**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-KSB**





(Mark
      One)





x
            ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934





**For
      the fiscal year ended December 31, 2006**





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





For
      the
      transition period from ___________ to ___________





**Commission
      File number 333-121659**





**ALLIANCE
      RECOVERY CORPORATION**


(Name
      of
      small business issuer in its charter)





**DELAWARE**
            **30-0077338**(State
                or other jurisdiction of
              incorporation
                or organization)
            (IRS
                Employer Identification No.)**#390-1285
                N. Telegraph Road, Monroe, Michigan**
            **48162-3368**(Address
                of principal executive offices)
            (Zip
                Code)





**(519)
      671-0417**


(Registrant’s
      telephone number, including area code)





Securities
                registered under Section 12(b) of the Exchange Act:Title
                of each class registered:
            Name
                of each exchange on which registered:**None**
            **None**Securities
                registered under Section 12(g) of the Exchange Act:**Common
                Stock, par value $.01**
              (Title
                of class)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days.


Yes x  No o





Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B not contained in this form, and no disclosure will be contained,
      to the best of the registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB or any
      amendment to this Form 10-KSB. o





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














Revenues
      for year ended December 31, 2006: $0





Aggregate
      market value of the voting common stock held by non-affiliates of the registrant
      as of December 31, 2006, was: $0





Number
      of
      shares of the registrant’s common stock outstanding of
      March
      2, 2007 was: 19,233,825





Transitional
      Small Business Disclosure Format:  Yes o  No x








**PART
      I**





**Item
      1.**   **Description
      of Business**





On
      November 6, 2001, we were incorporated in the State of Delaware under the name
      American Resource Recovery Group Ltd. On April 18, 2002, we filed a certificate
      of amendment changing our name to Alliance Recovery Corporation. On April 22,
      2002, we filed another certificate of amendment to increase our authorized
      shares to 10,000,000, par value $.01. Finally, on July 7, 2004, we filed a
      certificate of amendment increasing our authorized shares to
      100,000,000.


We
            intend
            to implement suitable resource recovery technologies and strategies (the
“ARC
            Process”) to convert industrial and other waste materials into electrical energy
            for sale to specific industrial entities or into local power grids, and
            to
            produce for re-sale by products including carbon black, steel, and steam
            and/or
            hot water. We will be able to undertake this after we raise $20,000,000
            and
            construct our first facility. We are currently seeking financing and
            therefore
            upon the raising of $20,000,000 we will take 18 months to construct the
            facility.


We
        believe that management and our third party consulting engineers have identified
        a one-step manufacturing process based upon the utilization of existing
        manufacturing processes to efficiently convert rubber wastes of all kinds
        including scrap tires into fuel oil, for electrical power generation, with
        minimal if any negative impact to the environment. We believe this system
        may be
        patentably distinct. However, the system components are available commonly
        from
        fabricators and suppliers. The results of our development efforts are now
        commercially available.




Investigations
      of several existing thermal manufacturing and processing technologies have
      contributed to the use of existing manufacturing and chemical processes as
      the
      basis of the ARC Unit for the production of oils and gases and other commercial
      products including carbon black.




United
      States Environment Protection Agency studies conducted during 1999-2000 have
      confirmed that the fuel oil derived from rubber waste was as good a feedstock
      for commercial carbon black production as Exxon oil (Chemical Economic
      Handbook).




The
        first
        ARC facility, when funded, will be operated as our subsidiary and will take
        approximately 18 months to construct. Upon construction and installation
        of
        processing equipment, the facility will annually utilize up to 100,000,000
        pounds of waste rubber as the feedstock to produce oils and gases for the
        production processes and to generate electricity. In terms of passenger tires,
        this represents the annual reduction of approximately 4.6 million scrap
        tires.


In
      2001,
      292 million scrap tires were generated in the United States (the source of
      this
      Information is Chaz Miller of Environmental Industry Associations as reported
      by
      Wasteage.com on June 1, 2003). Of the 292 million scrap tires, cars contribute
      two-thirds of scrap tires, the remainder comes from trucks, heavy equipment,
      aircraft, off-road and scrapped vehicles.




