Bank		September		54,371
Capitalized lease obligations :
Dell Financial Services		March 2009		585
Dell Financial Services		March 2009		12,105
Dell Financial Services		July 2010		4,459
Dell Financial Services		July 2010		1,477
Avante Leasing Corporation		September 2011		86,275
		Total long-term debt		1,002,184
		Less current portion		476,411
		Long-term debt,
		net of current portion	$	525,773

NOTE 5 - RELATED PARTIES

On July 1, 2006, GAMI contracted with PSB for the construction of an office building in Melbourne, Florida, which will have various leaseholders including, but not limited to, Avante and ACC. The contract is for $965,800. Work on the contract began in October 2006. As of March 31, 2007, the construction was 90% complete (certain other components outside of actual construction were at various percents complete and accounted for accordingly) and was recorded on the PSB’s books under the percentage completion method of accounting, as $866,594 of revenue and the associated costs were booked. As of March 31, 2007, PSB had accounts receivable of $216,659. As of December 31, 2006, PSB had no accounts receivable as the balance billed of $649,935 was paid in full. The contract was negotiated under a fair and reasonable terms, comparable to competitive builders, and has been accounted for as an arms’ length transaction.

On October 1, 2006, Avante Leasing Corporation, a wholly-owned subsidiary of Avante Holding Group, Inc., leased a truss building system to Alternative Construction Technologies Corporation. The terms of the agreement include a five year term, 15.53% interest, with a $1 purchase price at the end of the period. This transaction was completed as the acquisition and financing of the truss system needed the financial guarantee of Avante Holding Group, Inc. and Michael W. Hawkins. As of March 31, 2007, the balance due to Avante Leasing Corporation under this Agreement was $86,275.\

7

ALTERNATIVE CONSTRUCTION COMPANY, INC. and SUBSIDIARIES

Notes to Consolidated Financial Statements

March 31, 2007

NOTE 6 - LEGAL PROCEEDINGS

On October 2, 2006, the Company was named in a lawsuit captioned New Millennium Enterprises, LLC and Phoenixsurf.com, LLC v. Michael W. Hawkins, et. al. U.S. District Court, Middle District of Georgia, 3: 06-CV-84 (CDC). The lawsuit alleges violations of the Georgia Securities Act, Georgia Fair Business Practices Act, Federal Securities laws and certain other unspecified laws in connection with the investment by Plaintiffs of $500,000 in ACC and seeks rescission of this investment. Plaintiffs amended their complaint on April 11, 2007. The Company filed an answer to the amended complaint denying all essential allegations of the complaint and asserting affirmative defenses showing why the plaintiffs are not entitled to the relief sought. In addition, the Company filed Counterclaims against the Plaintiffs and Third Party claims against individual officers and directors of Plaintiff, alleging a malicious interference with the Company’s business and business relations, conspiracy to interfere with our business, libel and slander, and violation of rights under Title IX of the Organized Crime Control Act of 1970 as amended. The Parties are to establish a consolidated plan of discovery by July 31, 2007. The Company believes it has meritorious defenses to the claims and intends to vigorously defend this lawsuit and to pursue its counterclaims. 

NOTE 7 - SUBSEQUENT EVENT

On April 6, 2007, the Company modified the existing loan with Peter Baker (see Note 2), which was written off as of December 31, 2006, establishing quarterly payments of $19,155.46 beginning on May 15, 2007.

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2007

This report on Form 10-QSB contains forward-looking statements within the meaning of Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the Securities Act of 1934, as amended, that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Words such as “anticipate”, “expects”, “intends”, “plans”, “believes”, “seeks” and “estimates” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-QSB. Investors should carefully consider all of such risks before making an investment decision with respect to the Company’s stock. The following discussion and analysis should be read in conjunction with our financial statements and summary of selected financial data for Alternative Construction Company, Inc. Such discussion represents only the best present assessment from our Management.

