10-Q 1 form10-q.htm FORM 10-Q form10-q.htm

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


FORM 10-Q


 
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED June 30, 2008

 
[  ]
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 TECHNOLOGIES, INC.
(Exact Name of Registrant as specified in its charter)


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

2910 Bush Drive, Melbourne, FL
32935
(Address of Principal Executive Offices)
   (Zip Code)
 

321-421-6601
(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 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  [  ]

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  [  ]     Accelerated filer  [  ]     Non-accelerated filer  [  ]    Smaller reporting company  [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [  ] No [X]

At August 17, 2008, 9,735,227 shares of the registrant’s common stock (no par value) were outstanding.







 


 

 
TABLE OF CONTENTS


   
   
 
 
JUNE 30, 2008 AND DECEMBER 31, 2007
   
 
 
FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
   
 
 
FOR THE SIX MONTHS ENDED JUNE 30, 2008 AND 2007
   
 
JUNE 30, 2008
   
 
CONDITION AND RESULTS OF OPERATIONS
   
ITEM 3
   
   
   
   
ITEM 1A
   
   
   
   
   
   
 
SIGNATURES

 

 

 



 


 

 
 
Statements contained in this Quarterly Report on Form 10-Q which are not historical facts are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts regarding Accelerated Building Concepts Corporation’s (the “Company’s”) business strategy, future operations, financial position, estimated revenues or losses, projected costs, prospects, plans and objectives are forward looking statements. These forward-looking statements appear in a number of places and can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “future,” “intend,” “hopes” or “certain” or the negative of these terms or other variations or comparable terminology.
 
Management cautions that forward-looking statements are subject to risks and uncertainties that could cause our actual results to differ materially from those projected in such forward-looking statements including, without limitation, the following: the future prospects for and growth of the Company and the industries in which it operates, the level of the Company’s future sales, customer demand and cost of raw materials, the Company’s ability to maintain its business model; the Company’s ability to retain and recruit key personnel; the Company’s ability to maintain its competitive strengths and to effectively compete against its competitors; the Company’s short-term decisions and long-term strategies for the future and its ability to implement and maintain such decisions and strategies, including its strategies: (i) to focus on manufacturing revenue growth from an increasing base of customers, (ii) to focus on leasing revenue growth from an increasing base of leasable assets, and (iii) to create infrastructure capabilities that can provide prompt and efficient project bidding, expedited manufacturing, and rapid delivery; the demand by the educational market (and the K-12 market in particular) for the Company’s modular products; the effect of delays or interruptions in the passage of statewide and local facility bond measures on the Company’s operations; the effect of changes in applicable law, and policies relating to the use of temporary buildings on the Company’s modular sales and leasing revenues, including with respect to class size and building standards; the effects of changes in the level of state funding to public schools and the use of classrooms that meet the Department of Housing requirements; the Company’s ability to maintain and upgrade modular equipment to comply with changes in applicable law and customer preference; the Company’s strategy to effectively implement its expansion into Georgia and other new markets in the U.S.; and the Company’s reliance on its information technology systems; the Company’s engaging in and ability to consummate future acquisitions; manufacturers’ ability to produce products to the Company’s specification on a timely basis; the Company’s ability to maintain good relationships with school districts, other customers, manufacturers, and other suppliers; the impact of debt covenants on the Company’s flexibility in running its business and the effect of an event of default on the Company’s results of operations; the effect of interest rate fluctuations; the Company’s ability to manage its credit risk and accounts receivable; the timing and amounts of future capital expenditures and the Company’s ability to meet its needs for working capital including its ability to negotiate lines of credit; the Company’s ability to track technology trends to make good buy-sell decisions with respect to electronic test equipment; the effect of changes to the Company’s accounting policies and impact of evolving interpretation and implementation of such policies; the risk of litigation and claims against the Company; the impact of a change in the Company’s overall effective tax rate as a result of the Company’s mix of business levels in various tax jurisdictions in which it does business; the adequacy of the Company’s insurance coverage; the impact of a failure by third parties to manufacture our products timely or properly; the level of future warranty costs of modular structures that we sell; the effect of seasonality on the Company’s business; and the Company’s ability to pass on increases in its costs of modular structures, including manufacturing costs, operating expenses and interest expense through increases in rental rates and selling prices. Further, our future business, financial condition and results of operations could differ materially from those anticipated by such forward-looking statements and are subject to risks and uncertainties including the risks set forth above and the “Risk Factors” set forth in this Form 10-Q. Moreover, neither we assume nor any other person assumes responsibility for the accuracy and completeness of the forward-looking statements.
 
Forward-looking statements are made only as of the date of this Form 10-Q and are based on management’s reasonable assumptions, however these assumptions can be wrong or affected by known or unknown risks and uncertainties. No forward-looking statement can be guaranteed and subsequent facts or circumstances may contradict, obviate, undermine or otherwise fail to support or substantiate such statements. Readers should not place undue reliance on these forward-looking statements and are cautioned that any such forward-looking statements are not guarantees of future performance. We are under no duty to update any of the forward-looking statements after the date of this Form 10-Q to conform such statements to actual results or to changes in our expectations.




 
ITEM I. FINANCIAL STATEMENTS


ALTERNATIVE CONSTRUCTION TECHNOLOGIES, INC.
f/k/a ALTERNATIVE CONSTRUCTION COMPANY, INC.
and SUBSIDIARIES
Consolidated Balance Sheet


             
ASSETS
 
   
(unaudited)
       
   
June 30,
   
December 31,
 
   
2008
   
2007
 
             
Current Assets
           
Cash
  $ 213,387     $ 200,413  
Accounts Receivable, Net
    3,537,878       1,750,542  
Inventory
    1,764,587       1,477,112  
Prepaid Expenses
    402,069       959,365  
Costs in Excess of Billings
    -       265,403  
                 
Total Current Assets
    5,917,921       4,652,835  
                 
Property, Plant and Equipment, Net
    3,046,074       3,167,726  
                 
Other Assets
    1,200,000       1,462,500  
Goodwill
    2,355,802       2,355,802  
                 
Total Assets
  $ 12,519,797     $ 11,638,863  


See accompanying notes to consolidated financial statements.
 


ALTERNATIVE CONSTRUCTION TECHNOLOGIES, INC.
f/k/a ALTERNATIVE CONSTRUCTION COMPANY, INC.
and SUBSIDIARIES
Consolidated Balance Sheet


             
   
(unaudited)
       
   
June 30,
   
December 31,
 
   
2008
   
2007
 
             
Current Liabilities
           
Notes Payable, Current Portion
  $ 7,180,317     $ 626,529  
Capital Leases, Current Portion
    27,063       26,705  
Accounts Payable and Accrued Expenses
    736,102       1,500,068  
Accrued Payroll and Taxes
    38,456       77,865  
Due to Related Party
    279,161       212,827  
Billings in Excess of Costs on Uncompleted Contracts
    91,185       -  
Deferred Revenue
    -       59,266  
                 
Total Current Liabilities
    8,352,284       2,503,260  
                 
Noncurrent Liabilities
               
Notes Payable, Noncurrent Portion
    59,389       4,449,549  
Capital Leases, Noncurrent Portion
    53,306       66,712  
                 
Total Noncurrent Liabilities
    112,695       4,516,261  
                 
Total Liabilities
    8,464,979       7,019,521  
                 
Minority Interest
    37,169       31,223  
                 
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, respectively
    1,500,000       1,500,000  
Series C convertible preferred stock, voting, $.0001 par
               
    value, 1,000,000 shares authorized, 377,358 shares
               
    issued and outstanding, respectively
    38       38  
Common Stock
               
Alternative Construction Company, Inc.: no par value,
               
    100,000,000 shares authorized, 9,751,877 and 9,735,227
               
    respectively, shares issued and outstanding
               
Treasury Stock
    (1,999,799 )     (1,999,799 )
Additional Paid In Capital
    7,355,365       5,911,565  
Accumulated Deficit
    (2,837,955 )     (823,685 )
                 
Total Stockholders' Equity
    4,017,649       4,588,119  


See accompanying notes to consolidated financial statements.



