Alliance Recovery (ARVY) 10QSB 2007 Q2 Quarterly report (small business)

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 ended June 30, 2007

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

For the transition period from _____________

Commission File No. 000-50868

______________

ALLIANCE RECOVERY CORPORATION

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

______________

Delaware	30-0077338
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

#390-1285 N. Telegraph Road Monroe, Michigan	48162-3368
(Address of principal executive offices)	(Zip Code)

(519) 671-0417

(Issuer’s telephone number)

Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days. Yes x  No o

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

Yes o  No x

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

Yes x  No o 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of August 7, 2007: 19,233,825 shares of common stock.

Transitional Small Business Disclosure Format (check one): Yes o No x

Item 1. Financial Information

BASIS OF PRESENTATION

The accompanying reviewed financial statements are presented in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-QSB and item 310 under subpart A of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal occurring accruals) considered necessary in order to make the financial statements not misleading, have been included. Operating results for the three months ended June 30, 2007 are not necessarily indicative of results that may be expected for the year ending December 31, 2007. The financial statements are presented on the accrual basis.

ALLIANCE RECOVERY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONTENTS

PAGE	F-1	CONDENSED BALANCE SHEET AS OF JUNE 30, 2007 (UNAUDITED)
PAGE	F-2	CONDENSED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE, 2007 AND 2006 AND FOR THE PERIOD FROM NOVEMBER 6, 2001 (INCEPTION) TO JUNE 30, 2007 (UNAUDITED)
PAGES	F-3	CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY FOR PERIOD FROM NOVEMBER 6, 2001 (INCEPTION) TO JUNE 30, 2007 (UNAUDITED)
PAGE	F-4	CONDENSED STATEMENTS OF CASH FLOWS FOR THE THEEE MONTHS ENDED JUNE 30, 2007 AND 2006 AND FOR THE PERIOD FROM NOVEMBER 6, 2001 (INCEPTION) TO JUNE 30, 2007 (UNAUDITED)
PAGES	F-5 - F-13	NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

ALLIANCE RECOVERY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONDENSED BALANCE SHEET

(UNAUDITED)

ASSETS
CURRENT ASSETS
Cash	$	26,017
TOTAL CURRENT ASSETS		26,017
Property and Equipment, net		3,628
TOTAL ASSETS	$	29,645
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
CURRENT LIABILITIES
Accounts payable	$	41,839
Accrued Interest		14,219
Due to related party		435,197
Notes payable - net of discount of $415		24,585
Note payable - related party		200,000
TOTAL CURRENT LIABILITIES		715,840
LONG TERM LIABILITIES
Convertible notes payable - related party, net of discount $1,454		88,546
TOTAL LIABILITIES		804,386
Common Stock Subject to Rescission Offer, $.01 par value,
1,986,646 shares issued and outstanding		1,084,823
COMMITMENTS AND CONTINGENCIES		-
STOCKHOLDERS’ DEFICIENCY
Common stock, $0.01 par value, 100,000,000 shares authorized,  17,247,179 shares issued and outstanding		172,472
Additional paid in capital		744,853
Subscriptions receivable		(6,600	)
Deferred compensation		(103,852	)
Accumulated deficit during development stage		(2,666,437	)
Total Stockholders’ Deficiency		(1,859,564	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIENCY	$	29,645

See accompanying notes to condensed financial statements.

F-1

ALLIANCE RECOVERY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

	For the Three Months Ended June 30						For the Six Months Ended June 30,						For The Period From November 6, 2001 (Inception) to December 31, 2006
	2007			2006			2007			2006
OPERATING EXPENSES
Consulting fees	$			$	-		$			$	-		$	526,868
Consulting fees - related party		62,500			62,500			125,000			125,000			1,395,833
Professional fees		11,987			14,740			33,134			29,282			324,107
General and administrative		77,043			6,019			84,493			28,155			378,473
TOTAL OPERATING EXPENSES		151,530			83,259			242,627			182,437			2,625,281
OTHER EXPENSES
Financing fees		15,000			-			15,000			-			15,000
Interest Expense		5,145			3,067			9,296			4,998			26,156
TOTAL OTHER EXPENSES		20,145			3,067			24,296			4,998			41,156
NET LOSS BEFORE PROVISION FOR
INCOME TAXES		(156,675	)		(86,326	)		(266,923	)		(187,435	)		(2,666,437	)
PROVISION FOR INCOME TAXES		-			-			-			-			-
NET LOSS	$	(156,675	)	$	(86,326	)	$	(266,923	)	$	(187,435	)	$	(2,666,437	)
					.						.
Net loss per share - basic and diluted		(0.01	)		(0.01	)		(0.02	)		(0.01	)	$	(0.16	)
Weighted average number of shares outstanding during the period - basic and diluted		17,247,179			16,819,510			17,027,034			16,819,510			16,591,089

See accompanying notes to condensed financial statements.

F-2

ALLIANCE RECOVERY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY

FOR THE PERIOD FROM NOVEMBER 6, 2001 (INCEPTION)

TO JUNE 30, 2007 (UNAUDITED)

	Common Stock				Additional Paid-In			Subscription			Deferred Stock			Accumulated Deficit During Development
	Shares		Amount		Capital			Receivable			Compensation			Stage			Total
Common stock issued to founders for services ($0.01 per share)		8,410,000	$	84,100	$	-		$	-		$	-		$	-		$	84,100
Common stock issued for cash ($0.0137 per share)		7,687,800		76,878		28,186			(105,064	)		-			-			-
Net loss for the period from November 6, 2001 (inception) to December 31, 2001		-		-		-			-			-			(104,933	)		(104,933	)
Balance, December 31, 2001 (Restated)		16,097,800		160,978		28,186			(105,064	)		-			(104,933	)		(20,833	)
Common stock with warrants issued for services ($0.50 per share)		112,710		1,127		55,228			-			(27,083	)		-			29,272
Common stock issued for services ($0.50 per share)		100,000		1,000		49,000			-			(16,667	)		-			33,333
Collection of subscriptions receivable		-		-		-			56,290			-			-			56,290
Net loss, 2002		-		-		-			-			-			(482,211	)		(482,211	)
Balance, December 31, 2002 (Restated)		16,310,510		163,105		132,414			(48,774	)		(43,750	)		(587,144	)		(384,149	)
Amortization of deferred compensation		-		-		-			-			43,750			-			43,750
Net loss, 2003		-		-		-			-			-			(417,622	)		(417,622	)
BALANCE, DECEMBER 31, 2003 (Restated)		16,310,510		163,105		132,414			(48,774	)		-			(1,004,766	)		(758,021	)
Common stock with options issued for services ($0.50 per share)		200,000		2,000		98,000			-			(4,158	)		-			95,842
Issuance of warrants for services		-		-		-			-			-			-			-
							��
Net loss, 2004		-		-		-			-			-			(489,255	)		(489,255	)
BALANCE, DECEMBER 31, 2004 (Restated)		16,510,510		165,105		230,414			(48,774	)		(4,158	)		(1,494,021	)		(1,151,434	)
Common stock with options issued for services ($0.50 per share)		300,000		3,000		147,000			(300	)		(149,700	)		-			-
Amortization of deferred compensation		-		-		-			-			147,621			-			147,621
Collection of subscription receivable		-		-		-			42,774			-			-			42,774
Net loss, 2005		-		-		-			-			-			(545,477	)		(545,477	)
BALANCE, December 31, 2005		16,810,510	$	168,105	$	377,414		$	(6,300	)	$	(6,237	)	$	(2,039,498	)		(1,506,516	)
Amortization of deferred compensation		-		-		-			-			6,237			-			6,237
Conversion of notes payable to common stock		136,669		1,367		215,933			-			-			-			217,300
Net Loss, 2006		-		-		-			-			-			(360,016	)		(360,016	)
BALANCE, December 31, 2006		16,947,179	$	169,472	$	593,347		$	(6,300	)	$	-		$	(2,399,514	)	$	(1,642,995	)
Common stock issued for services ($0.51 per share)		300,000		3,000		150,000			(300	)		(152,700	)		-			-
Amortization of deferred compensation		-		-		-			-			48,848			-			48,848
Warrants issued for convertible debt		-		-		1,506			-			-			-			1,506
Net Loss, June 30, 2007		-		-		-			-			-			(266,923	)		(266,923	)
BALANCE, June 30, 2007		17,247,179	$	172,472	$	744,853		$	(6,600	)	$	(103,852	)	$	(2,666,437	)	$	(1,859,564	)

See accompanying notes to condensed financial statements.