DESCRIPTION OF COMPANY:

The Company is a management company that currently operates one wholly-owned subsidiary, Alternative Construction Technologies Corporation, an entity, which manufactures the ACTech Panel™, and two other subsidiaries, ProSteel Builders Corporation and Universal Safe Structures, Inc., a general contractor offering building solutions utilizing the ACTech Panel™ and a seller of the patented Universal Safe Room™, respectively.

OVERVIEW:

The Company is a manufacturing company engaged in the research, development and marketing of proprietary products for the construction industry. We manufacture and distribute the ACTech Panel(TM), a structural insulated panel (SIP), throughout the United States. The marketing of our products is through our internal sales staff and the use of distributors.

In 2004, all of the Company’s Predecessors' revenues were derived from the sale of our ACTech Panel™ in the United States. In 2004, the primary customers were Nelson, LC, Enerloc, Sam Kelly and Advanced Building Company; combined equaling 86% of total sales. In 2005, under the new ownership after the acquisition of ACT by ACC in January 2005, the Company expanded its distribution network to include the additional builders of classrooms in Florida.

Alternative Construction Company, Inc., a Florida Corporation ("ACC"), was formed on October 26, 2004. Alternative Construction Technologies Corporation, a Delaware corporation ("ACT"), was formed in 1997 by Mr. Paul Janssens, sole shareholder and beneficial owner, and was acquired by ACC on January 21, 2005 (the "Transaction") for the purchase price of One Million Two Hundred and Fifty Thousand ($1,250,000.00) Dollars. After the transaction was completed, continued due diligence determined that an agreed upon reduction in the purchase price for ACT was required to reflect various adjustments resulting in an adjusted purchase price of Eight Hundred and Seventy-Nine Thousand Eight Hundred and Ninety-Four Dollars ($879,894). ACC also acquired certain assets from Quality Metal Systems, LLC, a Florida limited liability company ("QMS"), which was also owned by Paul Janssens for One Million Two Hundred and Fifty Thousand ($1,250,000.00) Dollars. Subsequently, Avante Holding Group, Inc. incorporated Safe Rooms, Inc. on April 27, 2005. After the incorporation, the company changed its name to Universal Safe Structures, Inc. ("USS"). On June 28, 2005 ACC acquired 80% of the Company stock for Eight Hundred Dollars ($800.00). Prior to the time of acquisition by ACC, USS conducted no business. USS has two shareholders, ACC and Avante Holding Group, Inc. Avante Holding Group, Inc. incorporated ProSteel Builders Corporation ("PSB") on April 28, 2005 with the initial shareholders being ACC (80%) and Avante Holding Group, Inc. (20%). PSB was incorporated to function utilizing the ACC products in the commercial and residential construction marketplaces. After the acquisition of ACT by ACC, the operational and marketing personnel continued employment with the Company.

Effective January 21, 2005, ACC acquired ACT and certain assets of QMS. Prior to January 21, 2005, ACC had only immaterial administrative activity. Prior to the acquisition, ACT had operations but, accordingly, the following discussion and analysis of operations is not indicative of future comparisons of ACC as the new ownership projects a different marketing and expansion program as has already been evident in 2005.

In 2004, the Predecessor did not invest in building the ACTech Panel™ brand and infrastructure. Management believes that not spending in these two categories negatively affected the growth of the Company as evidenced by the 2005 change post-acquisition.

9

The following Management Discussion and Analysis should be read in conjunction with the financial statements and accompanying notes included in this Form 10-QSB. 

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2007 TO THE THREE MONTHS ENDED MARCH 31, 2006

Results of Operations

Total revenues decreased to $1,723,940 for the three months ended March 31, 2007 from $2,049,840 for the three months ended March 31, 2006. The decrease resulted primarily from the Company’s manufacturing line being restructured due to the transition from a single supplier of raw materials to a diverse group of vendors to assure the Company of stability of its supply. This restructuring required the line to not be operational the full quarter even though orders from customers continued to be received. The change in the method of acquiring raw materials will result in decreased unit costs due to long-term commitments with increasing quantities coupled with the arrangements being with the actual provider of the material, not a broker. The transition required operations to be reduced at various times during the entire three months as testing was required to maintain compliance with the certifications by independent third parties as associated with the ACTech Panel™ related to the new raw materials vendors. Additionally, certain PSB contracts for products and/or services were delayed with shipments beginning in the latter part of the second quarter of 2007.

