UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


Washington,
      D.C. 20549




**FORM
      10-QSB**




**x
      QUARTERLY REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**


For
      the
      quarterly period ending June 30, 2006





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


For
      the
      transition period from _______ to _______




COMMISSION
      FILE NUMBER 000-28015




**ALTERNATE
      ENERGY CORP.**


(Exact
      name of small business issuer as specified in its charter)




Nevada
            86-0884116(State
                or other jurisdiction
                of
            (I.R.S.
                Employerincorporation
                or
                organization)
            Identification
                No.)


3325
                North Service Rd, Suite 105
              Burlington,
                Ontario
              Canada
                L7N 3G2
              (Address
                of principal executive offices)
              
              905.332.3110
              (Issuer’s
                telephone number)
              
              _________________N/A_________________
              (Former
                name, former address and former fiscal year, if changed since last
                report)




Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 12 months (or for such shorter period
      that the registrant was required to file such reports) and (2) has been subject
      to such filing requirements for the past 90 days. Yes xNo o




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




State
      the number of shares outstanding of each of the issuer’s classes of common
      equity, as of the latest practicable date: 127,607,405 shares as of August
      9,
      2006.





Transitional
      Small Business Disclosure Format (Check one): Yes oNo x









**PART
      I**


**FINANCIAL
      INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS.**





**ALTERNATE
                ENERGY CORP.****(A
                Development Stage Company)****Consolidated
                Balance Sheets****June
                30, 2006**
              ***unaudited***
            
            **December
                31,**
              **2005****ASSETS****Current**Cash
            
            
            
            
            $
            227,390
            
            $
            135,881Lease
                  receivable
            
            
            
            
            
            45,781
            
            
            -Prepaid expenses and sundry assets
            
            
            
            
            
            26,748
            
            
            182,104Marketable securities
            
            
            
            
            
            364,909
            
            
            11,250664,828
            
            
            329,235**Other**Property and equipment, net
            
            
            
            
            
            244,238
            
            
            301,279Patents and technology
            
            
            
            
            
            218,000
            
            
            218,000462,238
            
            
            519,279$
            1,127,066
            
            $
            848,514**LIABILITIES****Current**Accounts payable and accrued liabilities
            
            
            
            
            $
            292,955
            
            $
            134,361Warrant Liability
            
            
            
            
            
            -
            
            
            167,427Convertible debt
            
            
            
            
            
            -
            
            
            444,329Due to director
            
            
            
            
            
            326,001
            
            
            466,455618,956
            
            
            1,212,572**SHAREHOLDERS
                EQUITY****Capital
                stock**
            
            
            
            
            
            129,494
            
            
            110,254**Additional
                paid in capital**
            
            
            
            
            
            28,444,081
            
            
            25,982,150**Prepaid
                expenses paid with common stock**
            
            
            
            
            
            (135,839
            )
            
            -**Accumulated
                other comprehensive income**
            
            
            
            
            
            (40,497
            )
            
            10,654**(Deficit)
                Accumulated during development stage**
            
            
            
            
            
            (27,889,129
            )
            
            (26,467,116
            )508,110
            
            
            (364,058
            )$
            1,127.066
            
            $
            848,514{See
                accompanying notes to the financial statements.}


2





**ALTERNATE
                ENERGY CORP.****(A
                Development Stage Company)****Consolidated
                Statements of Operations****Unaudited****Three
                Months**
              **Ending
                June 30**
              **2006**
            
            **Three
                Months**
              **Ending
                June 30**
              **2005**
            
            **Six
                Months**
              **Ending
                June 30**
              **2006**
            
            **Six
                Months**
              **Ending
                June****30**
              **2005**
            
            **Inception
                To**
              **Date****REVENUE**
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -**EXPENSES**Administrative
            
            
            
            
            
            329,945
            
            
            121,728
            
            
            372,057
            
            
            255,121
            
            
            1,362,906Consulting
                fees
            
            
            
            
            
            330,888
            
            
            416,716
            
            
            1,287,223
            
            
            878,304
            
            
            13,058,408Professional
                fees
            
            
            
            
            
            150,301
            
            
            122,121
            
            
            208,542
            
            
            267,170
            
            
            1,193,939Research
                and development
            
            
            
            
            
            49,513
            
            
            -
            
            
            86,893
            
            
            -
            
            
            225,832Financing
                expense
            
            
            
            
            
            -
            
            
            -
            
            
            50,386
            
            
            -
            
            
            559,714Impairment
                of intangible assets
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            1,947,458Management
                fee
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            240,000Recovery
                of loan
            
            
            
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (202,000
            )Depreciation
            
            
            
            
            
            17,251
            
            
            20,324
            
            
            34,319
            
            
            38,113
            
            
            156,140**NET
                (LOSS) FROM OPERATIONS**
            
            
            
            
            
            (877,898
            )
            
            (680,889
            )
            
            (2,039,420
            )
            
            (1,438,708
            )
            
            (18,542,396
            )**OTHER
                INCOME (EXPENSES)**Other
                income
            
            
            
            
            
            463,021
            
            
            -
            
            
            463,021
            
            
            -
            
            
            463,021Gain
                on adjustment on derivative / warrant liability to fair value of
                underlying securities
            
            
            
            
            
            -
            
            
            -
            
            
            167,427
            
            
            -
            
            
            1,075,339**NET
                (LOSS) FOR THE PERIOD**
            $
            414,877
            
            $
            (680,889
            )
            $
            1,408,972
            
            $
            (1,438,708
            )
            $
            (17,380,945
            )**NET
                (LOSS) PER SHARE**
            $
            (0.00
            )
            $
            (0.01
            )
            $
            (0.01
            )
            $
            (0.01
            )**WEIGHTED
                AVERAGE NUMBER OF COMMON SHARES**
              **OUTSTANDING**
            