F-3

ALLIANCE RECOVERY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Six Months Ended June 30,						For The Period From
	2007			2006			November 6, 2001 (Inception) To June 30, 2007
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(266,923	)	$	(187,435	)	$	(2,666,437	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock issued for services		48,848			6,237			489,003
Depreciation expense		1,117			1,117			7,538
Amortization		796			4,998			13,637
Changes in operating assets and liabilities:
Prepaid expenses		-			-			-
Due to related party		73,346			20,038			435,197
Accounts payable and accrued expenses		(3,204	)		28,817			66,858
Net Cash Used In Operating Activities		(146,020	)		(126,228	)		(1,654,204	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		-			-			(11,166	)
Net Cash Used In Investing Activities		-			-			(11,166	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of debt		90,000			-			213,500
Proceeds from issuance of debt - related party		50,000			200,000			294,000
Proceeds from issuance of common stock subject to rescission		-			-			1,084,823
Proceeds from issuance of common stock		-			-			99,064
Net Cash Provided By Financing Activities		140,000			200,000			1,691,387
NET INCREASE (DECREASE) IN CASH		(6,020	)		73,772			26,017
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		32,037			18,736			-
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	26,017		$	92,508		$	26,017
Supplemental disclosure of non cash investing & financing activities:
Cash paid for income taxes	$	-		$	-		$	-
Cash paid for interest expense	$	-		$	-		$	-

See accompanying notes to condensed financial statements.

F-4

ALLIANCE RECOVERY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TOCONDENSED FINANCIAL STATEMENTS (UNAUDITED)

AS OF JUNE 30, 2007 and 2006

NOTE 1   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

(A) Basis of Presentation

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in The United States of America and the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information necessary for a comprehensive presentation of financial position and results of operations.

It is management's opinion, however that all material adjustments (consisting of normal recurring adjustments) have been made which are necessary for a fair financial statements presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year.

(B)  Organization

Alliance Recovery Corporation (a development stage company) (the “Company”) was incorporated under the laws of the State of Delaware on November 6, 2001. The Company is developing resource recovery technologies and strategies to convert industrial and other waste materials into fuel oil, gases and other valuable commodities.

Activities during the development stage include developing the business plan and raising capital.

(C)  Use of Estimates

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates.

(D)  Cash and Cash Equivalents

For purposes of the cash flow statements, the Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. The Company at times has cash in excess of FDIC insurance limits and places its temporary cash investments with high credit quality financial institutions. At June 30, 2007, the Company did not have any balances that exceeded FDIC insurance limits.

(E) Property and Equipment

Property and equipment are stated at cost, less accumulated depreciation. Expenditures for maintenance and repairs are charged to expense as incurred. Depreciation is provided using the straight-line method over the estimated useful life of five years.

(F)  Stock-Based Compensation

 Effective January 1, 2006 The Company adopted SFAS No. 123R “Share-Based Payment” (“SFAS 123R”), a revision to SFAS No. 123 “Accounting for Stock-Based Compensation” (“SFAS 123”). Prior to the adoption of SFAS 123R the Company accounted for stock options in accordance with APB Opinion No. 25 “Accounting for Stock Issued to Employees” (the intrinsic value method), and accordingly, recognized no compensation expense for stock option grants.

Under the modified prospective approach, the provisions of SFAS 123R apply to new awards and to awards that were outstanding on January 1, 2006 that are subsequently modified, repurchased pr cancelled. Under the modified prospective approach, compensation cost recognized in the year ended December 31, 2006 includes compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant -date fair value estimated in accordance with the original provisions of SFAS 123, and the compensation costs for all share-based payments granted subsequent to January 31, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R. Prior periods were not restated to reflect the impact of adopting the new standard.

F-5

(G)  Loss Per Share

Basic and diluted net loss per common share is computed based upon the weighted average common shares outstanding as defined by Financial Accounting Standards No. 128, “Earnings Per Share.” As of June 30, 2007 and 2006, 1,899,896 and 2,881,502; respectively of common share equivalents were anti-dilutive and not used in the calculation of diluted net loss per share.

(H)  Business Segments

The Company operates in one segment and therefore segment information is not presented.

 (I)  Long-Lived Assets

 The Company accounts for long-lived assets under the Statements of Financial Accounting Standards Nos. 142 and 144 “Accounting for Goodwill and Other Intangible Assets” and “Accounting for Impairment or Disposal of Long-Lived Assets” (“SFAS No. 142 and 144”). In accordance with SFAS No. 142 and 144, long-lived assets, goodwill and certain identifiable intangible assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, goodwill and intangible assets, the recoverability test is performed using undiscounted net cash flows related to the long-lived assets.

(J)  Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. The objective of SFAS 157 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The provisions of SFAS No. 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007. The adoption of this statement is not expected to have a material effect on the Company's future reported financial position or results of operations.

In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115”. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 “ Accounting for Certain Investments in Debt and Equity Securities” applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entity's first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provision of SFAS No. 157, “ Fair Value Measurements”.  The adoption of this statement is not expected to have a material effect on the Company's financial statements.

NOTE 2  PROPERTY AND EQUIPMENT

     Property and equipment at June 30, 2007 were as follows:

Computer	$	11,166
Less accumulated depreciation		(7,540	)
	$	3,628

During the three and six months ended June 30, 2007 and 2006 and for the period from November 6, 2001 to March 31, 2007, the Company recorded depreciation expense of $558, $1,117,$558, $1,117 and $7,540 respectively.

NOTE 3   NOTES PAYABLE

Note Amount	$	25,000
Discount		(415	)
Net	$	24,585

F-6

In December 2006, an investor loaned the Company a total of $25,000. The note is unsecured, due one year from the date of issuance and is non interest bearing for the first nine months, then accrues interest at a rate of 6% per annum for the remaining three months. The Company imputed interest on the non interest bearing portion of the notes at a rate of 6% per annum. At June 30, 2007 the Company recorded a discount on the notes of $1,500 and amortized $1,085 of the discount as interest expense.

NOTE 4 NOTES PAYABLE - RELATED PARTY 

In June, 2006 a director of the Company loaned the Company $100,000. The loan bears a rate of interest of 8% per annum and is payable twelve months from the date of issuance. In addition the Company issued the director warrants to purchase 100,000 shares of common stock with an exercise price of $1.50 per share for one year from the date of the note. The loan is unsecured and was due June 28, 2007. The note was extended until June 28, 2008.  In December 2006, the Director loaned the Company an additional $50,000. The loan bears a rate of interest of 8% per annum and is payable eighteen months from the date of issuance. In January 2007 a director of the Company loaned the Company $50,000. The loan bears interest at a rate of eight percent per annum. The loan is unsecured and due July 9, 2007. As of June 30, 2007 the Company has an outstanding balance under the three note agreements of $200,000 and recorded accrued interest expense of $12,227 related to these three notes.