Cost of sales was $1,176,185 and $1,276,502, respectively for the three months ended March 31, 2007 and the three months ended March 31, 2006. As a percent of revenue, the cost of sales increased from 62.3% to 68.2%, for the three months ended March 31, 2006 as compared to the three months ended March 31, 2007. ACT has diversified its supplier base while achieving lower raw material pricing as steel prices escalated in the marketplace while this resulted in a reduced percent of cost of revenues, the decrease was offset by the effect of the downtime as discussed due to the restructuring and modifications required by the testing of new raw materials. During the downtime, the fixed costs associated with the manufacturing process; payroll, depreciation and other applicable expenses, continued while not being offset by revenue. Additionally, PSB’s cost of revenues (approximately 70% to 80% of revenue) is typically at a higher percent than ACT (approximately 60% to 79% of revenue), thus, with the revenue higher for PSB in 2007 compared to 2006, the consolidated cost of revenues would reflect higher in 2007 than the same period for 2006.

Gross profit was $547,755 and $773,338, respectively for the three months ended March 31, 2007 and the three months ended March 31, 2006. As a percent of revenue, gross profit was 37.7% and 31.8%, respectively for the three months ended March 31, 2006 and the three months ended March 31, 2007. The decrease in the gross profit was primarily attributable due the decrease in revenue for the three months ended March 31, 2007.

Total operating expenses decreased to $380,567 for the three months ended March 31, 2007 from $684,358 for the three months ended March 31, 2006. This 44.4% decrease was mainly attributable to the reduction in the cost of accounts receivable factoring fees ($46,313 and $113,840, respectively), repairs and maintenance ($3,260 and $17,632, respectively), certain fees associated with cost of the public registration of the Company ($261 and $31,648, respectively), marketing expenses ($0 and $13,152, respectively), and certain professional fees ($99,356 and $146,605, respectively).

Liquidity and Capital Resources

As of March 31, 2007, the Company had a working capital surplus of $931,522. Net income was $108,772 for the three months ended March 31, 2007. The Company generated a positive cash flow from operations of $150,253 for the three months ended March 31, 2007. The positive cash flow from operating activities for the period is primarily attributable to the Company's net income of $108,772.

Cash flows used in investing activities for the three month period ended March 31, 2007 consisted of the acquisition of $2,166 of manufacturing equipment and computers used in operations.

By adjusting its operations and development to the level of capitalization, management believes it has sufficient capital resources to meet projected cash flow needs through the next twelve months. However, if thereafter, the pricing of commodities and other raw materials increase dramatically, sales grow rapidly, and we are not successful in generating sufficient liquidity from operations or in raising sufficient capital resources, on terms acceptable to us, this could have a material adverse effect on our business, results of operations, liquidity and financial condition.

10

The effect of inflation on the Company's revenue and operating results was not significant. The Company's operations are located in North America and there are no seasonal aspects that would have a material effect on the Company's financial condition or results of operations.

Critical Accounting Policies

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ markedly from our current expectations and assumptions. While there are a number of significant accounting policies affecting our consolidated financial statements; we believe the following critical accounting policies involve the most complex, difficult and subjective estimates and judgments:

Revenue Recognition

Inventories

Allowance for doubtful accounts

Revenue Recognition

The Company recognizes revenue when persuasive evidence of an arrangement exists, the price to the customer is fixed, collectibility is reasonably assured and title and risk of ownership is passed to the customer, which is usually upon delivery.  However, in limited circumstances, certain customers traditionally have requested to take title and risk of ownership prior to shipment.  Revenue for these transactions is recognized only when:

(1) Title and risk of ownership have passed to the customer;

(2) The Company has obtained a written fixed purchase commitment;

(3) The customer has requested in writing the transaction be on a bill and hold basis;

(4) The customer has provided a delivery schedule;

(5) All performance obligations related to the sale have been completed;

(6) The modular unit has been processed to the customer’s specifications, accepted by the customer and made ready for shipment; and

(7)The modular unit is segregated and is not available to fill other orders.