ALTERNATIVE CONSTRUCTION TECHNOLOGIES, INC.
f/k/a ALTERNATIVE CONSTRUCTION COMPANY, INC.
and SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2008
   
2007
   
2008
   
2007
 
                         
Sales
  $ 1,510,730     $ 3,997,773     $ 4,064,988     $ 5,721,713  
Cost of Sales
    1,282,443       2,696,063       3,286,130       3,872,248  
Gross Profit
    228,287       1,301,710       778,858       1,849,465  
Banking and Financing Fees
    1,403,055       -       1,403,055       -  
Operating Expenses
    597,675       592,331       1,142,571       972,898  
Income (Loss) From Operations
    (1,772,443 )     709,379       (1,766,768 )     876,567  
Other (Expense)
    (124,583 )     (50,306 )     (241,556 )     (85,510 )
Income Tax Benefit
    -       -       -       -  
                                 
Net Income (Loss) Before Minority Interest
    (1,897,026 )     659,073       (2,008,324 )     791,057  
Minority Interest in Subsidiaries
    9,824       (126,525 )     5,947       (149,737 )
                                 
Net Income (Loss)
  $ (1,906,850 )   $ 532,548     $ (2,014,271 )   $ 641,320  
Adjusted EBITDA
  $ (326,561 )   $ 754,417     $ (243,851 )   $ 972,886  
                                 
Net Income (Loss) Per Share:
                               
Basic based upon 10,793,623 weighted
                               
average shares outstanding
  $ (0.18 )                        
Basic based upon 13,915,794 weighted
                               
average shares outstanding
          $ 0.04                  
Basic based upon 10,793,623 weighted
                               
average shares outstanding
                  $ (0.19 )        
Basic based upon 10,316,368 weighted
                               
average shares outstanding
                          $ 0.06  

See accompanying notes to consolidated financial statements.
 
 

 
ALTERNATIVE CONSTRUCTION TECHNOLOGIES, INC.
f/k/a ALTERNATIVE CONSTRUCTION COMPANY, INC.
and SUBSIDIARIES
Consolidated Statement of Cash Flows
For the Six Months Ended June 30
 


     (unaudited)        
   
2008
   
2007
 
Cash Flows From Operating Activities:
           
Net Income (Loss)
  $ (2,014,271 )   $ 641,320  
Adjustments to Reconcile Net Income to Net
               
Cash Used By Operating Activities:
               
Depreciation and Amortization
    111,406       96,319  
Minority Interest
    5,947       149,737  
Issuance of Stock Subscriptions
    -       (240,000 )
Decrease (Increase) In:
               
Accounts Receivable, Net
    (1,787,336 )     (382,166 )
Due from Factor, Net
    -       61,196  
Inventories
    (287,475 )     (858,585 )
Prepaid Expenses and Other Current Assets
    557,296       (733,412 )
Costs in Excess of Billings on Uncompleted Contracts
    265,403       (151,312 )
Other Assets
    262,500       -  
Increase (Decrease) In:
               
Accounts payable, accrued expenses and taxes payable
    (803,375 )     1,018,110  
Due to Related Party
    66,334       -  
Billings in Excess of Costs on Uncompleted Contracts
    91,184       (50,771 )
Deferred Revenue
    (59,266 )     (110,392 )
                 
Net Cash Used In Operating Activities
    (3,591,653 )     (559,956 )
                 
Cash Flows From Investing Activities:
               
Acquisition of Property, Plant and Equipment
    10,245       (196,181 )
Goodwill from Acquisition of Subsidiary
    -       (1,335,646 )
Minority Interest in Subsidiary
    -       2,000  
                 
Net Cash Provided By (Used In) Investing Activities
    10,245       (1,529,827 )
                 
Cash Flows From Financing Activities:
               
Repayment of Notes Payable, Line of Credit and Capital Leases
    (4,403,566 )     (1,166,916 )
Issuance of Notes Payable, Line of Credit and Capital Leases
    6,554,148       6,391,474  
Issuance of Common Stock
    -       1,004,001  
Retirement of Series B Preferred Stock
    -       (2,000,000 )
Additional Paid in Capital
    1,443,800       -  
                 
Net Cash Provided By Financing Activities
    3,594,382       4,228,559  
                 
Net Increase in Cash
    12,974       2,138,776  
                 
Cash at Beginning of Year
    200,413       16,700  
                 
Cash at End of Period
  $ 213,387     $ 2,155,475  
                 
Supplemental Disclosure of Cash Flow Information:
               
Cash paid during the period for interest
  $ 237,387     $ 85,510  
Taxes Paid
  $ -     $ -  


See accompanying notes to consolidated financial statements.
 
 

 
ALTERNATIVE CONSTRUCTION TECHNOLOGIES, INC.
f/k/a ALTERNATIVE CONSTRUCTION COMPANY, INC.
 and SUBSIDIARIES
Notes to Consolidated Financial Statements
June 30, 2008

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 six months ended June 30, 2008 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, 2007.

Alternative Construction Technologies, Inc. (“ACT” or the “Company”), was formerly known as Alternative Construction Company, Inc., a Florida corporation formed in 2004.  In July 2007, the Board of Directors with majority consent of its shareholders approved a name change.  Reference to ACT will include the period prior to the name change.

The Company operates a manufacturing facility producing the patented ACTech® Panel System, a structural insulated panel (SIP), a commercial and residential developer in Georgia, Louisiana, Mississippi, Tennessee and Florida, and a promoter of the patented Universal Safe Room™.  Other services provided include designs, consulting and other construction related services.

Basis of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Alternative Construction Manufacturing of Tennessee, Inc., f/k/a Alternative Construction Technologies Corporation (“ACMT”), Alternative Construction Manufacturing of Florida, Inc. (“ACMF”), Alternative Construction by Revels, Inc. (“ACR”), Future Builders Institute, Inc. (“FBII”), Alternative Construction Consulting Services, Inc. (“ACCS”), Solar 18 ACTech Panel, Inc (“SAP), Modular Rental and Leasing Corporation (“MRLC”), and Alternative Construction Design, Inc. (“ACD”), and its majority-owned subsidiaries, Alternative Construction Safe Rooms, Inc., f/k/a Universal Safe Structures, Inc. (“USS”), Alternative Construction by ProSteel Builders, Inc., f/k/a ProSteel Builders Corporation (“ACPSB”),Alternative Construction by Ionian, Inc., f/k/a Ionian Construction, Inc. (“ACI”).  All significant inter-company transactions have been eliminated in consolidation.  Intercompany transactions include the loans from the parent to its subsidiaries.  Minority Interest, as applicable, has been reported.

Net Earnings (Loss) Per Share

In accordance with SFAS No. 128, Earnings Per Share, basic net earnings (loss) per common share is computed by dividing the net earnings (loss) for the period by the weighted average number of common shares outstanding during the period. Potentially dilutive securities are not considered in the calculation of net loss per common share, as their inclusions would be anti-dilutive.
 
In accordance with SAB No. 98, Earnings Per Share, common shares issued for nominal consideration, if any, would be included in the per share calculations as if they were outstanding for all periods presented. No common shares have been issued for nominal consideration in the periods presented.
 
Segment Information
 
In accordance with the provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, the Company is required to report financial and descriptive information about its reportable operating segments. The Company identifies its operating segments as divisions based on how management internally evaluates separate financial information, business activities and management responsibility. The Company segments and the subsidiaries associated with each segment are as follows:


Manufacturing
Ancillary Services
Development
Corporate
Alternative Construction Manufacturing of Tennessee, Inc.
Alternative Construction Design, Inc.
Alternative Construction by Revels, Inc.
Alternative Construction Technologies, Inc.
Alternative Construction Manufacturing of Florida, Inc.
Alternative Construction Consulting Services, Inc.
Alternative Construction by Ionian, Inc.
 
 
Modular Rental and Leasing Corporation
Alternative Construction by ProSteel Builders, Inc.
 
 
Alternative Construction Safe Rooms, Inc.
   
 
Solar 18 ACTech Panel, Inc.
   
 
Future of Building Institute, Inc
   




NOTE 2 – RESTATEMENT OF PRIOR PERIOD CONSOLIDATED FINANCIAL STATEMENTS

Balance Sheet

In connection with the review by the PCAOB of the Company’s financial statements for the year ended December 31, 2006, certain errors associated with the Company’s recognition of receivables associated with warrants for the third quarter of 2006, the year ended December 31, 2006, (which are not shown as part of this filing) and the first and second quarter of 2007 (which are a part of this filing) were required to be restated.  The error related to the recording of the receivable as a current asset, not as a reduction of equity as a subscription receivable.  The errors, in all cases, represented overstatements of current assets and stockholders’ equity.

The following table presents the impact of the balance sheet misclassification on the Company’s previously reported consolidated balance sheets for the periods ended, March 31, 2007, and June 30, 2007.