NOTE 5 CONVERTIBLE NOTES PAYABLE - RELATED PARTY 

Note Amount	$	90,000
Discount		(1,454	)
Net	$	88,546

In May 2007, a Director of the Company loaned the Company $50,000. The loan bears a rate of interest of 8% per annum and is payable twenty-four months from the date of issuance. The holder of the note has the right to convert the note into common stock of the Company at the market value on the date of conversion but not at a price less then $.20 per share of common stock.  In addition the Company issued the director warrants to purchase 25,000 shares of common stock with an exercise price of $1.00 per share for two years from the date of the note. The loan is unsecured and due May 17, 2009.The fair market value of the warrants was estimated on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions: expected dividend yield 0%, volatility 103%, risk-free interest rate of 4.87%, and expected warrant life of two years. The value of the warrants on the date of issuance was $837. The Company will amortize the value over the term of the note. In June, 2007 the Mother of the Director loaned the Company an additional $40,000. The loan bears a rate of interest of 8% per annum and is payable twenty-four months from the date of issuance. The holder of the note has the right to convert the note into common stock of the Company at the market value on the date of conversion but not at a price less then $.20 per share of common stock. The loan is unsecured and due July 3, 2009. The fair market value of the warrants was estimated on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions: expected dividend yield 0%, volatility 103%, risk-free interest rate of 4.87%, and expected warrant life of two years. The value of the warrants on the date of issuance was $669. The Company will amortize the value over the term of the note. As of June 30, 2007 the Company recorded and accrued interest expense of $491 and amortization expense of $52 related to these two notes.

NOTE 6    EQUITY SUBJECT TO RESCISSION

Common stock sold prior to July, 2005 pursuant to the Company's private placement offer may be in violation of the requirements of the Securities Act of 1933. In October 2005, the Company became aware that the private placement offers made prior to July 1, 2005 may have violated federal securities laws based on the inadequacy of the Company's disclosures made in its offering documents for the units concerning the lack of unauthorized shares. Based on potential violations that may have occurred under the Securities Act of 1933, the Company made a rescission offer to investors who acquired the Company's common stock prior to July 1, 2005. As such, the proceeds of $1,084,823 from the issuance of 1,986,646 shares of common stock through July 1, 2005 have been classified outside of equity in the balance sheet and classified as common stock subject to rescission.

During 2002, the Company received cash and subscriptions receivable of $148,000 for 296,000 units consisting of one share of common stock and one common stock warrant exercisable for a period of one year after an effective Registration Statement is approved at an exercise price of $1.00 ($0.50 per share). Such amounts have been recorded as equity subject to rescission as of June 30, 2007.

F-7

During 2003, the Company received cash and a subscription receivable of $661,323 for 1,322,646 units consisting of one share of common stock with one common stock warrant exercisable for a period of one year after an effective Registration Statement is approved at an exercise price of $1.00 ($0.50 per share). Such amounts have been recorded as equity subject to rescission as of June 30, 2007.

During the year ended December 31, 2004, the Company received cash of $92,500 for 185,000 units consisting of one share of common stock with one common stock warrant exercisable for a period of one year after an effective Registration Statement is approved at an exercise price of $1.00 per share ($0.50 per share). Such amounts have been recorded as equity subject to rescission as of June 30, 2007.

In 2005, the Company sold a total of 183,000 shares of common stock to nine individuals for cash of $183,000 ($1.00 per share). Such amounts have been recorded as equity subject to rescission as of June 30, 2007.

NOTE 7 STOCKHOLDERS' EQUITY

(A)  Common Stock Issued to Founders

During 2001, the Company issued 8,410,000 shares of common stock to founders for services with a fair value of $84,100 ($0.01 per share).

(B)  Common Stock and Warrants Issued for Cash

During 2001, the Company received subscriptions receivable of $105,064 for 7,687,800 shares of common stock ($0.0137 per share).

During the year ended December 31, 2004, the Company collected $159,782 of subscriptions receivable.

In 2005, the Company sold a total of 183,000 shares of common stock to nine individuals for cash of $183,000 ($1.00 per share).

By the year ended December 31, 2005 the Company collected $42,774 of subscription receivables.

(C)  Common Stock and Warrants Issued for Services

During April 2002, the Company entered into an agreement with a consultant to provide services for a period of one year. The agreement called for compensation of 100,000 units with a fair value of $50,000 based on recent cash offerings ($0.50 per share). The Company recorded $16,667 and $33,333 of consulting expense for the years ended December 31, 2003 and 2002, respectively. As of December 31, 2006, the warrants have expired.

During May 2002, the Company entered into an agreement with a consultant to provide services for a period of two months. The agreement called for compensation of 12,710 units, each unit consists of one share of common stock and one common stock warrant exercisable at $1.00 per share for a period of two years. The units had a fair value of $6,355 based on recent cash offerings. The Company recorded consulting expense of $6,355 for the year ended December 31, 2002 ($0.50 per share). As of December 31, 2006, the warrants have expired.

During July 2002, the Company entered into an agreement with a consultant to provide services for a period of one year. The agreement called for compensation of 100,000 units, each unit consists of one share of common stock and one common stock warrant exercisable at $1.00 per share for a period of two years. The units had a fair value of $50,000 based on recent cash offerings ($0.50 per share). The Company recorded $22,917 and $27,083 of consulting expense for the years ended December 31, 2002 and 2003, respectively.

During January 2004, the Company entered into a consulting agreement with a consultant to provide management and public relations services. The agreement calls for the consultant to provide services for a period of one year and the consultant to receive: 200,000 shares of common stock warrants to purchase 100,000 shares of common stock at an exercise price of $5.00 for a period of three years, and an option to purchase 100,000 shares of common stock at an exercise price of $7.50 for a period of three years. The common stock has a fair value of $100,000 based on recent cash offerings and will be amortized over the life of the agreement ($0.50 per share). For the years ended December 31, 2005 and 2004, the Company has recognized consulting expense of $4,158 and $95,842, respectively under the agreement. As of June 30, 2007, the warrants have expired.

In January 2005, the Company entered into a consulting agreement with a consultant to provide management and public relations services. The agreement calls for the consultant to provide services for a period of one year and the consultant to receive compensation of $2,000 per month. In addition the Company sold the consultant 300,000 shares of common stock for cash proceeds of $300 and recorded the fair value of the common stock of $149,700. The fair value of the common stock will be recognized over the term of the agreement. For the year ended December 31, 2005 the Company has recognized consulting expense of $143,463 under the agreement. For the year ended December 31, 2006 the Company recognized consulting expense of $6,237 under the agreement.

F-8

In March 2007, the Company entered into a consulting agreement with a consultant to provide management and public relations services. The agreement calls for the consultant to provide services for a period of one year and the consultant to receive compensation of $4,000 per month. In addition the Company sold the consultant 300,000 shares of common stock for cash proceeds of $300 and recorded the fair value of the common stock of $153,000. The fair value of the common stock will be recognized over the term of the agreement. The Company has also agreed the pay the public relation firm a 5% finder fee for any business or capital raise derived from its relationship with the public relations firm. The fair value of the common stock will be recognized over the term of the agreement. For the three and six months ended June 30, 2007 the Company recorded an expense of $38,175 and $48,848 under this agreement.