            
            
            
            
            122,504,948
            
            
            106,803,219
            
            
            119,803,127
            
            
            106,388,219{See
                accompanying notes to the financial statements.}




3




**ALTERNATE
                  ENERGY CORP.****(A
                  Development Stage Company)****Consolidated
                  Statements of Cash Flows*****Unaudited***Six
                  months Ending June 30
              
              **2006**
              
              **2005**
              
              **Inception
                  To Date****CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  (loss)
              
              $
              (1,408,972
              )
              $
              (1,432,822
              )
              $
              (17,004,037
              )Adjustments
                  to reconcile net loss from operations to net cash used in operating
                  activities:Stock
                  based expenses
              
              
              1,490,615
              
              
              629,469
              
              
              12,297,395Impairment
                  of intangible assets
              
              
              -
              
              
              -
              
              
              1,947,458Depreciation
                  and amortization
              
              
              34,319
              
              
              38,113
              
              
              156,140Accretion
                  of principal related to convertible debt
              
              
              50,386
              
              
              -
              
              
              494,715(Gain)
                  loss on derivatives related to warrants
              
              
              (167,427
              )
              
              -
              
              
              (1,075,339
              )(Gain)
                  Loss on sale of marketable securities
              
              
              (6,099
              )
              
              -
              
              
              137,031(Gain)
                  Loss on settlement
              
              
              (376,909
              )
              
              -
              
              
              (376,909
              )Changes
                  in operating assets and liabilitiesIncrease
                  (decrease) in deferred revenue
              
              
              -
              
              
              -
              
              
              (81,086
              )Decrease
                  (increase) in prepaid expenses
              
              
              19,518
              
              
              (6,300
              )
              
              (162,586
              )Decrease
                  (increase) in deferred consulting expense
              
              
              -
              
              
              -
              
              
              -Increase
                  (decrease) accounts payable and accrued liabilities
              
              
              209,579
              
              
              54,558
              
              
              141940Net
                  cash (used in ) operating activities
              
              
              (154,990
              )
              
              (716,982
              )
              
              (3,525,279
              )**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Purchase
                  of property and equipment
              
              
              (5,271
              )
              
              -
              
              
              (428,372
              )Purchase
                  of patents and technology
              
              
              -
              
              
              (55,944
              )
              
              (154,373
              )Proceeds
                  from (investment in) marketable securities
              
              
              17,349
              
              
              -
              
              
              (147,463
              )Net
                  cash provided by (used in) investing activities
              
              
              12,078
              
              
              (55,944
              )
              
              (730,208
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Issue
                  of common shares for cash
              
              
              174,875
              
              
              -
              
              
              3,456,875Principal
                  received from notes payable
              
              
              -
              
              
              500,000
              
              
              500,000Advances
                  from directors and officers
              
              
              59,546
              
              
              (67,799
              )
              
              526,001Net
                  cash provided by (used in) financing activities
              
              
              234,421
              
              
              432,201
              
              
              4,482,876**NET
                  INCREASE (DECREASE) IN CASH DURING PERIOD**
              
              
              91,509
              
              
              (340,725
              )
              
              227,390**CASH,
                  BEGINNING OF THE PERIOD**
              
              
              135,881
              
              
              418,253
              
              
              -**CASH,
                  END OF THE PERIOD**
              
              $
              227,390
              
              $
              77,528Non-cash
                  activitiesCommon
                  shares issued for patents and technology (net)
              
              
              -
              
              
              -
              
              
              1,970,000Common
                  shares issued for note conversion
              
              
              9,032,082
              
              
              -
              
              
              9,032,082Common
                  shares issued for satisfaction of due to related parties
              
              
              200,000
              
              
              -
              
              
              200,000{See
                  accompanying notes to the financial statements.}




4




**ALTERNATE
      ENERGY CORP. AND SUBSIDIARY**


**NOTES
      TO THE (UNAUDITED) CONDENSED FINANCIAL STATEMENTS**


THREE
      MONTHS ENDED June 30, 2006





1.
      GENERAL




The
      unaudited condensed financial statements have been prepared on the same basis
      as
      the audited financial statements and, in the opinion of management, include
      all
      adjustments (consisting of normal recurring adjustments) necessary for a fair
      presentation for each of the periods presented and to make the financial
      statements not misleading. The results of operations for interim statements
      are
      not necessarily indicative of results to be achieved for full fiscal years.




As
      contemplated by the Securities and Exchange Commission (the “SEC”) under Rule
      10-01 of Regulation S-X, the accompanying financial statements and related
      footnotes have been condensed and do not contain certain information that is
      included in the Company’s annual financial statements and footnotes thereto. For
      further information, refer to the financial statements and related footnotes
      for
      the year ended December 31, 2005 included in the Company’s Annual Report on Form
      10-KSB.




At
      June 30, 2006 and December 31, 2005, there were 7,780,000 and 8,680,000 options
      to purchase shares of common stock, respectively.




At
        June 30, 2006
        and December 31, 2005, there were 127,007,405, and 110, 254,070 shares of
        common
        stock issued and outstanding, respectively.




2.
      CAPITAL STOCK




The
      Company is authorized under its charter to issue 50,000,000 shares of common
      stock, par value 0.001 per share.




The
      Company issued 6,053,425 shares of common stock during the three months ending
      June 30, 2006.




During
      the three months ended June 30, 2006, the Company issued 1,953,425 shares of
      its
      common stock for services performed for the Company totaling $260,434 or $0.13
      per share (weighted average price).




During
      the three months ended June 30, 2006, the Company issued 1,600,000 shares of
      its
      common stock in a private placement of $160,000 to certain accredited
      investors.