The remittance terms for these “bill and hold” transactions are consistent with all other sales by the Company.

In the event that the Company’s arrangements with its customers include more than one product or service, the Company determines whether the individual revenue elements can be recognized separately in accordance with Financial Accounting Standards Board (FASB) Emerging Issues Task Force No. 00-21 (EITF 00-21), Revenue Arrangements with MultipleDeliverables , EITF 00-21 addresses the determination of whether an arrangement involving more than one deliverable contains more than one unit of accounting and how the arrangement consideration should be measured and allocated to the separate units of accounting.

Product Warranty Reserve

Currently, there are no warranties provided with the purchase of the Company’s products. The cost of replacing defective products and product returns have been immaterial and within management’s expectations. In the future, when the company deems warranty reserves are appropriate that such costs will be accrued to reflect anticipated warranty costs.

11

Inventories

We value our inventories, which consists of raw materials, work in progress, finished goods, at the lower of cost or market. Cost is determined on the first-in, first-out method (FIFO) and includes the cost of merchandise and freight. A periodic review of inventory quantities on hand is performed in order to determine if inventory is properly positioned at the lower of cost or market. Factors related to current inventories such as future consumer demand and trends in the Company's core business, current aging, current and anticipated wholesale discounts, and class or type of inventory is analyzed to determine estimated net realizable values. A provision is recorded to reduce the cost of inventories to the estimated net realizable values, if required. Any significant unanticipated changes in the factors noted above could have a significant impact on the value of our inventories and our reported operating results.

Allowance for Uncollectible Accounts

We are required to estimate the collectibility of our trade receivables. A considerable amount of judgment is required in assessing the realization of these receivables including the current creditworthiness of each customer and related aging of the past due balances. In order to assess the collectibility of these receivables, we perform ongoing credit evaluations of our customers' financial condition. Through these evaluations we may become aware of a situation where a customer may not be able to meet its financial obligations due to deterioration of its financial viability, credit ratings or bankruptcy. The reserve requirements are based on the best facts available to us and are reevaluated and adjusted as additional information is received. Our reserves are also based on amounts determined by using percentages applied to certain aged receivable categories. These percentages are determined by a variety of factors including, but are not limited to, current economic trends, historical payment and bad debt write-off experience. We are not able to predict changes in the financial condition of our customers and if circumstances related to our customers deteriorate, our estimates of the recoverability of our receivables could be materially affected and we may be required to record additional allowances. Alternatively, if we provided more allowances than are ultimately required, we may reverse a portion of such provisions in future periods based on our actual collection experience. As of September 30, 2006, we determined that there was no need for a reserve.

Employees

As of March 31, 2007 the Company had 21 employees. The Company anticipates that the number of employees will satisfy its production during the next six months. The Company does not expect to have any collective bargaining agreements covering any of its employees.

Properties

The Company’s principal executive offices are located at 1900 South Harbor City Boulevard, Suite 315, Melbourne, Florida. This leased office space is used by the Company’s executive management team as well as the administrative staff. It is in a month-to-month lease as the Company will be moving in to a new office building in May 2007. The Company’s manufacturing facility for Alternative Construction Technologies Corporation is located 1033 Lake Street, Bolivar, Tennessee. The property consists of approximately 10 acres of real estate including a 154,000 square foot structure of usable space. The structure is utilized for the manufacturing of the ACTech Panel™. The Company owns this property. ProSteel Builders Corporation office is located at 1485 Highway 34 East, Suite A-1, Newnan, Georgia. It has entered into a three-year lease expiring June 2009 for the property at a rate of $900 per month for a 1,413 square foot office. The Company believes that the current facilities are suitable for its current needs.