(D) Common Stock and Warrants Issued for Conversion of Notes Payable

Between October and December 2005 three investors and a director loaned the Company a total of $205,000. The notes are unsecured, due one year from the date of issuance and are non interest bearing for the first nine months, then accrued interest at a rate of 6% per annum for the remaining three months.  The Company imputed interest of $12,300 on the non interest bearing portion of the notes at a rate of 6% per annum. On July 21, 2006, we amended four promissory notes (the “Amended Notes”) originally executed on October 7, 2005 in favor of Lewis Martin, James E. Schiebel, Susan Hutchison, and Walter Martin respectively (each a “Holder” and collectively the “Holders”). The Amended Notes provide for a conversion feature pursuant to which each Holder is entitled to convert the outstanding principal amount into shares of the Company's common stock at a conversion rate of $1.50 per share. In addition, upon conversion, each Holder is entitled to receive a warrant to purchase one-quarter of one share of our common stock exercisable within one-year of issuance at an exercise price of $1.50 per share. On July 24, 2006, pursuant to the terms of the Amended Notes, the Holders converted the principal amount outstanding into shares of our common stock. Based on same, we issued an aggregate of 136,669 shares of our common stock and a price of $1.50 per share (the “Conversion Shares”). In addition, we issued warrants with a cashless exercise provision to purchase an aggregate of 51,250 shares of our common stock to the Holders exercisable within one year of issuance at a price per share of $1.50 (the “Conversion Warrants”). The Conversion Shares and shares underlying the Conversion Warrants are restricted in accord with Rule 144 promulgated under the Securities Act of 1933, as amended.

Between May and June 2007 two related parties loaned the Company a total of $90,000. The convertible notes are unsecured, due two years from the date of issuance and accrue interest at a rate of 8% per annum. In addition, the holders received a total of 45,000 warrants to purchase one share of our common stock exercisable within two-year of issuance at an exercise price of $1.00 per share.

(E) Common Stock Warrants

The Company issued 765,146 warrants during 2004, at an exercise price of $1.00 per share to a consultant for services. The fair market value of the warrants was estimated on the grant date using the Black-Scholes option pricing model as required under SFAS 123 with the following weighted average assumptions: expected dividend yield 0%, volatility 0%, risk-free interest rate of 3.5%, and expected warrant life of one year. The value was immaterial and therefore no expense was recorded in general and administrative expense at the grant date. As of December 31, 2006, the warrants have expired.

In connection with the issuance of a $100,000 note payable on June 28, 2006, the Company issued a total of 100,000 common stock warrants with an exercise price of $1.50 per share. The warrants expire June 29, 2007. The fair market value of the warrants was estimated on the grant date using the Black-Scholes option pricing model as required under SFAS 123R with the following weighted average assumptions: expected dividend yield 0%, volatility 0%, risk-free interest rate of 5.18%, and expected warrant life of one year. The value was immaterial and therefore no expense was recorded.

In connection with conversion of $205,000 of notes payable to common stock on July 24, 2006 the Company issued warrants with a cashless exercise provision to purchase an aggregate of 51,250 shares of our common stock to the Holders exercisable within one year of issuance at a price per share of $1.50 (the “Conversion Warrants”). The Conversion Shares and shares underlying the Conversion Warrants are restricted in accordance with Rule 144 promulgated under the Securities Act of 1933, as amended.

In connection with the issuance of common stock units for cash and services, the Company has an aggregate of 1,899,896 and 2,881,572 warrants outstanding at June 30, 2007 and 2006, respectively. The Company has reserved 1,899,896 shares of common stock for the future exercise of the warrants at June 30, 2007.

F-9

(F) Amendment to Articles of Incorporation

During 2004, the Company amended its Articles of Incorporation to provide for an increase in its authorized share capital. The authorized capital stock increased to 100,000,000 common shares at a par value of $0.01 per share.

(G) Financing Agreement

On May 29, 2007, the Company entered into an Investment Agreement with. Pursuant to this Agreement, the Investor shall commit to purchase up to $20,000,000 of the Company’s common stock over the course of thirty-six (36) months. The amount that we shall be entitled to request from each purchase (“Puts”) shall be equal to, at the Company’s election, either (i) up to $250,000 or (ii) 200% of the average daily volume (U.S. market only) of the common stock for the three (3) trading days prior to the applicable put notice date, multiplied by the average of the three (3) daily closing bid prices immediately preceding the put date. The put date shall be the date that the Investor receives a put notice of a draw down by us. The purchase price shall be set at ninety-three percent (94%) of the lowest closing bid price of the common stock during the pricing period. The pricing period shall be the five (5) consecutive trading days immediately after the put notice date. There are put restrictions applied on days between the put date and the closing date with respect to that particular Put. During this time, we shall not be entitled to deliver another put notice. Further, we shall reserve the right to withdraw that portion of the Put that is below seventy-five percent (75%) of the lowest closing bid prices for the 10-trading day period immediately preceding each put notice. The Company was obligated to pay $15,000 preparation fee for the documents. $10,000 of which was paid upon the execution of the agreement and $5,000 due upon the closing of the first put.

The Company is obligated to file a registration statement with the Securities and Exchange Commission (“SEC”) covering 15,000,000 shares of the common stock underlying the Investment Agreement within 30 days after the closing date. In addition, the Company is obligated to use all commercially reasonable efforts to have the registration statement declared effective by the SEC within 90 days after the closing date. The Company will have an ongoing obligation to register additional shares of our common stock as necessary underlying the draw downs.

NOTE 8 RELATED PARTY TRANSACTIONS

In June, 2006 a director of the Company loaned the Company $100,000. The loan bears a rate of interest of 8% per annum and is payable twelve months from the date of issuance. In addition the Company issued the director warrants to purchase 100,000 shares of common stock with an exercise price of $1.50 per share for one year from the date of the note. The loan is unsecured and due June 28, 2007. In December, 2006 the Director loaned the Company an additional $50,000. The loan bears a rate of interest of 8% per annum and is payable eighteen months from the date of issuance In February 2007 a director of the Company loaned the Company $50,000. The loan bears interest at a rate of eight percent per annum . The loan is unsecured and due July 9, 2007. As of June 30, 2007 the Company recorded and accrued interest expense of $12,228 related to these three notes.

During December 2001, the Company entered into an agreement with a consultant to serve as its interim President for a term of up to five years. The agreement called for annual compensation of $250,000. The agreement expires the earlier of December 2006 or on the effectiveness of an employment agreement and is renewable annually after December 2006. During 2006, the Company approved a one year renewal of the agreement. The Company has accrued $435,197 under the agreement to the consultant at June 30, 2007. For the Period November 6, 2001(Inception) to June 30, 2007 the Company recorded $1,395,833 of expenses associated with this agreement.

During 2004, the Company entered into an employment agreement with a consultant to assume the position of Chief Executive Officer and President for a term of five years at an annual minimum salary of $250,000 with additional bonuses and fringe benefits. The agreement is to become effective upon the approval by the Securities and Exchange Commission on the SB-2 Registration Statement. During March 2006, the Company and the President amended the start date to begin upon the Company raises all or substantially all the project funding pertaining to the first facility. As of the date of this report, the Company has not completed the funding. (See Note 9(A) and 11).