During
      the three months ended June 30, 2006, the Company issued 2,500,000 shares of
      its
      common stock for bonuses paid to consultant of the company totaling $275,000
      or
      $0.11 per share (weighted average price).




During
      the three months ended June 30, 2006, the Company issued warrants for 1,112,000
      shares of it common stock with a seven year term at an exercise price per share
      of $0.17, and recorded an expense totaling $115,343 based upon the fair value
      of
      the warrants under the Black-Scholes options pricing model. The assumptions
      used
      under the Black-Scholes option pricing model included an exercise price of
      $0.17, volatility rate of 324%, risk free interest rate of 3.5%, and life
      expectancy of 1.5 years.




**ITEM.
      2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION.**




The
      following Management’s Discussion and Analysis and Plan of Operation should be
      read in conjunction with the financial statements, and the notes thereto
      included herein. The information contained below includes statements of our
      management’s beliefs, expectations, goals and plans that, if not historical, are
      forward-looking statements subject to certain risks and uncertainties that
      could
      cause actual results to differ materially from those anticipated in the
      forward-looking statements. For a discussion on forward-looking statements,
      see
“Forward Looking Statements.”




5




Forward-Looking
      Statements




This
      Quarterly Report on Form 10-QSB contains forward-looking statements within
      the
      meaning of the Private Securities Litigation Reform Act of 1995. These
      statements involve known and unknown risks, uncertainties and other factors
      that
      may cause our actual results, performance or achievements to differ, perhaps
      materially, from any future results, performance or achievements expressed
      or
      implied by forward-looking statements. Forward-looking statements include,
      but
      are not limited to, statements about:




·
            Our
                product development efforts;




·
            The
                commercialization of our products;




·
            Anticipated
                operating losses and capital
                expenditures;




·
            Our
                estimates regarding our needs for additional
                financing;




·
            Our
                estimates for future revenues and profitability;
                and




·
            Sources
                of revenues and anticipated revenues, including contributions from
                corporate collaborations, license agreements and other collaborative
                efforts for the development and commercialization of our product
                candidates, and the continued viability and duration of those agreements
                and efforts.




In
      some cases, you can identify forward-looking statements by terms such as “may,”
“will,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,”
“estimate,” “project,” “predict,” “intend,” “potential” and similar expressions
      intended to identify forward-looking statements. These statements reflect our
      current views with respect to future events and are based on assumptions and
      subject to risks and uncertainties. Given these uncertainties, you should not
      place undue reliance on these forward-looking statements. Also, these
      forward-looking statements represent our estimates and assumptions only as
      of
      the date of this resale.




**Overview**




Alternate
      Energy Corp., formerly known as COI Solutions, Inc., was incorporated in the
      State of Nevada on August 1, 1997. The Company commenced active business
      operations on June 1, 2003 and is considered to be a development stage company
      under SFAS 7. Since 2003, we have had the objective of producing a clean, on
      demand hydrogen technology that would have global, multiple market applications
      on both a small and large scale. Our hydrogen production system leverages a
      non-toxic proprietary chemical reaction that yields high quality hydrogen along
      with a number of globally valuable chemical compounds. Our process is entirely
      chemical, not requiring electrolysis or any external source of electrical power.




In
      February 2004, we incorporated a wholly-owned subsidiary, 2040412 Ontario Inc.
      in the Province of Ontario, Canada. The subsidiary holds title to certain
      property and equipment reflected in our accounts.




The
      Company’s core technology is focused on production of on-demand, pure, safe
      hydrogen. Hydrogen has numerous applications, such as a fuel to power internal
      combustion engines and fuel cells, and in bulk form as a process ingredient
      in
      the food, pharmaceutical, oil refining, glass production and several other
      major
      manufacturing industries. Our hydrogen production process is designed to
      overcome three major industry obstacles: affordability, storage and safety.
      Our
      hydrogen production system leverages a chemical process that yields fuel-cell
      quality hydrogen with no known harmful by-products. Our hydrogen-maker can
      be
      scaled according to application and designed to directly supply almost any
      application on an as-needed basis, eliminating the need to store hydrogen in
      a
      compressed state.




6




Over
      the past three years, we have worked closely with Experchem Laboratories of
      Toronto Canada, a nationally recognized, independent chemical laboratory, to
      further refine our hydrogen generation process. The revised formulation has
      improved hydrogen production significantly, with the added creation of at least
      two valuable by-products. Since these by-products have a much higher value
      to
      weight ratio than the hydrogen itself, subsidization of the hydrogen’s selling
      price via the sale of this product will allow for this system to be more price
      competitive with current gasoline, diesel and hydrogen prices.




The
      first by-product was analyzed and certified by SGS Laboratories Canada, on
      September 7, 2005 as USP29-grade, the highest level of purity required for
      any
      existing use as a food-grade ingredient. This opens up immediate global market
      opportunities for bulk sales of these by-products to a long list of potential
      buyers in multiple markets.




Our
      Hydrogen Production Unit can be transported safely and could be designed for
      commercial small and large scale use, residential, and could even be installed
      in gas stations to satisfy a potential hydrogen-platform automotive sector.
      The
      hydrogen gas can be produced and sold on-site while the by-product can be stored
      in a liquid form in tanks for collection, processing and distribution on a
      regular basis. This would also apply to larger scale production facilities
      such
      as food processors, who could benefit greatly by hydrogen being produced on-site
      as a key ingredient in their process, as well providing a potential secondary
      source of electricity. In many cases, hydrogen is transported to these locations
      daily with trucking expenditures being a significant percentage of the overall
      cost of hydrogen, in some cases upwards of 40%. On-site production of hydrogen
      would eliminate the entire cost for transport to their facilities. In addition,
      our process produces low grade heat which could be captured and re-engineered
      for use as well.