   
March 31, 2007
   
June 30, 2007
 
   
As
         
As
   
As
         
As
 
   
Reported
   
Adjustments
   
Restated
   
Reported
   
Adjustments
   
Restated
 
                                     
Assets
                                   
Current Assets
                                   
Cash
  $ 145,681     $ -     $ 145,681     $ 2,155,476     $ -     $ 2,155,476  
Accounts Receivable, Net
    1,889,480       (1,437,500 )     451,980       2,498,377       (1,677,500 )     820,877  
Due From Factor, Net
    109,882       -       109,882       -       -       -  
Inventory
    496,350       -       496,350       1,339,202       -       1,339,202  
Prepaid Expenses
    134,416       -       134,416       848,551       -       848,551  
Costs in Excess of Billings
    -       -       -       151,312       -       151,312  
                                                 
Total Current Assets
    2,775,809       (1,437,500 )     1,338,309       6,992,918       (1,677,500 )     5,315,418  
                                                 
Property, Plant and Equipment, Net
    3,070,817       -       3,070,817       3,213,551       -       3,213,551  
                                                 
Goodwill
    -       -       -       1,335,646       -       1,335,646  
                                                 
Total Assets
  $ 5,846,626     $ (1,437,500 )   $ 4,409,126     $ 11,542,115     $ (1,677,500 )   $ 9,864,615  


   
March 31, 2007
   
June 30, 2007
 
   
As
         
As
   
As
         
As
 
   
Reported
   
Adjustments
   
Restated
   
Reported
   
Adjustments
   
Restated
 
                                     
Liabilities
                                   
Current Liabilities
                                   
Notes Payable, Current Portion
  $ 453,323     $ -     $ 453,323     $ 1,652,706     $ -     $ 1,652,706  
Accounts Payable and Accrued
                                               
Expenses
    1,133,649       -       1,133,649       2,069,119       -       2,069,119  
Accrued Payroll and Taxes
    60,217       -       60,217       56,220       -       56,220  
Capital Leases, Current Portion
    23,088       -       23,088       24,721       -       24,721  
Billings in Excess of Costs on
                                               
Uncompleted Contracts
    10,980       -       10,980       -       -       -  
Deferred Revenue
    163,030       -       163,030       52,500       -       52,500  
                                                 
Total Current Liabilities
    1,844,287       -       1,844,287       3,855,266       -       3,855,266  
                                                 
Noncurrent Liabilities
                                               
Notes Payable, Noncurrent Portion
    443,960       -       443,960       4,488,210       -       4,488,210  
Capital Leases, Noncurrent Portion
    81,813       -       81,813       80,210       -       80,210  
                                                 
Total Noncurrent Liabilities
    525,773       -       525,773       4,568,420       -       4,568,420  
                                                 
Total Liabilities
    2,370,060       -       2,370,060       8,423,686       -       8,423,686  
                                                 
Minority Interest
    (52,985 )     -       (52,985 )     73,540       -       73,540  
                                                 
Stockholders' Equity
                                               
Preferred Stock
                                               
Series A convertible preferred stock
    1,500,000       -       1,500,000       1,500,000       -       1,500,000  
Series B convertible preferred stock
    201       -       201       -       -       -  
Series C convertible preferred stock
    38       -       38       38       -       38  
Common Stock
    -       -       -       -       -       -  
Minority Interest in Subsidiaries
    400       -       400       2,400       -       2,400  
Treasury Stock
    -       -       -       (1,999,799 )     -       (1,999,799 )
Subscription Receivable
    (1 )     (1,437,500 )     (1,437,501 )     (1 )     (1,677,500 )     (1,677,501 )
Additional Paid In Capital
    4,323,874       -       4,323,874       5,327,875       -       5,327,875  
Accumulated Deficit
    (2,294,961 )     -       (2,294,961 )     (1,785,626 )     -       (1,785,626 )
                                                 
Total Stockholders' Equity
    3,529,551       (1,437,500 )     2,092,051       3,044,887       (1,677,500 )     1,367,387  
                                                 
Total Liabilities and Stockholders' Equity
  $ 5,846,626     $ (1,437,500 )   $ 4,409,126     $ 11,542,114     $ (1,677,500 )   $ 9,864,614  



NOTE 3 - ACQUISITIONS AND NEW SUBSIDIARIES FORMED

Alternative Construction Manufacturing of Tennessee, Inc.

On January 21, 2005, a newly formed acquisition Company, known as ACT acquired all the outstanding stock of ACMT, a privately-held company, and substantially all of the assets of Quality Metal Systems, LLC (“QMS”).  In addition, ACT received an assignment of all the patents related to production by ACMT, which were owned by a shareholder of ACMT.  The original purchase agreements entered into on December 14, 2004 between ACT (purchaser) and ACMT and QMS (sellers) called for the payment of $1,000,000 and issuance of 1,500,000 shares of ACT Series A preferred stock.  During the closing transaction and in performing its due diligence, the purchaser, ACT discovered that both companies would require substantial cash infusions to continue operations.  The sellers agreed to offset the cash down payment with notes payable of $350,000 due February 19, 2005.  On March 10, 2005, the notes were amended and restated with a due date of September 30, 2005.  On July 1, 2005, the notes were amended and adjustments to the reconciliation were mutually agreed to by all parties raising the outstanding balance to $629,894.  Therefore, the cost of the acquisition of ACMT after the net adjustments as a result of further due diligence, was $879,894 of which $750,000 was Series A preferred stock.  The acquisition of the assets of QMS did not change.  A new provision in the notes states that if the Company were to file for public registration, the seller would convert the remaining balance, less $100,000, to common stock at the value of $2.65 per share.  On September 9, 2006, the Seller agreed to convert all of its outstanding receivable into shares of common stock of the Company at $2.65 per share.

On July 27, 2007, as part of the Company’s marketing plan and to enhance efforts to more clearly define its various operating divisions, the name change from Alternative Construction Technologies Corporation to Alternative Construction Manufacturing of Tennessee, Inc., was made.

Alternative Construction by ProSteel Builders, Inc.

On June 28, 2005, the Company acquired an 80% interest in ACP for a purchase price of $800.  As no tangible assets or liabilities were acquired the full value was booked to common stock.

On July 27, 2007, as part of the Company’s marketing plan and to enhance efforts to more clearly define its various operating divisions, the name change from ProSteel Builders Corporation to Alternative Construction by ProSteel Builders, Inc., was made.

Alternative Construction Safe Rooms, Inc.

On April 28, 2005, the Company acquired an 80% interest in ACSR for a purchase price of $800.  As no tangible assets or liabilities were acquired, the full value was booked to Common Stock.

On July 27, 2007, as part of the Company’s marketing plan and to enhance efforts to more clearly define its various operating divisions, the name change from Universal Safe Structures, Inc. to Alternative Construction Safe Rooms, was made.

Alternative Construction Design, Inc.

On July 30, 2007, the Company formed ACD as a wholly-owned subsidiary.  ACD primarily contracts with customers in association with the various design aspects of building including engineering and architecture.

Alternative Construction Consulting Services, Inc.

On July 30, 2007, the Company formed ACCS as a wholly-owned subsidiary.  ACCS primarily contracts with customers for development of joint ventures, research, education and training, and commercial and residential developments both domestically and internationally.

Alternative Construction by Ionian, Inc.

On May 16, 2007, ACP acquired 80% of the outstanding stock of ACI, a privately-held company (see Note 5 - Related Parties).  The purchase agreement was $800,000 payable in restricted common stock of the Company valued at the price of $6.90 per share.  As a condition to the acquisition, the Company is required to pay the liabilities of ACI.  In the event the Company fails to pay the liabilities, the previous owner, who has personal guarantees on those liabilities, and is the brother of the Chairman and CEO of the Company, may repurchase the Company by buying its common stock back at par value ($8,000).

On July 1, 2007, the ownership of ACI was transferred from ACP to ACT.
 