In May 2007 a Director of the Company loaned the Company $50,000. The loan bears a rate of interest of 8% per annum and is payable twenty-four months from the date of issuance. The holder of the note has the right to convert the note into common stock of the Company at the market value on the date of conversion but not at a price less then $.20 per share of common stock.  In addition the Company issued the director warrants to purchase 25,000 shares of common stock with an exercise price of $1.00 per share for two years from the date of the note. The loan is unsecured and due May 17, 2009.The fair market value of the warrants was estimated on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions: expected dividend yield 0%, volatility 103%, risk-free interest rate of 4.87%, and expected warrant life of two years. The value of the warrants on the date of issuance was $837. The Company will amortize the value over the term of the note. In June, 2007 the Mother of the Director loaned the Company an additional $40,000. The loan bears a rate of interest of 8% per annum and is payable twenty-four months from the date of issuance. The holder of the note has the right to convert the note into common stock of the Company at the market value on the date of conversion but not at a price less then $.20 per share of common stock. The loan is unsecured and due July 3, 2009. The fair market value of the warrants was estimated on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions: expected dividend yield 0%, volatility 103%, risk-free interest rate of 4.87%, and expected warrant life of two years. The value of the warrants on the date of issuance was $669. The Company will amortize the value over the term of the note. As of June 30, 2007 the Company recorded and accrued interest expense of $491 and amortization expense of $52 related to these two notes

F-10

 NOTE 9 COMMITMENTS AND CONTINGENCIES           

(A)  Consulting Agreements

During December 2001, the Company entered into an agreement with a consultant to serve as its interim President for a term of up to five years. The agreement called for annual compensation of $250,000. The agreement expires the earlier of December 2006 or on the effectiveness of an employment agreement and is renewable annually after December 2006. During 2006, the Company approved a one year renewal of the agreement. The Company has accrued $435,197 under the agreement to the consultant at June 30, 2007. For the Period November 6, 2001(Inception) to June 30, 2007 the Company recorded $1,395,833 of expenses associated with this agreement.

During April 2002, the Company entered into an agreement with a consultant to provide services for a period of one year. The agreement called for compensation of 100,000 units with a fair value of $50,000 based on recent cash offerings ($0.50 per share). The Company recorded $16,667 and $33,333 of consulting expense for the years ended December 31, 2003 and 2002, respectively.

During May 2002, the Company entered into an agreement with a consultant to provide services for a period of two months. The agreement called for compensation of 12,710 units, each unit consists of one share of common stock and one common stock warrant exercisable at $1.00 per share for a period of two years. The units had a fair value of $6,355 based on recent cash offerings. The Company recorded consulting expense of $6,355 for the year ended December 31, 2002 ($0.50 per share).

During June 2002, the Company entered into an agreement with a consultant to provide services for a period of one year. The agreement called for cash payments totaling $120,000. The Company recorded $55,000 and $65,000 of consulting expense for the years ended December 31, 2003 and 2002, respectively.

During July 2002, the Company entered into an agreement with a consultant to provide services for a period of one year. The agreement called for compensation of 100,000 units, each unit consists of one share of common stock and one common stock warrant exercisable at $1.00 per share for a period of two years. The units had a fair value of $50,000 based on recent cash offerings. The Company recorded $27,083 and $22,917 of consulting expense for the years ended December 31, 2003 and 2002, respectively ($0.50 per share). The agreement was fully expensed as of December 31, 2003.

During January 2004, the Company entered into a consulting agreement with a consultant to provide management and public relations services. The agreement calls for the consultant to provide services for a period of one year and the consultant to receive: 200,000 shares of common stock, monthly retainers of $4,000, warrants to purchase 100,000 shares of common stock at an exercise price of $5.00 for a period of three years, and an option to purchase 100,000 shares of common stock at an exercise price of $7.50 for a period of three years. The common stock has a fair value of $100,000 based on recent cash offerings and will be amortized over the life of the agreement ($0.50 per share) (See Note 7(A)).

In January 2005, the Company entered into a consulting agreement with a consultant to provide management and public relations services. The agreement calls for the consultant to provide services for a period of one year and the consultant to receive compensation of $2,000 per month. In addition the Company sold the consultant 300,000 shares of common stock for cash proceeds of $300 and recorded the fair value of the common stock of $149,700. The fair value of the common stock will be recognized over the term of the agreement. For the year ended December 31, 2005, the Company has recognized consulting expense of $143,463 under the agreement. During the year ended December 31, 2006, the Company has recognized consulting expense of $6,237 under the agreement.

F-11

 In March 2007, the Company entered into a consulting agreement with a consultant to provide management and public relations services. The agreement calls for the consultant to provide services for a period of one year and the consultant to receive compensation of $4,000 per month. In addition the Company sold the consultant 300,000 shares of common stock for cash proceeds of $300 and recorded the fair value of the common stock of $153,000. The fair value of the common stock will be recognized over the term of the agreement. The Company has also agreed the pay the public relation firm a 5% finder fee for any business or capital raise derived from its relationship with the public relations firm. The fair value of the common stock will be recognized over the term of the agreement. For the three and six months ended June 30, 2007 the Company recorded an expense of $38,175 and $48,848 under this agreement.

(B)  License Agreement

Upon effectiveness of the employment agreement with our Chief Executive Officer and President, the Company will be entitled to use certain technology and know-how that is owned by our Chief Executive Officer and President royalty free until the end of the employment agreement. Upon termination of the employment agreement with the Chief Executive Officer and President, the Company has the right to license the technology for a one time fee. The license fee will be negotiated by the Company and the Chief Executive Officer and will equal the replacement value of such technology and will be determined with reference to the engineer's opinion dated March 6, 2002, a copy of which is attached to the employment agreement (See Note 6(A)).

(C)  Employment Agreement

During 2004, the Company entered into an employment agreement with a consultant to assume the position of Chief Executive Officer and President for a term of five years at an annual minimum salary of $250,000 with additional bonuses and fringe benefits. The agreement is to become effective upon the approval by the Securities and Exchange Commission on the SB-2 Registration Statement. During March 2006, the Company and the President amended the start date to begin upon the Company raises all or substantially all the project funding pertaining to the first facility. As of the date of this report, the Company has not completed the funding. (See Note 9(A) and 11).

(D)  Rescission Offer

Common stock sold prior to July 1, 2005 pursuant to the Company's private placement offer may be in violation of the requirements of the Securities Act of 1933. In October 2005, the Company became aware that the private placement offers made prior to July 1, 2005 may have violated federal and state securities laws based on the inadequacy of the Company's disclosures made in its offering documents for the units concerning the lack of unauthorized shares. Under state securities laws the investor can sue us to recover the consideration paid for the security together with interest at the legal rate, less the amount of any income received from the security, or for damages if he or she no longer owns the security or if the consideration given for the security is not capable of being returned. Damages generally are equal to the difference between the purchase price plus interest at the legal rate and the value of the security at the time it was disposed of by the investor plus the amount of any income, if any, received from the security by the investor. Generally, certain state securities laws provide that no suit can be maintained by an investor to enforce any liability created under certain state securities statues if the seller makes a written offer to refund the consideration paid together with interest at the legal rate less the amount of any income, if any, received on the security or to pay damages and the investor refuses or fails to accept the offer within a specified period of time, generally not exceeding 30 days from the date the offer is received. In addition, the various states in which the purchasers reside could bring administrative actions against as a result of the rescission offer.

The remedies vary from state to state but could include enjoining us from further violations of the subject state law, imposing civil penalties, seeking administrative assessments and costs for the investigations or bringing suit for damages on behalf of the purchaser.