The
      Company believes its hydrogen production technology could have immediate
      application in the areas of existing hydrogen industries such as hydrogenation
      of food oils and petro-chemicals, as well as emergent power uses including:
      back-up and, in some cases, primary power for commercial, industrial and
      military purposes; stationary and portable fuel cell power applications, in
      fuel
      cell-driven and internal combustion engine vehicles; and residential and
      commercial applications for users wishing to gain independence from the existing
      electrical grid. The chemical by-products produced by our hydrogen production
      process, via any one of the aforementioned hydrogen applications, are
      environmentally safe, meet applicable industry standards and possess wide,
      established global markets in the food products and pharmaceutical industries.




Basis
      of Presentation




These
      consolidated financial statements present the accounts of Alternate Energy
      Corp.
      and its wholly-owned subsidiary, 2040412 Ontario Inc. The consolidated entities
      are referred to herein as the “Company.” All significant intercompany accounts
      and transactions have been eliminated.




**CRITICAL
      ACCOUNTING POLICIES, ESTIMATES AND NEW ACCOUNTING PRONOUNCEMENTS**




Management's
      discussion and analysis of our financial condition and plan of operations are
      based upon our financial statements, which have been prepared in accordance
      with
      accounting principles generally accepted in the United States of America (the
      “United States”). The preparation of these financial statements requires that we
      make estimates and judgments that affect the reported amounts of assets,
      liabilities, revenues and expenses, and related disclosure of contingent assets
      and liabilities. At each balance sheet date, management evaluates its estimates.
      We base our estimates on historical experience and on various other assumptions
      that are believed to be reasonable under the circumstances. Actual results
      may
      differ from these estimates under different assumptions or conditions. The
      estimates and critical accounting policies that are most important in fully
      understanding and evaluating our financial condition and results of operations
      include those listed below:




Going
      Concern




The
      financial statements included in this report have been prepared on a going
      concern basis and do not include any adjustments to the measurement and
      classification of the recorded asset amounts and classification of liabilities
      that might be necessary should we be unable to continue as a going concern.
      We
      have experienced losses in the period and there is negative working capital.
      Our
      ability to realize our assets and discharge our liabilities in the normal course
      of business is dependent upon continued support. We are currently attempting
      to
      obtain additional financing from our existing shareholders and other strategic
      investors to continue operations. However, there can be no assurance that we
      will obtain sufficient additional funds from these sources.




7




These
      conditions cause substantial doubt about our ability to continue as a going
      concern. A failure to continue as a going concern would require that stated
      amounts of assets and liabilities be reflected on a liquidation basis that
      could
      differ from the going concern basis.




Deferred
      Consulting Costs




We
      have issued shares of our common stock to service providers and consultants
      over
      the terms of their contracts, which range from one month to one year. These
      shares have been issued at the fair market value price at date of contract
      signing with the expense to be amortized over the term of the contract.




All
      deferred assets are recorded at fair market value at the time of issuance and
      are systematically reduced based on the terms of each agreement. Each party providing services
      had
      either positive working references or have had previously provided services
      to
      the Company and had performed their duties as per their contractual terms.
      The
      following is a chart of the current deferred consulting costs as of the period
      ending June 30, 2006 with accompanying notes :




NAME
            PERIOD
                OF DEFERRAL
            #
                OF SHARESCorbee
                Dutchburn (1)
            Up
                to August 31, 2006
            114,500Jason
                Froats (2)
            July
                18, 2006 to July 17, 2007
            356,000Administration
                (3)
            Up
                to August 31, 2006
            275,750Research
                & Development (4)
            Up
                to August 31, 2006
            356,000


___________________________________________________


(1)
            Corbee
                Dutchburn was hired to work in areas involving the management, marketing,
                product development and operations of the corporation.


(2) Jason
      Froats, the son of Blaine Froats, and was hired to be the representative for **** investor
      relations as well as communication management.


(3) Includes
      214,000 shares issued to **** consultants
      and employees **** for
      general office duties, and 61,750 shares for bookkeeping and general
      administrational duties.


(4)
            Shares
                issued****to
                consultants and employees****and
                deferred for Lab, engineering, research and technical support.




Loss
      per share




The
      Company reports earnings per share in accordance with the provisions of SFAS
      No.
      128,”Earnings Per Share.” SFAS No. 128 requires presentation of basic and
      diluted earnings per share in conjunction with the disclosure of the methodology
      used in computing such earnings per share. Basic earnings per share excludes
      dilution and is computed by dividing income available to shares of common stock
      by the weighted average common shares outstanding during the period. Diluted
      earnings per share takes into account the potential dilution that could occur
      if
      securities or other contracts to issue stock were exercised and converted to
      shares of common stock.




8




Patents
      and Technology




In
      accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” which was
      adopted in its entirety on May 22, 2003, we evaluate the carrying value of
      other
      intangible assets annually as of December 31 and between annual evaluations
      if
      events occur or circumstances change that would more likely than not reduce
      the
      fair value of the reporting unit below its carrying amount. When evaluating
      whether or not the asset is impaired, we compare the fair value of the reporting
      unit to which the asset is assigned to its carrying amount. If the carrying
      amount of a reporting unit exceeds its fair value, then the amount of the
      impairment loss must be measured. The impairment loss would be calculated by
      comparing the implied fair value of the reporting unit to its carrying amount.
      The initial evaluation of our patents and technology, completed as of October
      1,
      2003 in accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,”
resulted in no provision for impairment losses being recorded. Additionally,
      we
      performed our periodic review of intangible assets for impairment as of December
      31, 2005 and identified asset impairment as a result of the review of
      approximately $1,906,000.