In accordance with SFAS No. 141, Business Combinations, the acquisition of Ionian Construction, Inc., has been accounted for under the purchase method of accounting.  The purchase price was allocated to Ionian’s tangible assets acquired and liabilities assumed based on their estimated fair values with any excess being ascribed to goodwill.  Management is responsible for determining the fair value of these assets.  The fair value of the assets acquired and liabilities assumed represent management’s estimate of fair values.  The following table summarizes the components of the purchase price and the activity and balance sheet of the acquired company at May 16, 2007:

COMPONENTS OF PURCHASE PRICE
   
Common Stock
$ 800,000  
Total Purchase Price
$ 800,000  
BALANCE SHEET and ACTIVITY at May 16, 2007:
     
Assets:
     
Cash
$ 11,282  
Inventory
  1,272,605  
Property, Plant and Equipment, net
  206,708  
Total Assets
$ 1,490,595  
       
Liabilities and Stockholders' Equity:
     
Accounts Payable and Accrued Expenses
$ 420,570  
Debt
  1,739,583  
Stockholders Equity
  (669,558 )
Total Liabilities and Stockholders' Equity
$ 1,490,595  
       
STATEMENT of OPERATIONS for Period JANUARY 1 - MAY 16, 2007:
     
Sales
$ 369,355  
Cost of Sales
  573,908  
Gross Profit
  (204,553 )
Operating Expenses
  220,916  
Income from Operations
  (425,469 )
Other Income / (Expenses)
  (15,349 )
Income Before Taxes
$ (34,528 )
 
 

 

The purchase price of ACI was $800,000.  The actual value of the assets (net) purchased was $(669,558) as shown below:
   
Purchase
 
       
Book value of fixed assets
  $ 206,708  
Other assets & liabilities, net
    (876,266 )
Acquired assets, net
    (669,558 )
Purchase price
    800,000  
Value less than purchase price
  $ 1,469,558  


On July 27, 2007, as part of the Company’s marketing plan and to enhance efforts to more clearly define its various operating divisions, the name change from Ionian Construction, Inc. to Alternative Construction by Ionian, Inc., was made.

Alternative Construction by Revels, Inc.

In accordance with SFAS No. 141, Business Combinations, the acquisition of Revels Construction, LLC, has been accounted for under the purchase method of accounting.  The purchase price was allocated to Ionian’s tangible assets acquired and liabilities assumed based on their estimated fair values with any excess being ascribed to goodwill.  Management is responsible for determining the fair value of these assets.  The fair value of the assets acquired and liabilities assumed represent management’s estimate of fair values.  As a condition to the acquisition, the Company is required pay the liabilities of ACR.  In the event the Company fails to pay the liabilities, the previous owners, may repurchase the Company by buying its common stock back at par value. The following table summarizes the components of the purchase price and the activity and balance sheet of the acquired company at August 27, 2007:

COMPONENTS OF PURCHASE PRICE
     
Common Stock
  $ 1,000,000  
Total Purchase Price
  $ 1,000,000  
BALANCE SHEET and ACTIVITY at May 16, 2007:
       
Assets:
       
Cash
  $ 2,939  
Inventory
    6,050  
Property, Plant and Equipment, net
    26,189  
Total Assets
  $ 35,178  
         
Liabilities and Stockholders' Equity:
       
Accounts Payable and Accrued Expenses
  $ 35,771  
Debt
    19,563  
Stockholders Equity
    (20,156 )
Total Liabilities and Stockholders' Equity
  $ 35,178  
         
STATEMENT of OPERATIONS for Period JANUARY 1 - MAY 16, 2007:
       
Sales
  $ 565,005  
Cost of Sales
    493,951  
Gross Profit
    71,054  
Operating Expenses
    33,276  
Income from Operations
    37,778  
Other Income / (Expenses)
    -  
Income Before Taxes
  $ 37,778  
The purchase price of ACR was $1,000,000.  The actual value of the assets (net) purchased was $(20,156) as shown below:

   
Purchase
 
       
Book value of fixed assets
  $ 26,189  
Other assets & liabilities, net
    (46,345 )
Acquired assets, net
    (20,156 )
Purchase price
    1,000,000  
Value less than purchase price
  $ 1,020,156  
Future Builders Institute, Inc.

On May 9, 2007, the Company formed a not-for-profit Florida corporation, Future Builders Institute, Inc. (“FBII”), for the purposes of attracting and combining "greentech" environmental construction technologies. The FBII's intent is to seek, utilize and promote novel materials and technologies aimed at improving the quality of occupancy by offering total building solutions. The FBII will focus upon the economic and social benefits of certain combinations of these alternative technologies. The FBII will seek to include sustainable, socially responsible, energy efficient and environmentally friendly technologies and principals aimed at reducing the total monthly costs of living. The FBII will be funded by ACT together with other Industry participants for the research, innovation and implementation of these combined solutions to the construction industry.

Modular Rental and Leasing Corporation

On November 28, 2007, the Company acquired Modular Rental and Leasing, Inc. (“MRL”), for the purpose of providing leasing opportunities to the customers of the Company.  The company was acquired from Avante for $800.

Solar 18 ACTech Panel, Inc.

On January 2, 2008, the Company formed Solar 18 AcTech Panel, Inc., (“SAP”), for the purpose of the joint venture agreement it entered into in November, 2007 with Atlan International Holding, Inc.  See Note 10 – Subsequent Events.


Alternative Construction Manufacturing of Florida, Inc.

On February 20, 2008, the Company formed Alternative Construction Manufacturing of Florida, Inc. (“ACMF”), for the purpose of future manufacturing activities in Florida.
 


 
NOTE 4 – BALANCE SHEET DETAILS

Inventory consists of the following:


   
June 30,
   
December 31,
 
   
2008
   
2007
 
             
Raw materials
  $ 525,220     $ 405,513  
Finished goods
    42,170       21,085  
Safe room kits
    12,091       12,091  
Construction related
    1,022,851       860,973  
Other
    100,756       115,952  
Finished goods on consignment
    61,499       61,499  
Total inventory
  $ 1,764,587     $ 1,477,112  


Property and equipment consist of the following:
 

   
Useful
   
June 30,
   
December 31,
 
   
Life
   
2008
   
2007
 
                   
Building and improvements
    20     $ 1,000,263     $ 1,000,263  
Land
            68,793       82,781  
Computer equipment
    3       69,196       66,593  
Furniture and fixtures
    5       10,832       10,832  
Heavy machinery
    7       201,844       201,844  
Vehicles and trailers
    4       51,090       51,090  
Machinery and equipment
    20       2,316,175       2,315,035  
              3,718,192       3,728,438  
Less: accumulated depreciation
            (672,118 )     (560,712 )
Net property and equipment
          $ 3,046,074     $ 3,167,726  


Depreciation expense was $111,406 and $219,645 for the six months ended June 30, 2008 and the year ended December 31, 2007, respectively.

Other assets consist of the following:


   
June 30,
   
December 31,
 
   
2008
   
2007
 
             
Notes Receivable
  $ 200,000     $ 462,500  
Long-term Receivable
    1,000,000       1,000,000  
Other Assets
  $ 1,200,000     $ 1,462,500  



 
Intangible assets consist of the following:


   
June 30,
   
December 31,
 
   
2008
   
2007
 
             
Goodwill
  $ 2,355,802     $ 2,355,802  
                 
 
               
   
March 31,
   
December 31,
 
   
2008
   
2007
 
                 
Notes Receivable
  $ 200,000     $ 462,500  
Long-term Receivable
    1,000,000       1,000,000  
Other Assets
  $ 1,200,000     $ 1,462,500  


Notes payable consists of the following:

   
June 30,
   
December 31,
 
   
2008
   
2007
 
             
Dell Financial Services
  $ 14,673     $ 14,907  
Merchants & Planters Bank
    7,581       7,220  
Merchants & Planters Bank
    36,753       44,064  
BB&T Bank
    7,681       11,579  
BB&T Bank
    649,534       400,188  
BB&T Bank
    283,357       149,992  
CNH Capital
    26,734       36,054  
CNH Capital
    51,079       64,247  
BridgePointe Master Fund, Ltd.
    2,173,913       2,173,913  
BridgePointe Master Fund, Ltd. LOC
    2,014,491       -  
CAMOFI Master LDC
    1,480,435       1,630,435  
CAMHZN Master LDC
    493,478       543,478  
Total debt
    7,239,709       5,076,078  
Less: Current portion
    7,180,320       626,529  
Total long-term portion of debt
  $ 59,389     $ 4,449,549  
                 



 
On June 30, 2007, the Company agreed to sell $4,347,826 million aggregate principal amount of Senior Secured Convertible Debentures due 2009 ("Debentures"), pursuant to the terms of a Securities Purchase Agreement dated as of June 30, 2007, among ACT and the purchasers, BridgePointe Master Fund, Ltd., CAMOFI Master LDC and CAMHZN Fund LDC (collectively "Debenture Purchasers"), with net funding of $4,000,000 (after an 8% original issue discount) received at closing.
 