Trends, Risks and Uncertainties

We have sought to identify what we believe to be the most significant risks to our business, but we cannot predict whether, or to what extent, any of such risks may be realized nor can we guarantee that we have identified all possible risks that might arise.  Investors should carefully consider all of such risk factors before making an investment decision with respect to our Common Stock.

Cautionary Factors that May Affect Future Results and Market Price of Stock

On September 26, 2006, our registration statement on Form SB-2 was declared effective by the Securities and Exchange Commission. The Registration Statement includes a detailed list of cautionary factors that may affect future results.  Management believes that there have been no material changes to those factors listed, however other factors besides those listed could adversely affect us.  That report can be accessed on EDGAR at www.sec.gov .

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LIMITED OPERATING HISTORY; ANTICIPATED LOSSES; UNCERTAINTY OF FUTURE RESULTS.

The Company has only a limited operating history upon which an evaluation of its operations and its prospects can be based. The Company's prospects must be evaluated with a view to the risks encountered by a company in an early stage of development, particularly in light of the uncertainties relating to the new and evolving manufacturing methods with which the Company intends to operate and the acceptance of the Company's business model. The Company will be incurring costs to develop, introduce and enhance its products, to establish marketing relationships, to acquire and develop product lines that will compliment each other and to build an administrative organization. To the extent that such expenses are not subsequently followed by commensurate revenues, the Company's business, results of operations and financial condition will be materially adversely affected. There can be no assurance that the Company will be able to generate sufficient revenues from the sale of their modular buildings and related products. If cash generated by operations is insufficient to satisfy the Company's liquidity requirements, the Company may be required to sell additional equity or debt securities. The sale of additional equity or convertible debt securities would result in additional dilution to the Company's stockholders.

POTENTIAL FLUCTUATIONS IN ANNUAL OPERATING RESULTS.

The Company's annual operating results may fluctuate significantly in the future as a result of a variety of factors, most of which are outside the Company's control, including: the demand for manufactured modular buildings; seasonal trends; introduction of new government regulations and building standards; local, state and federal government procurement delays; general economic conditions, and economic conditions specific to the modular building industry. The Company's annual results may also be significantly impacted by the impact of the accounting treatment of acquisitions, financing transactions or other matters. Particularly at the Company's early stage of development, such accounting treatment can have a material impact on the results for any quarter. Due to the foregoing factors, among others, it is likely that the Company's operating results will fall below the expectations of the Company or investors in some future quarter.

LIMITED PUBLIC MARKET, POSSIBLE VOLATILITY OF SHARE PRICE.

The Company’s common stock is quoted and traded on the NASD OTC Electronic Bulletin Board under the ticker symbol ACCY. As of May 7, 2007, there were 6,732,405 shares of common stock issued and outstanding. There are 1,071,753 shares which were registered under the Company’s SB-2 filing and are currently tradable. In addition, there are 3,120,000 shares underlying warrants which have been registered of which 810,000 have been exercised. There can be no assurance that a broad based trading market for the Company’s shares will develop or, once developed, will be sustained in the future. Factors such as, but not limited to, technological innovations, new products, acquisitions or strategic alliances entered into by the Company or its competitors, failure to meet security analysts' expectations, government regulatory action, patent or proprietary rights developments, and market conditions for manufacturing stocks in general could have a material effect on the volatility of the Company's stock price.

MANAGEMENT OF GROWTH

The Company expects to experience growth in the number of employees and the scope of its operations. In particular, the Company intends to hire additional engineering, sales, marketing, and administrative personnel. Additionally, acquisitions could result in an increase in the number of employees and business activity. Such activities could result in increased responsibilities for management. The Company believes that its ability to increase its customer support capability and to attract, train, and retain qualified engineering, sales, marketing, and management personnel, will be a critical factor to its future success. In particular, the availability of qualified sales engineering and management personnel is quite limited, and competition among companies to attract and retain such personnel is intense. During strong business cycles, the Company may experience difficulty in filling its needs for qualified sales, engineering and other personnel.