No
      event or circumstance has occurred that would more likely than not reduce the
      fair value of the reporting unit below its carrying amount since December 31,
      2005. The changes in the carrying amount of patents and technology for the
      two
      years ended December 31, 2005 are as follows:




Balance,
                December 31, 2003
            1,969,236Patents
                and technology acquired during 2004
            218,000Patents
                and technology disposed of during the 2004 year
            (62,863)Balance,
                December 31, 2004
            $2,124,373Patents
                and Technology adjustment for impairment during the year
            (1,906,373)Balance,
                December 31, 2005
            218,000




We
      are
      currently in litigation with Russell Rothman in the Ontario Superior Court
      of
      Justice (Case No. 04-CV-277760CM2) and are seeking the rescission of agreements
      between us and **** Rothman
      and restitution of shares and payments made to him. We had entered into an
      agreement with Rothman for the purchase of certain technology related to the
      production of hydrogen gas. Rothman represented to us that he had all right
      title and interest in the technology and had the ability to sell the technology.
      We alleged in our lawsuit that Rothman had in fact sold the technology to other
      companies, and on more than one occasion, prior to entering into the agreement
      with us. We do not rely on the Rothman technology for the production of hydrogen
      as we have developed our own proprietary processes for producing hydrogen.
      See
      also “Legal Proceedings” in Item 1 of Part II.




Income
      Taxes




We
      account for our income taxes under the liability method specified by SFAS No.
      109, “Accounting for Income Taxes”. Deferred tax assets and liabilities are
      determined based on the difference between the financial statement and tax
      bases
      of assets and liabilities as measured by the effective tax rates which will
      be
      in effect when these differences reverse.




Comprehensive
      Income




We
      have adopted SFAS No. 130, “Reporting Comprehensive Income,” which establishes
      standards for reporting and display of comprehensive income, its components
      and
      accumulated balances. Comprehensive income is defined to include all changes
      in
      equity except those resulting from investments by owners or distributions to
      owners. Among other disclosures, SFAS No. 130 requires that all items that
      are
      required to be recognized under the current accounting standards as a component
      of comprehensive income be reported in a financial statement that is displayed
      with the same prominence as other financial statements. Comprehensive income
      is
      displayed in the statement of shareholder’s equity and in the balance sheet as a
      component of shareholder’s equity.




9




Use
      of Estimates




The
      preparation of financial statements in conformity with United States generally
      accepted accounting principles requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities and
      disclosure of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the year.
      Actual results could differ from those estimates.




Stock
      Option Plans




On
      May
      22, 2003, we adopted a stock option plan that is accounted for based on SFAS
      No.
      123, **** “Accounting
      for Stock Based Applications” its related interpretations and then subsequently
      adopted SFAS No. 123R, “Share Based Payment”. The plan allows for the grant of
      options to persons employed or associated with us, including without limitation,
      any employee, director, general partner, officer, attorney, accountant,
      consultant or advisor up to an aggregate of 5,000,000 shares of common stock.
      The options have a term of expiration to be set by the Compensation Committee
      of
      the Board of Directors but will not exceed ten years after the grant date and
      the options vest immediately. The exercise price for each option is chosen
      at
      the discretion of the Compensation Committee. On February 24, 2005, we increased
      the number of shares to be issued under the plan to 15,000,000.




**RESULTS
      OF OPERATIONS**




**FOR
      FISCAL QUARTER ENDED JUNE 30, 2006,**


**COMPARED
      TO THE FISCAL QUARTER ENDED JUNE 30, 2005**




**REVENUES**
  For
        the fiscal
        quarter ended June 30, 2006 and for the fiscal quarter ended June 30, 2005
        we
        had no revenues. We are currently exploring a dual phase business strategy
        that
        may allow for the realization of revenue opportunities sooner as the Company
        continues development of our hydrogen production systems as well as our sales
        and marketing strategies.
  **OTHER
        INCOME**
  We
        received $
        85,000 through an amended agreement, $1,112 received in payments satisfying
        a
        lease agreement, 800,000 shares with a fair market value of $132,800 and
        $244,109 from the right to purchase 1,500,000 warrants at an exercise price
        of
        $0.19 having a three year term. The warrants were recorded based upon the
        fair
        value of the warrants under the Black-Scholes options pricing model. The
        assumptions used under the Black-Scholes option pricing model included an
        exercise price of $0.19, volatility rate of 236%, risk free interest rate
        of
        3.5%, and life expectancy of 3 years.


**EXPENSES**




We
      had
      total expenses of $877,898 and $680,889 in the fiscal quarter ended June 30,
      2006 and June 30, 2005, respectively. Our expenses for the fiscal quarter ended
      June 30, 2006 and June 30, 2005 consisted of $329,946 and $121,728 in
      administrative expenses, respectively, $330,888 and 416,716 in consulting fees,
      $150,301 and $122,121 in professional fees, respectively, $49,513 and $0 for
      research and development, respectively, $17,251 and $20,324 in depreciation,
      respectively. During the fiscal quarter ended June 30, 2006, our expenses were
      29% higher than in fiscal quarter ended June 30, 2005, mostly due to increased
      administrative expenses.




There
      was an increase of $208,218 in administrative expenses in the fiscal quarter
      ending June 30, 2006 as compared to the fiscal quarter ending June 30, 2005.
      This increase is attributed to bonus expenses in connection with issuances
      of
      shares of common stock as well as expenditures to overall administrative needs
      over a multitude of areas, including insurance and travel requirements.