 

 
In connection with the agreed issuance of Debentures, ACT also issued Common Stock Purchase Warrants ("Warrants") also dated June 30, 2007 to the Debenture Purchasers. The Warrants allow the debenture purchasers to acquire up to one hundred and fifty percent (150%) of the shares issuable upon conversion of the Debentures, at an exercise price of $4.00 per share. Dinosaur Securities, LLC, Christopher Moore, and Arthur Whitcomb, the agents for the transaction, received 61,142, 91,712, and 91,711 warrants, respectively, in association with the transaction.  ACT agreed to file a registration statement with the Securities and Exchange Commission ("SEC") covering resales of ACT common stock issuable upon conversion of the Debentures or exercise of the Warrants. The common shares underlying the debentures and warrants were registered for resale by the Company on February 8, 2008.  Because the registration statement was not declared effective within 120 days of the closing of the transaction, the Company was assessed a penalty by the Debenture Purchasers and issued 200,000 additional shares to them as compensation
 
 
The Debentures may be converted, at the option of the holder at any time on or prior to maturity, into shares of ACT common stock, at a conversion price of $4.00 per share, provided the Company meets its milestones as defined in the Debenture Purchase Agreement. Interest is payable monthly at the rate of ten percent (10%) per annum beginning July 30, 2007.  The maturity date of the Debentures is June 30, 2009.  To date CAMOFI Master LDC has converted $150,000 into equity and CAMHZN Master LDC has converted $50,000 into equity.
 
 
The Debentures are secured by substantially all of the assets of ACT and its subsidiaries and have priority in right of payment with all of its existing unsecured and unsubordinated indebtedness. Under the terms and conditions of the Debentures, the Company is required to reduce the principal amount of the debentures by 1/24 per month effective July 1, 2008 with a balloon payment on July 1, 2009.  The Company has not made the principal payment due on July 1, 2008 and August 1, 2008.
 
On May 9, 2008 the Company entered into a series of Agreements with the same Debenture holders in connection with establishing a Line of Credit to be collateralized by certain contracts and Purchase Orders of the Company.  The original funding available was $3.0 million with the ability to add an additional lender in order to increase the overall line capability to $4.5 million.  As of August 8, 2008 the Company has received $2,014,491 against the Line of Credit, and has a current outstanding balance of $1,981,750. As of  June 30, 2008 the outstanding balance owed was $2,014,491.  Based upon the contracts it has, the Company has requested additional funding to bring the total cash advance to $3,000,000 but has not yet received the additional funding.  Management has requested a portion of that funding be utilized to pay the principal and interest which is due on the debenture with the remaining funding provided to the Company. As a term and condition of the funding all payments were required to go to a Lock Box account.  The Company erroneously deposited certain checks into its general account without going through the Lock Box and erroneously overstated the amounts of  contracts available for the initial funding.  Although these matters constituted breaches of the agreements, the Company believes that its accounts are now balanced as a result of the submission of new contracts, which, after deducting amounts erroneously received or funded, exceeds the maximum borrowing base of $3,000,000 under the line of credit.

Capitalized lease obligations consist of the following:

   
June 30,
   
December 31,
 
   
2008
   
2007
 
             
Dell Financial Services (1)
  $ 13,902     $ 18,566  
Avante Leasing Corporation
    66,467       74,851  
Total capitalized leases
    80,369       93,417  
Less: Current portion
    27,063       26,705  
Total long-term portion of capitalized leases
  $ 53,306     $ 66,712  
                 
(1) Includes multiple leases.
               



Due to Related Party

On June 30, 2007, as a condition of the financing the Company completed with Debenture Purchaser, as discussed in Note 4 – Long-Term Debt; the Company’s Revolving Credit Agreement with Avante was to be closed out.  As of June 30, 2007, due to the retirement of the Series B preferred stock and the open balance on the line of credit, the Company owed Avante $783,483.  Avante issued the Company a Waiver of Default letter stating that the Company would not be required to pay the net balance as it would be detrimental of the Company’s working capital.  The balance owed Avante is recorded as “Due to Shareholder” and has a balance of $307,955 as of June 30, 2008.  To ensure compliance, Avante issued the Company a Waiver of Default letter with an expiration of March 31, 2008.  The letter stipulates that in the event Avante determines that the Company is in default, the Company would be required to remedy the balance with full payment within ten days or issue 4,020,000 shares of its common stock.  The 4,020,000 shares would reflect the two for one conversion rate of the original Series B preferred stock. On July 15, 2008 Avante notified the Company that it was past due on payments and demanded payment within 10 days. As the Company was unable to pay its debt, Avante is entitled to the issuance of 4,020,000 shares of which it has not yet demanded. The issuance of these 4,020,000 shares would not constitute forgiveness of the debt owed.

NOTE 5 – COMMITMENTS

The Company leases a truss building system.  The terms of the agreement include a five year term, 15.53% interest, with a $1 purchase price at the end of the term.  The lease expires on September 30, 2011.  Monthly lease payments are $2,321.25.

The Company leases office space in Melbourne, Florida from GAMI.  The terms of the agreement are monthly payments of $4,000 expiring May 31, 2012.


 
The Company has various capital leases with Dell Financial Services (see Note 4 – Balance Sheet Details).  As of June 30, 2008, there are six outstanding leases.  Their respective monthly payments and expiration dates are as follows: $649.43, March 16, 2009; $29.11, March 31, 2009; $188.30, August 1, 2010; $71.16, December 1, 2010; $45.08, July 8, 2011; and $62.53, July 11, 2011.

Future minimum obligations for the above leases are as follows:


2008
  $ 44,201  
2009
    82,295  
2010
    79,507  
2011
    69,645  
2012
    20,000  
         
Total Lease Obligations
  $ 295,648  



NOTE 6 - BUSINESS SEGMENTS

The Company operates primarily in three segments: manufacturing division (ACMT and ACMF), development division (Georgia –ACP, Tennessee – ACI, and Florida – ACR), and ancillary services division (ACD, ACCS, ACSR, SAP, FBII and MRL). The corporate administration is separated from the operating segments.

Information concerning the revenues and operating income for the year ended June 30, 2008 and 2007, and the identifiable assets for the four segments in which the Company operates are shown in the following table:


   
Six Months Ended
 
   
June 30,
     June 30,  
   
2008
   
2007
 
             
OPERATING REVENUE
           
Manufacturing
  $ 2,517,779     $ 2,651,492  
Development
    1,526,291       3,298,693  
Ancillary Services
    -       -  
Consolidating Eliminations
    (14,832 )     (228,472 )
                 
Consolidated Totals
  $ 4,029,238     $ 5,721,713  
                 
INCOME (LOSS) FROM OPERATIONS
               
Manufacturing
  $ 397,793     $ 535,838  
Development
    (97,000 )     561,056  
Ancillary Services
    (4,132 )     (1,885 )
Corporate
    (2,099,178 )     (218,443 )
                 
Consolidated Totals
  $ (1,802,517 )   $ 876,567  
                 
IDENTIFIABLE ASSETS
               
Manufacturing
  $ 4,309,467     $ 5,633,260  
Development
    1,523,722       387,124  
Ancillary Services
    1,511,450       (538 )
Corporate
    2,783,606       2,509,123  
                 
Consolidated Totals
  $ 10,128,245     $ 8,528,969  
                 
DEPRECIATION AND AMORTIZATION
               
Manufacturing
  $ 88,619     $ 88,567  
Development
    22,368       7,552  
Ancillary Services
    -       -  
Corporate
    420       201  
                 
Consolidated Totals
  $ 111,406     $ 96,319  



NOTE 7 – RELATED PARTIES

On October 1, 2006, Avante Leasing Corporation, a wholly-owned subsidiary of Avante, leased a truss building system to Alternative Construction Manufacturing of Tennessee, Inc.  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 and Michael W. Hawkins.  As of June 30, 2008, the balance due to Avante Leasing Corporation under this Agreement was $66,467.


 
On May 16, 2007, ACP acquired 80% of ACI, a contractor of residential homes in Cleveland, Tennessee.  The acquired shares of Ionian were owned by James Hawkins, the brother of Michael W. Hawkins, the CEO and a Director of the Company.  The minority interest in Ionian is owned by GAMI, a Company owned by the Hawkins Family Trust, in which Michael W. Hawkins is a member.  The acquisition of Ionian at a purchase price of $800,000 was made with the issuance of 115,942 shares of the Company’s common stock, based on the closing price on May 16, 2007 of $6.90.  As a condition to the acquisition, the Company is required pay the liabilities of the Company.  In the event the Company fails to maintain payment of the liabilities, the previous owner, who has personal guarantees on those liabilities, may repurchase the Company by buying its common stock back at par value ($8,000).

On May 16, 2007, the Company agreed with Avante and GAMI to acquire the outstanding 2,010,000 shares of Series B preferred stock (conversion value of 4,020,000 shares of Common Stock), split between Avante and GAMI, 950,000 and 1,060,000, respectively, at a reduced value of $2,000,000 (approximately $.95 per share, if converted to common stock, approximately $.4975 per share).  At the date of the agreement, the calculated fair market value of the outstanding shares (average trading price) was $29,185,200.