The
        aforementioned number of scrap tires generated is equivalent to approximately
        1
        scrap tire for every person living in the U.S. today. In Michigan, Ohio,
        New
        York, Pennsylvania, and the province of Ontario, the population is well over
        50
        million, and all these major states are connected to Lake Erie. We have
        identified suitable sites with port locations in the Great Lakes region to
        allow
        for the utilization of tug and barge transportation which continues to be
        the
        most inexpensive form of transportation for large volumes of
        freight.


1


We
        anticipate that the first facility will produce fuel oil to be used for the
        production of electrical energy. The oil generated from the thermal
        decomposition of rubber analyzed by various testing facilities is equivalent
        to
        a fuel oil comprised of 69% kerosene and 26% diesel fuel. Continued commercial
        use of both diesel and kerosene is indicative of the overall fuel
        quality.
  Similarly,
        a commercial grade 700 series carbon black is generated as by-product of
        the
        rubber to oil conversion process. This process also captures the steel from
        the
        rubber for sale as scrap. We believe that there are international and domestic
        markets for these products. According to industry sources, global consumption
        of
        carbon black is approximately 17 billion pounds annually. Carbon black is
        an
        industrial product generated through an energy-intensive process and utilized
        among and in the manufacture of rubber, plastics, inks, paints, dyes, lacquers,
        fibers, ceramics, enamels, paper, coatings, leather finishes, dry-cell
        batteries, electrodes and carbon brushes, and electrical
        conductors.
  Conventional
        carbon black manufacturers need both: a manufacturing feedstock oil for
        conversion to carbon black, and natural gas or methane to fuel the production
        process. The ARC process also saves global resources by recovering the
        hydrocarbon available from the polymeric constituents of the waste rubber,
        converting them to feedstock oil and gases. By maintaining carbon black
        manufacturing temperatures and process conditions in the ARC Unit furnace,
        as
        the rubber waste is converted to fuel oil, a 700 series carbon black is
        generated as a by-product of the thermal process and is subsequently conveyed,
        stored and/or packaged with conventional carbon black manufacturing equipment.
        The utilization of existing process technology and chemical reactions with
        established manufacturing protocols ensures that ARC management and their
        contract operators can leverage specific operations history into positive
        performance results.


An
      ARC
      installation also provides large urban regions with a point of final disposition
      for scrap tire and rubber waste without any pollution to the environment and/or
      public health risks. Disposal operators will be encouraged to deliver their
      rubber waste in the baled ecoblocks which is a much more cost effective method
      of transportation as a direct result of the volume reduction occurring in the
      baling process. The baling process ARC will utilize to produce ecoblocks for
      safe storage and handling, ensures that water cannot collect and create
      conditions suitable for mosquito incubation, a matter that continues to be
      a
      public health concern throughout the United States. Additionally, ecoblock
      storage from a fire perspective is considered a much safer alternative than
      simple dumping of rubber waste as there is negligible fire hazard associated
      with ecoblock storage. Fire Department testings suggest that the bales are
      difficult to ignite and once ignited, are easily extinguished.




The
      ARC
      Process is not classified as a federally regulated source of emissions, because
      the environmental emissions are below maximum EPA standards, thus, only state
      administrative approval is required for our plant installations. It is intended
      that ARC installations will be located near large urban communities which
      generate vast amounts of rubber waste. This will allow us to establish a network
      of facilities in communities where rubber waste is generated.




Generally,
      communities view tires as a public health issue as the tire collects water
      in
      the hollow donut shape and becomes an ideal breeding ground for mosquitoes.
      The
      most common practice is hauling the rubber waste hundreds of miles for shredding
      to turn it into tire derived fuel (TDF), and subsequently transporting the
      TDF
      to combustion markets. As a result of positioning the ARC facility in the
      communities where the waste is generated, the environmental impact associated
      with trucking the waste rubber, as well as highway wear and tear are minimized.
      The transportation of the waste also consumes diesel fuel, a non-renewable
      resource. A community based ARC facility is a cost effective and environmentally
      friendly alternative to current disposal options. Furthermore, EPA and State
      initiatives to encourage States to take responsibility for the waste they
      generate has once again commanded public attention as a result of, for example,
      Toronto (Canada) garbage being trucked to Michigan.