There
      was a decrease in consulting fee expenses of $85,828 in the fiscal quarter
      ending June 30, 2006 as compared to the fiscal quarter ending June 30, 2005.
      The
      decrease is mainly attributed to the utilization of core consultants to the
      Company with shares of common stock having been issued to certain consultants
      reducing the total cash fees paid and due.




10




Professional
      fees increased by $28,180 in the fiscal quarter ending June 30, 2006 as compared
      to the fiscal quarter ending June 30, 2005. This increase is attributed to
      accounting and legal expenses in connection with general operational
      activity.




There
      was an increase in R&D expenses of $49,513 in the fiscal quarter ending June
      30, 2006 as compared to the fiscal quarter ending June 30, 2005 as we continue
      on our course of action with testing and development of our hydrogen production
      systems as well as our valuable byproducts.




There
      was a decrease of $3,073 **** in
      depreciation expenses relative to our fixed assets as per our scheduled
      depreciation table.




Over
      the next 12 months, we anticipate that our expenses will not increase
      substantially over our expenses in the period ending June 30, 2006, unless
      additional financing is obtained. In the event significant financing is
      obtained, we would expect that expenses will only increase in proportion with
      the amount of funds received as a result of any such financing. We will continue
      as planned in the goals set for the continued development, sales and marketing
      of our hydrogen production system and sale of by-products.




**NET
      LOSS**


We
      had
      a net loss of $414,877 in the fiscal quarter ended June 30, 2006, compared
      with
      a net loss of $680,889 in the fiscal quarter ended June 30, 2005. The decrease
      of $266,012 in the net loss in the 2006 fiscal quarter compared to the 2005
      fiscal quarter relates primarily to the increase in other income in
      the fiscal quarter ended June 30, 2006 period. Management believes that, for
      the
      fiscal year ending December 31, 2006, we will continue to incur losses at the
      rate experienced during the second quarter and we would only be able to slow
      our
      losses if we can create and sustain significant revenues from our hydrogen
      production system and byproducts.




**LIQUIDITY
      AND CAPITAL RESOURCES**




Our
      financial statements have been prepared on a going concern basis that
      contemplates the realization of assets and the settlement of liabilities and
      commitments in the normal course of business. We incurred a net loss of $414,877
      and $680,889 for the quarters ended June 30, 2006 and June 30, 2005,
      respectively, and have an accumulated deficit of $27,889,129 at June 30, 2006.
      We had $227,390 in cash on, hand as of June 30, 2006. Management may obtain
      additional capital principally through the sale of equity securities. The
      realization of assets and satisfaction of liabilities in the normal course
      of
      business is dependent upon our ultimately obtaining profitable operations.
      However, no assurances can be given that we will be successful in these
      activities. Should any of these events not occur, the accompanying financial
      statements will be materially affected.




Management
      believes that the net proceeds from the convertible notes **** issued
      in March 2005 together with cash generated from private placements, including
      an
      interim equity financing on April 28, 2006, will be sufficient to meet the
      company’s short term cash requirements into the third quarter of 2006. However,
      these funds will not be sufficient to meet the cash requirements for this year
      ending December 31, 2006. Due to no cash generated from operations, we currently
      do not have internally generated cash sufficient to pay all of our incurred
      expenses and other liabilities. As a result, we are dependent on investor
      capital and loans to meet our expenses and obligations. Although investor funds
      have allowed us to meet our obligations in the recent past, there can be no
      assurances that our present methods of generating cash flow will be sufficient
      to meet future obligations. Historically, we have, from time to time, been
      able
      to raise additional capital, but there can be no assurances that we will be
      able
      to raise additional capital in this manner.




Net
      cash used in operating activities was $212,919 for the six month period ended
      June 30, 2006, compared with $716,982 for the six month period ended June 30,
      2005. The net cash used for this period resulted mainly from consulting fees
      to
      continue the ongoing movement towards the development, marketing and operations
      of the company. The consulting fees were paid in shares of common stock of
      the
      company.




Net
      cash obtained from financing activities was $234,421 for the six month period
      ended June 30, 2006, compared with $432,201 for the six month period ended
      June
      30, 2005. In the six month period ended June 30, 2006, we reduced a loan from
      one of our directors and also received $160,000 in proceeds from the sale of
      shares of common stock described below. In the six month period ending June
      30,
      2006, we received $500,000 from accredited investors and advances from Blaine
      Froats, one of our directors.




11




Net
      cash provided by investing activities for the six month period ended June 30,
      2006 was $364,831. The investing activities during the six month period ended
      June 30, 2006 was from the sale and acquisition of marketable
      securities.




On
      April 28, 2006, we sold 1,600,000 shares of common stock at a price of $0.10
      per
      share, for a total of $160,000, to certain accredited investors.




On
      April 1, 2006 the Company entered into a lease agreement with Astris Energi,
      Inc. The company will lease certain equipment to Astris over a 48 month period.




In
      March 2005, the Company entered into a convertible debenture agreement
      (described below). The initial closing for $500,000 and its conversion features
      triggered the anti-dilution clause included in our private placement agreements
      with certain accredited investors. As such, an additional 2,811,429 shares
      of
      common stock will need to be issued to these investors. At June 30, 2006,
      324,857 **** shares
      of common stock were issued with 2,486,572 shares remaining to be issued.