On May 29, 2007, GAMI acquired five houses from ACI.  ACI was acquired by the Company on May 16, 2007 as discussed in Note 1 – Summary of Significant Accounting Policies.  The sale of these houses was $1,054,500 and represented the listed sales price to the public.  The balance due to Ionian in regards to this transaction was transferred to ACT as an offset to the balance due to GAMI from the retirement of the Series B Preferred Stock.

On June 1, 2007, the Company leased office space for its corporate office from GAMI for $4,000 per month for five years.

On June 29, 2007, as a condition of the financing the Company completed with Debenture Purchaser, as discussed in Note 3 – Balance Sheet Details; the Company’s Revolving Credit Agreement with Avante was to be closed out.  As of June 30, 2007, due to the retirement of the Series B preferred stock and the open balance on the line of credit, the Company owed Avante $783,483.  Avante issued the Company a Waiver of Default letter stating that the Company would not be required to pay the net balance as it would be detrimental of the Company’s working capital.  The remaining balance payable to Avante, although an Accounts Payable, is recorded as Due to Shareholder.  See Note 4 – Balance Sheet Details.  On July 15, 2008 Avante gave notice to the Company that it had 10 days in which to cure its outstanding balance.  The Company has failed to do so, and as such, upon the mandate by Avante, will be required to issue an additional 4,020,000 shares of its common stock.  The issuance of this stock does not offset the payment of the outstanding debt.

The Exclusive Investment Banking Services Agreement and the Finder Agreement, both dated October 24, 2004, and the Sales Commission Agreement, dated January 20, 2005, all between the Company and Avante, were terminated as of June 30, 2007 as a condition to the financing with Debenture Purchaser.

On February 10, 2008, Sustainable Structures Leasing, Inc. (“SSL”) a subsidiary of Accelerated Building Concepts Corporation (“ABCC”), contracted with ACMF to build two buildings for Gulfstream Aerospace, Inc. (“Gulfstream”) for $1,040,000.  ACMF contracted New Century Structures, Inc. (“NCSI”), a subsidiary of ABCC, as a subcontractor to build the two buildings.  ABCC and ACT have common ownership, and an officer and a director.  Michael W. Hawkins, the Company’s CEO and Chairman, through ownership of Avante and GAMI, is a significant shareholder of both ACT and ABCC.  Additionally, Bruce Harmon was a Director of the Company, and also the Interim CFO and Director of ABCC at the time of the transaction.  ABCC could not fund the needs of the contract with GulfStream through conventional or unconventional methods.  ABCC did have three financing options, two of which would have required for the outright sale of the buildings at a loss to ABCC of more than $200,000 with no potential projected long-term revenue opportunity of a five year lease to Gulfstream with two renewable five year terms.  These options were considered as loss leaders which provided no guarantee for positive revenue for ABCC for the future.  The third option, provided by ACT was the only viable option available that (i) ensured ownership of the buildings remained with SSL; (ii) guaranteed 100% of the revenue recognition to SSL as provided by the contract; and (iii) ensured that SSL could deliver its product within a reasonable timeframe.  Due to this situation, ABCC was in danger of losing a profitable contract for a five-year leasing of the buildings, with two additional five-year periods, along with the potential for additional leasing opportunities of the buildings and up to 25+/- more buildings for Gulfstream.  The ABCC management views Gulfstream as a potential customer with significant revenue opportunities over the next 15 years.  Additionally, at the end of the lease term(s), ABCC would maintain ownership of the buildings providing additional revenue through the sale to GulfStream or a third party(ies).  To ensure that ABCC would not lose a significant part of their revenue stream, which included revenue to ACT through its purchases of the ACTech® Panel from ACMT, management of ACT and ABCC determined that the agreements as stated above would benefit both companies as ACT did have the financing to ensure ABCC the opportunity to fulfill the contracts.  As ACT would have potential risk if NCSI and/or ABCC would encounter problems or legal issues associated with the transaction, the two contracts, SSL / ACMF and ACMF / NCSI, would favor ACMF versus NCSI.  The transaction was not at arm’s length but the management of ABCC had no other options.  ACMF agreed to provide the financing strength with the potential risk exposure.  SSL contracted ACMF for $1,040,000 for the two buildings.  ACMF contracted with NCSI to provide the two buildings for $748,800.  The profit margin was determined to be reasonable under these circumstances with the risk to SSL for not fulfilling the contract with Gulfstream.  As an additional condition of the contract between ACMF and NCSI, NCSI is responsible for interest charges on the financing ACMF received for the sole benefit of the SSL contract.  The interest charges are estimated at $50,000.  The financing received by ACT was for various ACT projects.  As a condition of the financing, ACT was required to issue 1,800,000 warrants for the Company’s common stock at an exercise price of $2.50.  As this was at the detriment of ACT and a portion of the proceeds for the benefit of ABCC, both parties agreed to an additional cost $60,000 as a partial compensation for ACT issued the warrants.  Under these terms and conditions, NCSI would recognize an estimated loss of $315,300 on the construction of the buildings whereas ACMF would recognize a profit of $401,200.  The directors and management of ABCC agreed to the loss as they recognized the potential and opportunities outweighing the potential for legal remedies that Gulfstream could seek for non-performance.  The initial building has been granted a Certificate of Occupancy and GulfStream moved in on July 15, 2008.  The second building has been completed and is awaiting shipment (which is not the responsibility of the Company) to the delivery site. The Company has recognized 100% of the revenue associated with this transaction and has provided the appropriate invoicing for payment.



NOTE 8 – STOCKHOLDERS’ EQUITY

Common Stock

On July 30, 2005, the Board of Directors, pursuant to 607.0821 of the Florida Business Corporation Act, authorized the consolidation of our outstanding common shares, also known as a reverse split, of the Company that caused each one hundred shares of outstanding shares of its common stock to be converted into one share of its common stock.  All share and per share amounts have been adjusted for this reverse stock split.

As of August 18, 2008 ACT has 100,000,000 shares authorized, 9,751,877 shares issued and 9,735,227 shares outstanding at no par value.

On February 28, 2008 CAMOFI Master Fund LDC converted $160,000 of the debenture into equity in exchange for 40,000 shares.  In addition, CAMHZN Master Fund LDC converted $40,000 of the debenture into equity in exchange for 10,000 shares.

On March 3, 2008 the Company issued 73,171 of its common stock for $300,000.  The conversion price was $4.40 per share.
 
The common shares underlying the debentures and warrants were registered for resale by the Company on February 8, 2008.  Because the registration statement was not declared effective within 120 days of the closing of the transaction, the Company was assessed a penalty by the Debenture purchasers and issued 200,000 additional shares to them as compensation on May 7, 2008.
 


On May 20, 2008 the Company issued 80,000 shares of its common stock to various principals of Dinosaur Securities, LLC in conjunction with the Line of Credit it entered into on May 9, 2008.  In addition, the Company issued 1,800,000 warrants to various lenders at a purchase price of $2.50 per share.

On May 23, 2008 the Company issued 100,000 shares to JP Turner & Associates, LLC.

On June 17, 2008 the Company cancelled 350,000 shares issued to Bruce Harmon.  Cancellation of the stock was directly associated with the cancellation of a $262,500 promissory note owed by Bruce Harmon to the Company.

 Preferred Stock

The Company authorized, issued and has outstanding 1,500,000 Series A preferred stock at $1.00 par value.  The Series A preferred stock was issued to Paul Janssens in conjunction with the purchase by the Company of ACMT and select assets of Quality Metals Systems, LLC.  This stock has the conversion rights of one for one share of common stock.


The Company has 3,500,000 authorized shares of Series B preferred stock at $0.0001 par value with no shares outstanding.  The Series B preferred stock was initially issued to GAMI and Avante in conjunction with the use of personal guarantees by Michael W. Hawkins, CEO and Chairman of the Company and corporate guarantees by Avante.  Michael W. Hawkins is the managing member of GAMI and GAMI is the majority shareholder of Avante.  The conversion rights were one for two shares of common stock.  On May 16, 2007, the Company purchased the outstanding shares of Series B preferred stock for $2,000,000.

The Company has authorized 1,000,000 shares of Series C preferred stock at $0.0001 par value and has 377,358 shares issued and outstanding.  The Series C preferred stock was issued to New Millennium Entrepreneurs and Avante in conjunction with an investment of $500,000 each.  The $500,000 from Avante relates to a conversion of debt associated with the line of credit between Avante and the Company.  The conversion rights are one for one shares of common stock.

Treasury Stock

On May 16, 2007, the Company purchased 2,010,000 shares of Series B preferred stock from Avante and GAMI for $2,000,000.