The Company's future success will be highly dependent upon its ability to successfully manage the expansion of its operations. The Company's ability to manage and support its growth effectively will be substantially dependent on its ability to implement adequate improvements to financial and management controls, reporting and order entry systems, and other procedures and hire sufficient numbers of financial, accounting, administrative, and management personnel. The Company's expansion and the resulting growth in the number of its employees have

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resulted in increased responsibility for both existing and new management personnel. The Company is in the process of establishing and upgrading its financial accounting and procedures. There can be no assurance that the Company will be able to identify, attract, and retain experienced accounting and financial personnel. The Company's future operating results will depend on the ability of its management and other key employees to implement and improve its systems for operations, financial control, and information management, and to recruit, train, and manage its employee base. There can be no assurance that the Company will be able to achieve or manage any such growth successfully or to implement and maintain adequate financial and management controls and procedures, and any inability to do so would have a material adverse effect on the Company's business, results of operations, and financial condition.

The Company's future success depends upon its ability to address potential market opportunities while managing its expenses to match its ability to finance its operations. This need to manage its expenses will place a significant strain on the Company's management and operational resources. If the Company is unable to manage its expenses effectively, the Company's business, results of operations, and financial condition will be materially adversely affected.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements

ITEM 3. CONTROLS AND PROCEDURES

The Company’s management including the Chief Executive Officer and Chief Financial Officer, have evaluated, as of March 31, 2007, the effectiveness of the design, maintenance and operation of the Company’s disclosure controls and procedures. Management determined that the Company’s disclosure controls and procedures were effective in ensuring that the information required to be disclosed by the Company in the reports that it files under the Exchange Act is accurate and is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and regulations.

Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an entity’s disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision making can be fully faulty and that breakdowns in internal control can occur because of human failures such as errors or mistakes or intentional circumvention of the established process.

There have been no changes in internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation thereof, including any corrective actions with regard to significant deficiencies and material weaknesses.

PART II.OTHER INFORMATION

ITEM 1 LEGAL PROCEEDINGS

On October 2, 2006, the Company was named in a lawsuit captioned New Millennium Enterprises, LLC and Phoenixsurf.com, LLC v. Michael W. Hawkins, et. al. U.S. District Court, Middle District of Georgia, 3: 06-CV-84 (CDC). The lawsuit alleges violations of the Georgia Securities Act, Georgia Fair Business Practices Act, Federal Securities laws and certain other unspecified laws in connection with the investment by Plaintiffs of $500,000 in ACC and seeks rescission of this investment. Plaintiffs amended their complaint on April 11, 2007. The Company filed an answer to the amended complaint denying all essential allegations of the complaint and asserting affirmative defenses showing why the plaintiffs are not entitled to the relief sought. In addition, the Company filed Counterclaims against the Plaintiffs and Third Party claims against individual officers and directors of Plaintiff, alleging a malicious interference with the Company’s business and business relations, conspiracy to interfere with our business, libel and slander, and violation of rights under Title IX of the Organized Crime Control Act of 1970 as amended. The Parties are to establish a consolidated plan of discovery by July 31, 2007. The Company believes it has meritorious defenses to the claims and intends to vigorously defend this lawsuit and to pursue its counterclaims.

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ITEM 2.CHANGES IN SECURITIES AND USE OF PROCEEDS

None..

ITEM 3.DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5.OTHER INFORMATION

None.

ITEM 6.EXHIBITS

Exhibits

No.	Description
31.1	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, there unto duly authorized.

	Alternative Construction Company, Inc.
Date: May 10, 2007	By:	/s/ Michael W. Hawkins
		Chief Executive Officer
		(Principal Executive Officer)

Date: May 10, 2007	By:	/s/ Bruce Harmon
		Interim Chief Financial Officer (Principal
		Accounting and Financial Officer)

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