On
      March 2, 2005, we entered into a private placement with certain institutional
      accredited investors whereby these investors agreed to purchase up to $1,500,000
      in convertible Notes, with Class A Warrants to purchase a number of shares
      equal
      to the number of shares to which the Notes are convertible, at a price of $0.40
      per share expiring in 3 years, Class B Warrants to purchase up to three times
      the amount of Notes purchased at the initial closing at an exercise price equal
      to 70% of the volume weighted average price for the five days preceding the
      closing ($0.2875 per share) exercisable until 90 days after a resale
      registration statement is declared effective, and Class C Warrants to purchase
      400,000 shares at $0.40 per share and 600,000 shares at $1.00 per share,
      exercisable for 3 years from the date of the closing. The Notes were initially
      convertible into shares of our common stock at 70% of the average closing bid
      price for the 5 days preceding the notice to convert with an initial ceiling
      of
      $0.35 per share and floor of $0.15 per share. Under the terms of the Notes,
      the
      floor is no longer effective. The Notes carry an interest rate of 6%, payable
      quarterly in arrears in either cash or our stock, at our discretion.




**** As of
      June 30, 2006, we have received $500,000 **** in
      proceeds from the investors and have issued warrants to purchase a total of
      8,054,674 shares of common stock. Of this total there were 2,563,668 Class
      A
      warrants, 5,291,005 Class B warrants and 200,000 Class C warrants issued, all
      of
      which have been converted to shares of common stock.




In
      January 2004, we entered into a private placement with institutional and
      accredited investors pursuant to which we sold a total of 5,500,000 shares
      of
      common stock at a price of $0.50 per share and warrants to purchase a total
      of
      2,750,000 shares of common stock at an exercise price of $0.85 per share. The
      warrants have a three year term. We received gross proceeds of $2,750,000 from
      this transaction.




In
      November 2004, we cancelled 30,000,000 shares that were returned to us by AEC
      1,
      Inc as part of an agreement that we divest certain non-core technology. Under
      the terms of the agreement, to return certain patents and technology to their
      original owner, the Company transferred these patents and technology to our
      parent company, AEC 1, Inc. In consideration for this transfer of the patents
      and technology, the Company received 30,000,000 of its own shares from AEC
      1,
      Inc. **** which
      were subsequently cancelled.




Though
      these technologies possessed market potential, our final analysis concluded
      that
      their development required an extremely high outlay of capital and would produce
      only marginal profitability. Management therefore decided to divest and focus
      on
      its hydrogen production units. On November 1, 2004, we agreed to release these
      non-core technologies in order to facilitate and
      reacquire 30,000,000 shares of
      Alternate Energy Corp. from AEC 1, Inc.




We
      held 1,000,000 shares of Astris Energi Inc. (“ASRNF”) as of December 31, 2004,
      which comprised an ownership interest in ASRNF of 2.65%. These shares were
      purchased for the sum of $300,000 at the value of $0.30 per share and adjusted
      as per market value for that period. We sold all 1,000,000 shares of the ASRNF
      securities between September 1, 2005 and March 31, 2006, incurring a loss on
      the
      investment, which is reflected in the consolidated statements of cash flows.




12




During
      the fiscal quarter ended June 30, 2006, a contract between the Company and
      ASRNF
      was amended and we received 800,000 restricted shares of common stock of Astris
      Energi Inc. (ASRNF), $85,000 in cash and the rights to purchase 1,500,000
      warrants at $0.17 for a period of three years. On the Over-The Counter Bulletin
      Board, the last reported sale price of ASRNF’s common stock was
      $0.07.




While
      we believe that we will have sufficient cash to meet our short-term capital
      requirements, there are no assurances that we will be able to raise sufficient
      funds to meet long-term capital needs as management estimates that we will
      require several million dollars towards the end of fiscal year ended 2006 to
      continue towards the goals set forth in our business strategy as stated in
      the
      Company’s annual report on form 10-KSB for the fiscal year ended December 31,
      2005. We may also seek alternative sources of financing, including from more
      conventional sources such as bank loans and credit lines, although no assurances
      in this regard can be made. Further, the availability of any future financing
      may not be on terms that are satisfactory to the Company.




From
      time to time, we may evaluate potential acquisitions involving complementary
      businesses, content, products or technologies. We have no present agreements
      or
      understanding with respect to any such acquisition. Our future capital
      requirements will depend on many factors, including growth of our business,
      the
      success of our operations, economic conditions and other factors including
      the
      results of future operations.




**PLAN
      OF OPERATION**




Over
      the next twelve months we will be working on a number of concurrent initiatives:




Revenue
      Generation




On
      Thursday, April 6, 2006, we received a letter of interest from BOM Brazil
      (“BOM”), a major producer of hydrogenated castor bean oils and its derivatives
      in the Americas, to supply them with its high purity, affordable and on-site
      hydrogen. We are now working towards the securing of a five-year contract to
      supply BOM with on-site hydrogen at an extremely competitive price to what
      BOM
      is presently paying. This will likely save BOM considerable expenses related
      to
      its cost of hydrogen, since it is currently trucked-in on a daily basis. We
      intend to design and build a hydrogen production facility on their site in
      Salvador, Brazil, which will produce a pre-determined volume of hydrogen, as
      mutually agreed upon by the contract. We will retain all rights to the
      by-product.




Contingent
      on the securing of a signed contract, we expect to contract a reputable
      engineering firm in the designing and project management relating to the
      construction of this turn-key operation. We believe that the financing of the
      facility and equipment, together with the related capital requirements can
      be
      found on a project financing basis, and therefore does not expect to be required
      to provide this funding. Assuming the completion of contractual requirements
      and
      project financing by August 1, 2007, we estimate a turn-key plant could be
      completed by June 1, 2008. We would expect revenues of hydrogen and by-product
      to commence the shortly thereafter.




Other
      revenue opportunities are being considered to supply hydrogen and by-products
      to
      a variety of industries and applications in traditional and emerging
      markets.




Research
      & Development




Process
      optimization of by-product number two continues this year with our principal
      technical team and Experchem Labs, while new research has been initiated by
      our
      University of Waterloo Co-op chemical engineering students to minimize raw
      material costs for both by-product processes, as well to identify the future
      development of innovative, hydrogen yielding chemical reactions.