 
NOTE 9 – 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 in 2008.  The Company believes it has meritorious defenses to the claims and intends to vigorously defend this lawsuit and to pursue its counterclaims.  On August 5, 2008 the parties conducted a settlement conference and entered into a protective order for the dissemination of certain information.  Discovery is scheduled to be completed by February 2009.

On January 30, 2008, the Company was named in a lawsuit captioned Kelco Metals, Inc. v. Alternative Construction Technologies, Inc., Circuit Court of Cook County Illinois, 2008L001092.  The lawsuit alleges breach of contract in the amount of $109,197.27.  The Company entered into an agreement with Kelco to acquire metal which was to have been sent to a third party, Precoat Metal Division, for the metal to be galvanized.  Kelco Metals, Inc. demanded prepayment prior to shipping to the Company and held up the metal at Precoat Metal Division.  The Company elected not to pay for the metal as the demand for prepayment was a contradiction to the payment terms.  The Company believes that Kelco subsequently sold the inventory in question for more than the amount of the claim.

Two of the Company’s subsidiaries have been sued by vendors (one in each Company) for nonpayment totaling approximately $60,000.  The payment of these outstanding invoices is directly related to these subsidiaries not receiving payment from customers.  In one case, the Company has sued its customer for final payment of approximately $250,000 (which it maintains a reserve for) and has told the vendors associated with this matter that once the Company is paid they will get paid.  As a matter of construction law, each vendor has the right to file a lien against the property for payment.  The Company has filed all appropriate liens.  The total outstanding balance of the lawsuits against the subsidiaries of the Company do not warrant a material effect on the Company’s performance.

NOTE 10 – SUBSEQUENT EVENTS

On August 11, 2008 the Company was notified by Solar 18, Inc. (“Solar 18”) (f/k/a Atlan International Holdings, Inc.) that, as a condition   to its proposed financing of up to $10,000,000, with an institutional lender it was asked to convert its outstanding receivable into preferred shares of Solar 18.  Under the proposal ACCS or is designee would be issued 2,000,000 shares of Solar 18 Series A Preferred Shares which would convert on a 1x1 basis into common shares of Solar 18 at market value.  The Company has not yet made a decision whether to accept the proposal.  The Company will be reviewing the terms and conditions of the financing, the proposed terms and conditions of the preferred stock and the business plan of Solar 18, Inc.  The Joint Venture between the Company and Solar 18 has now finalized the design of its product and received its initial shipment of product.  ACT expects to begin marketing the new product through the Joint Venture as soon as issues involving its financing are resolved.

On July 19, 2008 BridgePointe Master Fund, one of the lenders, notified the Company that it did not intend to fund any additional draw-downs under the line of credit until all current defaults had been corrected.  On July 31, 2008 BridgePointe Master Fund notified the Company that it was in default in its debenture and that it must cure such defaults within five (5) days.  On August 1, 2008 BridgePointe Master Fund notified the Company that it was in default in its line of credit and had five (5) days to cure it.  The terms of the debentures called for principal amortization there under to commence on July 1, 2008, at the rate of approximately $90,500 per month, which equates to a rate of 1/24 per month with a balloon payment due July 1, 2009 for any outstanding remaining balance.  The Company is unable to make these payments without access to additional outside funding or in connection with draw-downs under the line of credit.  The Company is working with its lenders and outside parties to reach agreement upon a satisfactory restructuring of this debt or payments to cure any defaults.  While the Company is hopeful that a resolution can be achieved in the short term, if it is not, at least one lender has notified the Company that it will commence collection efforts, to include foreclosure on assets securing the debenture.


The following Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements under federal securities laws.  Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties.  Our actual results could differ materially from those indicated by forward-looking statements as a result of various factors, including but not limited to those set forth under this Item, as well as those discussed in Part II - Item 1A, “Risk Factors,” and elsewhere in this document and those that may be identified from time to time in our reports and registration statements filed with the Securities and Exchange Commission.

This discussion should be read in conjunction with the Consolidated Financial Statements and related Notes included in Part I – Item 1 of this Quarterly Report on Form 10-Q and the Consolidated Financial Statements and related Notes and the Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 7, 2008.

DESCRIPTION OF COMPANY:
 
Our corporate headquarters is located at 2910 Bush Drive, Melbourne, Florida 32935. Its website address is http://www.actechpanel.com.  In addition, Alternative Construction by Revels, Inc., a subsidiary of ACCY maintains a website at www.acbyrevels.com. The website is not incorporated in this Form 10-Q.
 
ACCY operates under three divisions; a (i) Alternative Construction Manufacturing Division, (ii) Alternative Construction Development Division, and (iii) Alternative Construction Ancillary Services Division.  The Manufacturing Division currently contains two subsidiaries, ACMT, which manufactures the ACTech® Panel System, and ACMF, which will provide manufacturing services in Florida.  The Development Division contains three subsidiaries; Alternative Construction by ProSteel Builders, Inc., Alternative Construction by Ionian, Inc., and Alternative Construction by Revels, Inc.  The Alternative Construction Ancillary Services Division contains five subsidiaries; Alternative Construction Design, Inc., Alternative Construction Consulting Services, Inc., Alternative Construction Safe Rooms, Inc., Modular Rental and Leasing Corporation, and Solar 18 ACTech Panel, Inc.    Future of Building Institute, Inc., as a non-profit entity, functions separately.


 
OVERVIEW:

Alternative Construction Technologies, Inc., formerly known as Alternative Construction Company, Inc. (the “Company” or “ACCY”), is a Florida corporation organized in 2004 with corporate offices located in Melbourne, Florida. The Company’s common stock is traded on the NASDAQ OTC Bulletin Board under the symbol “ACCY.OB.”
 
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, a structural insulated panel (SIP), throughout the United States. Our products are marketed through our internal sales staff and by manufacturer representatives.
 
The Company’s primary product and service is the manufacturing, research, development and marketing of proprietary products for the construction industry. We manufacture and distribute the ACTech® Panel, a structural insulated panel (SIP), throughout the United States, with concentration in the southeast region. The Company has delivered its products and services internationally and believes that a huge portion of its future growth will be derived from those markets. The marketing of our products is through our internal sales staff and the use of manufacturer representatives.  The Company currently licenses 21 manufacturer sales representatives.
 
Our corporate headquarters is located at 2910 Bush Drive, Melbourne, Florida 32935. Its website address is http://www.actechpanel.com.  The website is not incorporated in this Form 10-Q.
 
In 2007, the Company experienced a 50.1% growth in sales to $12,960,008, as compared to 2006 sales of $8,634,349.  Net income of $1,603,261, represents an increase of $3,642,555 in net income from 2006.  The Company earned $0.22 per basic share in 2007.  The potential dilutive effects of convertible debt and securities warrants and options in 2007, while providing a significant increase in available cash, would have had a negative effect on earnings by $0.08 per share outstanding during 2007.  The Company performance is indicative of the management decisions made in 2006.
 
The growth of the Company was negatively impacted by the inability to obtain new financing in January 2008.  As part of its financing in June 2007, the Company stated to its lenders that additional capital would be required within a short period of time to maintain the growth levels that the Company expected to achieve.  The Company began negotiating with its financiers in December 2007 and January 2008 to secure such additional financing.  Simultaneously with these discussions, the Company obtained commitments for additional equity and secured financing from third parties.  In each case, such third parties required the debenture holders to waive or amend the terms of the “Green Shoe” option which they were granted in connection with the June 2007 debenture financing.  A waiver or satisfactory amendment could not be agreed upon and the Company’s cash needs were not met.

In May 2008 the Company entered into a $3,000,000 line of credit financing with the existing financiers.  The line of credit is secured by “eligible” contracts and drawn down there under with interest at 13%.  On June 30, 2008 the outstanding balance was $2,014,491, and there is currently $1,981,750 outstanding under this facility and $1,018,250 available for funding.  On August 6, 2008 the Company provided the lenders with a notice of draw-down from the line of credit in the amount of $1,018,250 to maximize the line of credit.  The Company provided the lenders with copies of existing contracts and purchase orders totaling an approximate $5.4 million.  The Company authorized the lenders to apply $467,560 of the funding request against the outstanding debenture principal and interest, which would bring the Company current in all payments.
 