There is considerable legal uncertainty under both federal securities and related laws concerning the efficacy of rescission offers and general waivers with respect to barring claims that would be based on the failure to disclose information described above in a private placement. The SEC takes the position that acceptance or rejection of an offer of rescission may not bar stockholders from asserting claims for alleged violations of federal securities laws. Further, under California's Blue Sky law, which would apply to stockholders resident in that state, a claim or action based on fraud may not be waived or prohibited pursuant to a rescission offer. As a result, the rescission offer may not terminate any or all potential liability that we may have in connection with that private placement. In addition, there can be no assurance that we will be able to enforce the waiver we received in connection with the rescission offer to bar any claims based on allegations of fraud or other federal or state law violations that the rescission offerees may have, until the applicable statutes of limitations have run.

Based on potential violations that may have occurred under the Securities Act of 1933, the Company made a rescission offer to investors who acquired the Company's common stock prior to July 1, 2005. As such, the proceeds of $1,084,823 from the issuance of 1,986,646 shares of common stock through July 1, 2005 have been classified outside of equity in the balance sheet and classified as common stock subject to rescission.

F-12

NOTE 10    GOING CONCERN

As reflected in the accompanying financial statements, the Company is in the development stage with no operations, a stockholders' deficiency of $1,859,564 a working capital deficiency of $689,823 and used cash in operations from inception of $1,654,204. This raises substantial doubt about its ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company's ability to raise additional capital and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern.

NOTE 11   SUBSEQUENT EVENTS

In July 2007 an unrelated third-party the Company loaned the Company $100,001. The loan bears a rate of interest of 8% per annum and is payable twenty-four months from the date of issuance. The holder of the note has the right to convert the note into common stock of the Company at the market value on the date of conversion but not at a price less then $.20 per share of common stock.  In addition the Company issued the director warrants to purchase 100,001 shares of common stock with an exercise price of $1.00 per share for two years from the date of the note. The loan is unsecured and due July 5, 2009.

F-13

Item 2.                      Management’s Discussion and Analysis or Plan of Operation

The following discussion and analysis provides information which management believes is relevant to an assessment and understanding of our financial condition. The discussion should be read in conjunction with our financial statements and notes thereto appearing in this prospectus. The following discussion and analysis contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ significantly from the results, expectations and plans discussed in these forward- looking statements.

Overview

We are a developmental stage company that is in the process of implementing our business plan to develop a showcase waste to energy facility at a site to be determined. The first showcase installation will be the cornerstone for both United States and European expansion. It will thermally convert rubber waste to oil and subsequently use the oil as fuel for large reciprocating engines driving alternators making electricity. In addition to the sale of electricity, several additional valuable bi-products produced in the thermal conversion process will also be sold into either domestic or international markets.

Our business plan is focused on providing large urban centers with community based processing facilities to address the needs of rubber waste disposal where the waste is generated. This rubber waste is largely scrap tires. Similarly, large urban centers also have an increasing requirement for electrical energy for both domestic and industrial use. Our processing facilities can be located, constructed and operated to meet the specific needs of the community in an environmentally friendly manner.

We believe that the effective implementation of our business plan will result in our position as a provider of community based waste to energy installations dealing with rubber waste at source while providing reliable electrical energy to meet base load and/or on peak energy demands.

The successful implementation of the business plan will also be dependent on our ability to meet the challenges of developing a management team capable of not only the construction and operation of the first installation but also marketing management and the implementation of specific marketing strategies.

These strategies will include the utilization of specific existing distributors currently in the business of marketing carbon black. As well, we will be going to regional disposal operators and collectors to offer our services as a point of final disposition for their collection and disposal requirements.

Additionally, it will be necessary to educate targeted jurisdictions about the environmental and commercial benefits of an Alliance installation in their community.

During the fiscal quarter June 30, 2007, no revenues were generated and we do not anticipate revenues until such time as the first facility has been constructed and commercially operated. The construction of the first showcase facility will require $20 million. However, currently there are no commitments for capital and furthermore, the successful implementation of all aspects of the business plan is subject to our ability to complete the $20 million capitalization. It is expected the required funds will be raised as a result of private offerings of securities or debt, or other sources.

Should the required funding not be forthcoming from the aforementioned sources, public offerings of equity, or securities convertible into equity may be necessary. In any event, our investors should assume that any additional funding will cause substantial dilution to current stockholders. In addition, we may not be able to raise additional funds on favorable terms, if at all.

Our independent auditor has expressed substantial doubt about our ability to continue as a going concern. The notes to our financial statements include an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. Among the reasons cited in the notes as raising substantial doubt as to our ability to continue as a going concern are the following: we are a development stage company with no operations, a stockholders’ deficiency of $1,859,564 and cash used in operations from inception through June 30, 2007 of $1,654,204. As of June 30, 2007, we had a working capital deficiency of $689,823.

Our ability to continue as a going concern is dependent on our ability to further implement our business plan, raise additional capital and generate revenues. These conditions raise substantial doubt about our ability to continue as a going concern.

Plan of Operations

Management has developed forged relations with several corporate finance entities that have expressed an interest in participating in our overall expansion in the United States and Europe. In most cases, as a condition precedent to their participation, we must be publicly traded or quoted on a recognized stock exchange such as the OTC Bulletin Board. This occurred on January 26, 2007.

The efforts of our management team and our consultants and advisors will be to complete appropriate financing arrangements. The completion of the $20,000,000 financing will be our exclusive effort prior to the construction and development of the first installation.

Upon completion of the $20,000,000 capitalization, our next priority will be the construction of the first installation. For this construction, it will be necessary for management to initially focus on two specific activities. First, project management consultants will be engaged to assist us in all matters associated with identifying and preparing the site. This activity includes regulatory approvals as well as final design and layout based upon commercial equipment available for procurement and/or fabrication

In the event we are not able to raise $20,000,000 to complete construction of our first showcase facility, we will be forced to seek additional financing in order to maintain operations over the next 12 months.

In addition, we will continue to develop our industry contacts, develop our business plan, refine our technology, search for suitable sites, and devote efforts to secure the capital required to implement our business plan.

Second, our management and consulting engineers will commence activities to enlarge our management team by adding key employees as well as consultants that will be responsible for specific tasks & operations associated with the first installation.

During the permitting period, estimated by management and their consulting engineers, to be 90 to 120 days, our engineering and fabrication team will finalize design and layouts for the first site as well as prepare and circulate site building bid documents. Similarly, turnkey contracts will be negotiated for specific pieces of the thermal processing equipment utilized in the rubber to oil conversion process. The supply and operation of the electrical generation equipment will also be contracted out during this period of the development. We have already identified and pre-qualified several suppliers of the type of electrical generation equipment. However, as a result of the preliminary stage of these discussions, we are unable to provide greater detail as to the exact nature of the relationship or participation of these suppliers.

Also at this time, some preliminary site work will be completed to facilitate the installation of the design/build structures required. The site will also be prepared to accept the modularized electrical generation equipment that will be installed on the site subsequent to the installation and start-up of the thermal conversion process. The contracted operator of the electrical generation equipment will also be responsible for the sale of electricity. During initial discussions with these supplier/operators, an interest has been expressed in participating in our overall business. Some discussions pertaining to the exchange of our shares for all, or part, of the value of the turnkey have transpired. However, it is unlikely that meaningful discussions will commence until such time as our capitalization set forth above has been completed. Even if the capitalization has been completed, there can be no certainty that the contract operators will participate in the first installation other than on a fee for services basis. In any event, until such time as the $20 Million capitalization has been completed, specific details pertaining to the participation of supplier/operators will not be available and we are unable to provide the details of any possible forthcoming agreements.

Management and their consulting engineers believe that, the overall fabrication and installation timeframe is approximately 18 months from execution of contracts. As all the components utilized in our installation are currently in use in manufacturing operations in the United States and around the world, lead times for delivery and installation are generally short.