13




Partnerships
      / Strategic Alliances




During
      the period we entered into an agreement with Genesys Engineering, P.C.
      (“Genesys”) to design and construct bulk hydrogen production plants for our
      customers on an exclusive basis. We and Genesys leadership have been in general
      discussions over time, and with rising interest being expressed by certain
      of
      our potential customers in its bulk hydrogen production process, it has become
      apparent that we needed to develop a long term relationship with a design,
      engineering and construction firm that has experience and a long term interest
      in the energy industry.




Over
      the next 12 months, we will continue to showcase Genesys’ hydrogen production
      technology to a list of prospective commercial customers, potential licensees,
      select government and institutional contacts and other interested commercial
      parties. These groups have been pre-qualified as having a demonstrated need
      for
      quality hydrogen and/or one or both by-products.




In
      order to accomplish and continue with these steps, management estimates that
      we
      will require several million dollars towards the end of fiscal year ended 2006.
      As we do not have any current revenue, we anticipate such funds will come from
      loans from our officers and private placements of our common stock.




**Changes
      In and Disagreements with Accountants on Accounting and Financial Disclosure**




None.




**ITEM
      3. CONTROLS AND PROCEDURES.**




As
      of
      the end of the period covered by this report, the Company’s management carried
      out an evaluation, under the supervision and with the participation of the
      Company’s principal executive officer and the principal financial officer, of
      the effectiveness of the design and operation of the Company’s disclosure
      controls and procedures. The Company’s disclosure controls and procedures are
      designed to provide a reasonable level of assurance of achieving the Company’s
      disclosure control objectives. The Company’s principal executive officer and
      principal financial officer have concluded that the Company’s disclosure
      controls and procedures were effective at June 30, 2006. In addition, the
      Company’s management, with the participation of the Company’s principal
      executive officer and the principal financial officer, reviewed our internal
      control over financial reporting. There were no changes that have materially
      affected, or are reasonably likely to materially affect, our internal control
      over financial reporting during the fiscal quarter ended June 30,
      2006.




**PART
      II**


**OTHER
      INFORMATION**




**ITEM
      1. LEGAL PROCEEDINGS.**






****  On
      October 22, 2004, we filed a lawsuit against Russell Rothman in the Ontario
      Superior Court of Justice (Case No. 04-CV-277760CM2).  We are seeking the
      rescission of our agreements with Rothman and restitution of payments we made
      to
      him, including shares of common stock we issued to him.  We had entered
      into an agreement with Rothman for the purchase of certain technology related
      to
      the production of hydrogen gas, for which he represented he owned all right
      and
      title.  Rothman has filed a countersuit against us for breach of contract
      in the amount of $2 billion and is asking for punitive damages in the amount
      of
      $10 million.  On January 9, 2006, Rothman substantially amended his claim,
      and is now seeking $12 million for breach of contract and punitive damages
      in
      the amount of $250,000. We continue to believe that the counterclaim has no
      merit.




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




During
      the three months ended June 30, 2006, the Company issued 1,953,425 shares of
      its
      common stock for services performed for the Company by its consultants and
      employees **** totaling
      $260,434 or $0.13 per share (weighted average price).




14




During
      the three months ended June 30, 2006, the Company issued 1,600,000 shares of
      its
      common stock in a private placement for an aggregate purchase price
      of $160,000. The $160,000 in proceeds to the Company was used for working
      capital purposes.




During
      the three months ended June 30, 2006, the Company issued 2,500,000 shares of
      its
      common stock for bonuses payable to consultant to the Company **** totaling
      $275,000 or $0.11 per share (weighted average price).




During
      the three months ended June 30, 2006, the Company issued warrants for 1,112,000
      shares of it common stock with a seven year term at an exercise price per share
      of $0.17, and recorded an expense totaling $115,343 based upon the fair value
      of
      the warrants under the Black-Scholes options pricing model. The assumptions
      used
      under the Black-Scholes option pricing model included an exercise price of
      $0.17, volatility rate of 324%, risk free interest rate of 3.5%, and life
      expectancy of 1.5 years.




The
      Company issued the securities in the referenced transactions in reliance on
      the
      exemption contained in Section 4(2) of the Securities Act of 1933, as amended.
      There were no underwriters or placement agents employed in connection with
      the
      transactions described in this Item 2.




**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 AND REPORTS ON FORM 8-K.**




The
      following exhibits are filed with this Form 10-QSB:





Exhibit
                No.
            Description31.1
            Rule
                13a-14(a)/15d-14(a) Certification of Chief Executive
                Officer31.2
            Rule
                13a-14(a)/15d-14(a) Certification of Treasurer and Principal Accounting
                Officer32
            Section
                1350 Certifications99.1
            Equipment
                Lease Agreement




15




**SIGNATURES**




In
      accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
      the
      registrant caused this report to be signed on its behalf by the
      undersigned, thereunto duly authorized.




**Alternate
              Energy Corp.**Date:
              August
              14, 2006
            By:
            /s/ *Blaine
              Froats*Blaine FroatsChief
              Executive




**Alternate
              Energy Corp.**Date:
              August
              14, 2006
            By:
            /s/
*Jack
              Wasserman*Jack
              WassermanTreasurer
                    and Principal Accounting
                    Officer




16




**INDEX
      OF EXHIBITS**


Exhibit
                  No.
              Description31.1
              Rule
                  13a-14(a)/15d-14(a) Certification of Chief Executive
                  Officer31.2
              Rule
                  13a-14(a)/15d-14(a) Certification of Treasurer and Principal Accounting
                  Officer32
              Section
                  1350 Certifications99.1
              Equipment
                  Lease Agreement




17