On July 19, 2008 BridgePointe Master Fund, one of the lenders, notified the Company that it did not intend to fund any additional draw-downs under the line of credit until all current defaults had been corrected and a “field audit” conducted.  On July 31, 2008 BridgePointe Master Fund notified the Company that it was in default in its debenture and that it must cure such defaults within five (5) days.  On August 1, 2008 BridgePointe Master Fund notified the Company that it was in default in its line of credit and had five (5) days to cure it.  The terms of the debentures called for principal amortization there under to commence on July 1, 2008, and monthly thereafter at a rate of 1/24 per month with a balloon payment due July 1, 2009 for any outstanding remaining balance.  The Company is unable to make these payments without access to additional outside funding or in connection with draw-downs under the line of credit.  The Company is working with its lenders and outside parties to reach agreement upon a satisfactory restructuring of this debt or payments to cure any defaults.  While the Company is hopeful that a resolution can be achieved in the short term, if it is not, at least one lender has notified the Company that it will commence collection efforts, to include foreclosure on assets securing the debenture. On August 12, 2008 the lender requested additional information in order to consider the outstanding financing obligation.  The Company responded on August 14, 2008.




COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 2008 TO THE THREE MONTHS ENDED  JUNE 30, 2007


   
Manufacturing Division
   
Ancillary Division
   
Development Division
   
ACT Corporate
   
Eliminations
   
Consolidated
For the Three Months Ended June 30:
 
2008
   
2007
   
2008
   
2007
   
2008
   
2007
   
2008
   
2007
   
2008
   
2007
   
2008
   
2007
                                                                       
Revenue
  $ 1,047,836     $ 1,630,801     $ -     $ -     $ 477,726     $ 2,478,931     $ -     $ -     $ (14,832 )   $ (111,959 )   $ 1,510,730     $ 3,997,773
Cost of Sales
    799,601       1,045,400       13       -       497,661       1,798,992       -       -       (14,832 )     (148,329 )     1,282,443       2,696,063
Gross Profit
    248,235       585,401       (13 )     -       (19,935 )     679,939       -       -       -       36,370       228,287       1,301,710
Operating Expenses
    98,359       187,427       2,285       585       86,074       236,972       1,814,011       167,347       -       -       2,000,729       592,331
Income (Loss) from Operations
  $ 149,876     $ 397,974     $ (2,298 )   $ (585 )   $ (106,009 )   $ 442,967     $ (1,814,011 )   $ (167,347 )   $ -     $ 36,370     $ (1,772,442 )   $ 709,379



 
Total revenues decreased to $1,510,730 for the three months ended June 30, 2008 from $3,997,773 for the three months ended June 30, 2007. The decrease of $2,522,793 or 62.2% resulted primarily from the Company’s inability to reach financing terms and the lack of capital it needed to move forward with the contracts it had in place.  The Company believes it lost significant business because of its inability to reach financing terms with its financing partners.  Once financing was achieved, May 8, 2008, the Company began moving forward with its remaining contracts, currently valued at $5.4 million, of which approximately $372,000 was recognized this quarter.

Total revenues and as a percent of consolidated revenues for the three months ended June 30, 2008, were provided as follows:  Manufacturing Division - $1,047,836 (62.8%) and Development Division - $477,726 (31.6%).  The difference between the reported revenue and the individual subsidiaries is the result of consolidating eliminations and the cost associated with the Ancillary Division.

Cost of sales was $1,282,443 and $2,696,063, respectively for the three months ended June 30, 2008 and 2007. As a percent of revenue, the cost of sales increased from 77.0% to 84.9%, for the three months ended June 30, 2007 as compared to the three months ended June 30, 2008. The Manufacturing Division recognizes a lower cost of sales percent, 76.3%, than the consolidated total of the developing division at 104.2%, therefore, when the Development Division recognizes a greater percentage of the overall revenue, the cost of sales increase.  In addition, the pricing of raw materials has had substantial increases during this reporting period, which create a negative impact on cost of sales.

Gross profit was $228,287 and $1,301,710, respectively for the three months ended June 30, 2008 and 2007.   As a percent of revenue, gross profit was 15.1% and 23.0%, respectively for the three months ended June 30, 2008 and 2007.  One cause of the decline in gross profit is a direct correlation to the revenue split between the Manufacturing Division and the Development Division as defined in cost of sales above.  In addition, the loss of revenue caused by the lack of funding, had a direct impact on the gross profit as the Company’s management had to consider the implications of laying off qualified staff that would look for work elsewhere.  The Company elected to maintain the staff and as such gross profit declined.

Total operating expenses increased to $2,000,729 for the three months ended June 30, 2008 from $592,331 for the three months ended June 30, 2007. This $1,408,398 or 70.4% increase was attributed mostly to the write-off of financing fees associated with the debenture agreement of June 30, 2007 and the financing fees and costs associated with the Line of Credit agreement of May 9, 2008 of $1,403,055.

The operating expenses and the percent of consolidated operating expenses for the three months ended June 30, 2008, were contributed as follows:  Manufacturing Division $98,359 (4.9%); Development Division $86,074 (4.3%); the Ancillary Division  $2,285 (0.1%); and Corporate, $1,814,011(90.7%).

Adjusted Earnings Before Depreciation, Interest, Taxes, and Amortization

The Company presents Adjusted EBITDA as a financial measure as management believes it provides useful information to investors regarding the Company’s liquidity and financial condition and because management, as well as the Company’s lenders, uses this measure in evaluating the performance of the Company.

Management uses Adjusted EBITDA as a supplement to GAAP measures to further evaluate the Company’s period-to-period operating performance and evaluate the Company’s ability to meet future capital expenditure and working capital requirements. Management believes the exclusion of non-cash charges, including stock-based compensation, is useful in measuring the Company’s cash available to operations and the performance of the Company. Management also believes that financing fees associated with the raising of capital is a one time fee that does not accurately reflect the overall performance of the Company.  Because the Company finds Adjusted EBITDA useful, the Company believes its investors will also find Adjusted EBITDA useful in evaluating the Company’s performance.

Adjusted EBITDA should not be considered in isolation or as a substitute for net income, cash flows, or other consolidated income or cash flow data prepared in accordance with GAAP in the United States or as a measure of the Company’s profitability or liquidity. Adjusted EBITDA is not in accordance with or an alternative for GAAP, and may be different from non-GAAP measures used by other companies. Unlike EBITDA which may be used by other companies or investors, Adjusted EBITDA does not include stock-based compensation charges and income from minority interest in the Company’s subsidiaries, ACP, ACI, and ACSR. The Company believes that Adjusted EBITDA is of limited use in that it does not reflect all of the amounts associated with the Company’s results of operations as determined in accordance with GAAP and does not accurately reflect real cash flow. In addition, other companies may not use Adjusted EBITDA or may use other non-GAAP measures, limiting the usefulness of Adjusted EBITDA. Therefore, Adjusted EBITDA should only be used to evaluate the Company’s results of operations in conjunction with the corresponding GAAP measures. The presentation of Adjusted EBITDA is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures. The Company compensates for the limitations of Adjusted EBITDA by relying upon GAAP results to gain a complete picture of the Company’s performance. Since Adjusted EBITDA is a non-GAAP financial measure as defined by the Securities and Exchange Commission, the Company includes in the tables below reconciliations of Adjusted EBITDA to the most directly comparable financial measures calculated and presented in accordance with accounting principles generally accepted in the United States.


       
Three Months Ended
   
Six Months Ended
 
          June 30,       June 30,  
       
2008
   
2007
   
2008
   
2007
 
   
Net Income (Loss)
  $ (1,942,600 )   $ 532,548     $ (2,050,021 )   $ 641,320  
   
Minority Interest in Income (Loss) of Subsidiary
    (9,824 )     126,525       (5,947 )     149,737  
   
   Provision for Income Taxes
    -       -       -       -  
   
   Interest
    124,583       50,306       241,556       85,510  
   
Income from Operations
    (1,827,841 )     709,379       (1,814,412 )     876,567  
   
   Depreciation and Amortization
    56,425       45,038       111,406       96,319  
   
   Non-Cash Stock Based Compensation
    41,800       -       56,100       -  
   
   Financing Fees
    1,403,055       -       1,403,055       -  
  1  
Adjusted EBIDTA
  $ (326,561 )   $ 754,417     $ (243,851 )   $ 972,886  
  2  
Adjusted EBIDTA Margin
   
(21.6%)
    18.90%     (5.99%)     17.00%
                                       
                                       
  1  
Adjusted EBIDTA is defined as net income before minority interest in income of subsidiaries, interest expense and financing fees, provisions for income taxes, depreciation, amortization, and other non-cash stock-based compensation.
 
     
 
                               
  2  
Adjusted EBIDTA Margin is calculated as Adjusted EBIDTA divided by total revenues for the period.
                       



 
Manufacturing Division


Manufacturing Division
 
                                                 
   
ACMT