Several components are stock items and available for almost immediate delivery. However, the engineering firm responsible for the overall project management of the first installation will monitor all fabricator/suppliers to ensure that the various components and required ancillary equipment and structures have been readied onsite for installation. Additionally, engineering verification will be required for all progress draws prior to our making payments to the various supplier/fabricators. As is customary with the supply of this type of equipment, established payment holdbacks upon completion of installation and start-up will be released only upon engineering verification of performance. Additionally, it may be necessary for selected fabricator/suppliers to provide delivery and performance bonds specific to their components.

The entire project could be delayed as a direct result of several factors. Should we not be able to a lease or purchase a suitable property within a timely manner, the project could be delayed indefinitely until such time as an appropriate site is secured. Although we have located several suitable sites that could be appropriately permitted, unforeseen regulatory changes could make it difficult to obtain the required permits causing further delays thereby causing us to take additional time to identify other suitable sites. Should there be delays in the delivery of thermal processing or electrical generation equipment as a result of material shortages, labor problems, transportation difficulties etc., our commercial operation would be delayed thereby not allowing us to generate revenues as anticipated. Should the delay be lengthy, management could be required to seek additional financing or seek other remedies in law pertaining to delivery and performance failures of the fabricator suppliers. Regulatory changes causing delays in the construction, processing equipment installation and start-up of the showcase facility will lengthen the period of time for us to start to generate revenues from operations. We will only be in the position to commence a US expansion of processing facilities upon the successful completion, start-up and operation of the showcase facility.

The supplier/fabricators will also be responsible for the training of key employees and/or contractors and will work with the engineering project managers to include established operating protocols in the systems operations manual. In conjunction with this effort, during the start-up of the first installation, fabricator/suppliers and the project management will establish operating set points incorporating them into the system software thereby ensuring continued reliable system performance and measurable quality standards.

It is management’s and their consulting engineers opinion that overall, the entire installation through construction completion, training, start-up and commercial acceptance based upon engineering performance verification is approximately 18 months. The overall development schedule could be delayed as a result of unforeseen regulatory delays, labor disputes and seasonal delays due to weather conditions.

Pursuant to preliminary discussions with corporate finance professionals, items #16 through #18 set forth below are anticipated fees and expenses pertaining to the $20,000,000 financing that we will be seeking. The following schedule outlines the categories associated with the financing, completion, start-up and commercial operation of the first installation. It is expected that many of the following development categories outlined in the following schedule will be completed concurrently.

1) Consulting Fees & Out-of -Pocket Reimbursement	$	480,000
2) Site Lease Matters & Development Fees	$	260,000
3) Site Engineering, Regulatory & Compliance	$	211,500
4) Site Work	$	1,125,600
5) Buildings	$	798,500
6) Rubber to Oil Thermal Conversion Process Equipment	$	7,736,500
7) Warehouse & Conveyance Equipment Leases/Purchases	$	74,083
8) Government Relations	$	41,000
9) Administrative Construction Expenses	$	153,000
10)Legal, Accounting, Travel & Misc. Fees & Expenses	$	322,000
11)Media, Promotion & Government Relations	$	313,000
13)Salaries, Wages & Fees	$	846,434
14)Consulting Engineers	$	33,000
15)Turn-key Energy System & Installation	$	5,000,000
16)Financing Fees	$	2,000,000
17)Financing Legal & Accounting	$	300,000
18)Administrative Contingency	$	305,383
Total	$	20,000,000

During the construction and installation of the first facility, our future Vice President of Marketing with assistance from our future Vice President of Technology will commence a specific and targeted marketing campaign directed at the current rubber waste disposal infrastructure, regulatory agencies, retail associations and the public. Promotional activities will include media, public awareness, trade journals, seminars and meetings and discussions with waste hauler and disposal companies. These activities will also include meetings and discussions with state regulatory and enforcement officials.

Based upon discussions with state regulators, it is our belief that all communities in the United States and Canada are being encouraged by state, provincial and federal authorities to be more environmentally responsible. An example of amplified environmental concern occurring in 2004 was the State of Michigan’s position pertaining to the continued dumping of waste from out-of-state communities that included Toronto, Ontario, Canada. State regulations were implemented in an attempt to curtail the amount and sources of waste being disposed at Michigan dump sites. It is our belief, that since the early 1990s the federal EPA has been concerned with the interstate transportation of waste. The federal position seems to be that communities that generate should be responsible for the ultimate disposition of the waste within their municipality. An attempt to limit interstate transportation of waste was contained in the Interstate Modal Transportation Act which was never approved as originally proposed.

Community based environmental initiatives are being encouraged. Dealing with waste at the source is considered much more environmentally friendly than trucking the waste hundreds of miles away. The first installation is perceived as a convenient and environmentally friendly solution to rubber waste. The targeted marketing campaign will exploit the current thinking pertaining to community based waste reduction and processing and waste to energy initiatives.

However, there may be difficulties associated with encouraging the existing disposal and transportation infrastructure to utilize the Alliance installation as an alternative to their current method of disposal. Historic relationships between the existing infrastructure serving retailers and dumps or processors often hundreds of miles away and the financial commitment to the trucking the waste may be difficult to overcome. However, management’s discussion with several haulers has been encouraging as a cost effective alternative to the existing transportation of waste to often out-of-state locations is a welcomed alternative.

A targeted marketing campaign pertaining to the sale of carbon black and scrap steel will also commence prior to completion of construction. However, we may not be positioned to enter into carbon black supply contracts until such time as samples are made available from the operation of the showcase facility. It is likely that these samples would be made available as a result of operation the processing equipment during the performance testing phase of the installation and immediately prior to commercial certification. The commercial certification will occur after the equipment has operated for a period of approximately 90 days and all contract performance specifications have been achieved. There may be delays associated with the correction of deficiencies in order that the processing equipment meet certain performance standards prior to commercial certification. However, the Company has included the 90 day start-up phase within the overall timeline to allow for the correction of deficiencies by fabricator suppliers. Although the vast majority of the rubber to oil system is based upon off-the-shelf components, if further delays occur as a result of fabricator suppliers correction of deficiencies, we could be delayed in our ability to generate revenue.

Although, we have identified several experts currently responsible for the sale of carbon products currently with other companies and they have expressed an interest in the position of VP Marketing, there is no guarantee that their previous experience will allow them to successfully initiate a campaign that will lead to the sale of our carbon black. However, the successful operation of the thermal system will generate commercial grades of carbon black that could be utilized by rubber formulation companies for specific products. Additionally, our carbon black could be blended with other sources of carbon black thereby allowing rubber formulators to meet customers requirements for recycled content. We believe our carbon black will be advantageous to other forms of recycled content as it will be is a virgin product made from oil that is a waste rubber derivative.

Furthermore, the heat recovery system utilized through the entire system will be ready to deliver hot water and/or steam to a greenhouse operator. Although we have yet to complete an agreement with a hydroponics greenhouse operator, preliminary discussions with several current operators would indicate that the availability of a reliable discounted heat source for the production of hot water, could be a cost effective alternative to their current consumption of non-renewable resources to fuel boilers to generate the required hot water.

The ARC installation is designed to operate continuously. As a result, the installation has the ability to produce heat constantly to service the hot water requirements of a hydroponics operator or other commercial uses. The heat produced can be considered a bi-product from the operation of the thermal conversion and electrical generation equipment. Rather than utilizing the heat source for any particular use, we could use a commercial cooling tower to cool the thermal processing equipment and could decide not to operate the heat recovery system components associated with the reciprocating engines responsible for the generation of electricity. However, management believes that utilizing the bi-product heat capacity in an environmentally friendly way is a common sense alternative to exhausting heat into the atmosphere. It is the belief of management, our consulting engineers and the several of the hydroponics operators that have discussed our ability to generate heat, that a15 to 20 acre hydroponics greenhouse could be heated from the heat recovered from the thermal process heat recovery boiler in combination with the heat available from standard heat recovery mechanisms that are part of the reciprocating engines driving the alternators making electricity.

The type of relationship discussed is based upon the notion that the hydroponics greenhouse operator would lease a site immediately adjacent to the showcase facility. Based upon our final equipment selection, pertaining to both the thermal conversion of rubber to oil and the generation of electricity, we will be positioned to provide details as to the amount of steam and/or hot water that be generated for conveyance to the greenhouse via an insulated pipeline. A heat exchanger will transfer the heat from the ARC steam and/or hot water to the hot water in the hydroponics operator’s underground reservoir.

The ARC cooled condensate and/or water will be returned to the ARC via the aforementioned pipeline heated again and once again returned to the greenhouse in a closed loop system.

Several methods of compensation for ARC heat sources have been discussed. These include a percentage of the hydroponics greenhouse gross or not sales and discounted avoided cost which is the operators cost of natural gas or fuel oil less a negotiated discount. We will not be positioned to enter into specific negotiations until such time as the $20,000,000 financing has been completed.

Going Concern Consideration

As reflected in the accompanying financial statements, we are in the development stage with no operations, a stockholders’ deficiency of $1,859,564, a working capital deficiency of $686,195and used cash in operations from inception of $1,654,204. This raises substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent on our ability to raise additional capital and implement our business plan. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

We believe that actions presently being taken to obtain additional funding and implement our strategic plans provide the opportunity for us to continue as a going concern.

Liquidity and Capital Resources

Our balance sheet as of June 30, 2007 reflects assets of $29,645 consisting of cash of $26,017 and property and equipment of $3,628 and total current liabilities of $715,840 consisting of accounts payable and accrued expenses of $56,058, an amount of $435,197 due to a related party, a note payable of $24,585 with a net discount of $415, and a note payable due to a related party of $200,000.

Cash and cash equivalents from inception to date have been sufficient to cover expenses involved in starting our business. We will require additional funds to continue to implement and expand our business plan during the next twelve months.

Critical Accounting Policies

Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use if estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

Our significant accounting policies are summarized in Note 1 of our financial statements. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our consolidated results of operations, financial position or liquidity for the periods presented in this report.

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Recent Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. The objective of SFAS 157 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements. The provisions of SFAS No. 157 are effective for fair value measurements made in fiscal years beginning after November 15, 2007. The adoption of this statement is not expected to have a material effect on the Company's future reported financial position or results of operations.

In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115”. This statement permits entities to choose to measure many financial instruments and certain other items at fair value. Most of the provisions of SFAS No. 159 apply only to entities that elect the fair value option. However, the amendment to SFAS No. 115 “Accounting for Certain Investments in Debt and Equity Securities” applies to all entities with available-for-sale and trading securities. SFAS No. 159 is effective as of the beginning of an entity’s first fiscal year that begins after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provision of SFAS No. 157, “Fair Value Measurements”. The adoption of this statement is not expected to have a material effect on the Company's financial statements.

Item 3.                Controls and Procedures

Evaluation of disclosure controls and procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act), as of June 30, 2007. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that our disclosure and controls are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in internal controls

There were no changes (including corrective actions with regard to significant deficiencies or material weaknesses) in our internal controls over financial reporting that occurred during the second quarter of fiscal 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.                 Legal Proceedings.

We are currently not a party to any pending legal proceedings and no such actions by, or to the best of its knowledge, against us have been threatened.

Item 2.                 Unregistered Sales of Equity Securities and Use of Proceeds.

On July 5, 2007, we issued warrants to purchase 100,001 shares of our common stock exercisable within two years of issuance at an exercise price of $1.00 per share to Jonathan Brubacher.   Our securities were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933. No commissions were paid for the issuance of such securities. All of the above issuances of our securities qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance of such securities by us did not involve a public offering. The above listed parties were sophisticated investors and had access to information normally provided in a prospectus regarding us. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of securities offered. We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, the above listed parties had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such shares are restricted pursuant to Rule 144 of the 1933 Securities Act. These restrictions ensure that these shares and the shares underlying the warrants would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act of 1933 for the above transaction.

On June 29, 2007, we issued warrants to purchase 20,000 shares of our common stock exercisable within two years of issuance at an exercise price of $1.00 per share to our director, Walter Martin’s wife, Florence Martin.  Our securities were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933. No commissions were paid for the issuance of such securities. All of the above issuances of our securities qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance of such securities by us did not involve a public offering. The above listed parties were sophisticated investors and had access to information normally provided in a prospectus regarding us. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of securities offered. We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, the above listed parties had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such shares are restricted pursuant to Rule 144 of the 1933 Securities Act. These restrictions ensure that these shares and the shares underlying the warrants would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act of 1933 for the above transaction.

On May 17, 2007, we issued warrants to purchase 25,000 shares of our common stock exercisable within two years of issuance at an exercise price of $1.00 per share to our director, Walter Martin.  Our securities were issued in reliance on the exemption from registration provided by Section 4(2) of the Securities Act of 1933. No commissions were paid for the issuance of such securities. All of the above issuances of our securities qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance of such securities by us did not involve a public offering. The above listed parties were sophisticated investors and had access to information normally provided in a prospectus regarding us. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of securities offered. We did not undertake an offering in which we sold a high number of securities to a high number of investors. In addition, the above listed parties had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such shares are restricted pursuant to Rule 144 of the 1933 Securities Act. These restrictions ensure that these shares and the shares underlying the warrants would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act of 1933 for the above transaction.

On May 10, 2007 we issued 300,000 shares of our common stock to Mirador Consulting, Inc. pursuant to a consulting agreement entered into March 5, 2007. These shares were issued in reliance on the exemption under Section 4(2) of the Securities Act of 1933, as amended (the “Act”). These shares of our common stock qualified for exemption under Section 4(2) of the Securities Act of 1933 since the issuance shares by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of shares offered. We did not undertake an offering in which we sold a high number of shares to a high number of investors. In addition, this shareholder had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such shares are restricted pursuant to Rule 144 of the 1933 Securities Act. This restriction ensures that these shares would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act of 1933 for this transaction.

Item 3.                 Defaults Upon Senior Securities.

None

Item 4.                 Submission of Matters to a Vote of Security Holders.

No matter was submitted during the quarter ending June 30, 2007, covered by this report to a vote of our shareholders, through the solicitation of proxies or otherwise.

Item 5.                 Other Information.

None

Item 6.                 Exhibits and Reports of Form 8-K.

	(a)	Reports on Form 8-K and Form 8K-A
		On May 29, 2007, the Company disclosed that it had entered into an Investment Agreement with Dutchess Private Equities Fund, Ltd.  Incorporated by reference to Form 8-K filed on May 29, 2007 (File No. 000-51917).
	(b)	Exhibits
Exhibit Number			Exhibit Title
31.1			Certification of Peter Vaisler pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1			Certification of Peter Vaisler pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

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

ALLIANCE RECOVERY CORPORATION

By: /s/Peter Vaisler

Peter Vaisler,

Chairman of the Board of Directors,

President, Chief Executive Officer,

Principal Financial Officer and

Principal Accounting Officer

August 7, 2007

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