Large
      urban centers usually require enormous amounts of electrical energy, and via
      our
      ARC Centers, we will be able to provide another source for electrical energy.
      Community-based ARC installations will be positioned to address the growing
      need
      for reliable energy sources with the added benefit of providing a final point
      of
      disposition for rubber waste.




The
      total
      improvement and equipment cost for installation and start-up for first
      installation is estimated to be $18,000,000, with the overall capital budget
      of
      $20,000,000.






2






**ONE
      STEP MANUFACTURING PROCESS**




Our
      thermal system has the ability to thermally reduce the rubber waste, utilize
      the
      light aromatic volatile gases produced during the reduction/conversion process
      as fuel for the conversion furnace and separates out the oil which is ultimately
      used as fuel for the reciprocating engines generating electricity. As the
      furnace (process reactor vessel) process is based upon the chemistry and
      operational parameters utilized in the carbon black industry, a portion of
      the
      oil is burned in the process fuel gases. Similar to the operation of carbon
      black processing furnaces (process reactor vessels) the automated system
      controls maintain optimum thermal conditions (process time, temperature and
      turbulence) for combustion of the oil. The combustion generates more heat to
      support the overall process and leaves behind a small particle of a black soot
      like substance called carbon black which is carried away in the exhaust flow
      where it is ultimately separated from the exhaust in a bag house (filter),
      collected, pneumatically conveyed, palletized and sent to a storage silo. The
      rubber, which is not pretreated or shredded (whole tires can be utilized) is
      fed
      continuously into the furnace (process reactor vessel) and the thermal reaction
      is maintained by the automated control system. During the reduction (conversion)
      of the rubber to oil process, the steel contained in particularly waste tires,
      is collected and conveyed hydraulically through the process to and exists the
      process, where it is cooled, baled and stored.




All
      of
      the aforementioned thermal reduction and occurs almost contemporaneously within
      the process furnace (process reactor vessel) and ancillary equipment associated
      with its operation. The Alliance thermal system is not based upon conventional
      pyrolysis.




Almost
      all current thermal operations are based upon the utilization of a pyrolytic
      reaction. In simple terms the pyrolytic oven bakes rubber down into a
      homogeneous mass which requires secondary processes to separate out the various
      materials left behind in the reduction process. Additionally, the reduction
      is
      at an extremely low temperature that does not generate carbon black. There
      is
      tremendous amount of ash generated in the process that combines with the carbon
      char. In order to separate the char from the ash additional processes are
      required. Furthermore, additional high temperature processes are necessary
      to
      upgrade the char to a marketable form of carbon black as there are extremely
      limited markets for char. These additional process require additional fuel
      making the entire process marginal from a financial perspective. Additionally,
      the rubber waste in the majority of operation requires shredding and often
      the
      removal of the steel in the rubber prior to shredding. All of above process
      are
      required by most pyrolytic systems that management and their consulting
      engineers are aware of at this time. There may be new types of systems developed
      that are based upon the pyrolytic model, however it is management’s opinion that
      the costs associated with numerous steps involved will make it difficult, if
      not
      impossible for these type of systems to operate commercially. The costs
      associated in the separation of the various products collected from the
      homogeneous mass from the process reaction, in addition to the secondary
      processing requirement of the char to allow it to be sold commercially, have
      made pyrolysis based thermal processes marginal commercial successes. To further
      exacerbate the overall high processing costs are the additional costs associated
      with the pre-treatment of the rubber being conveyed into the pyrolysis oven.
      Generally, the pre-treatment requires the shedding of the rubber waste and
      frequently in the case of waste tires requires the removal of the tire bead
      wire
      either by mechanical processes or a magnetic system.




Alternatively,
      the Alliance thermal system requires no pre-treatment of the rubber waste.
      Whole
      tires can be conveyed into the system thereby eliminating all costs associated
      with the handling shredding, and shred storage of the rubber waste prior to
      thermal processing. Furthermore, the chemical manufacturing process utilized
      in
      the Alliance process, separates the various residual products as they are formed
      and released into the system eliminating the need for additional process
      separation systems. It is management’s opinion that the simplicity of the
      Alliance thermal system makes it a cost effective alternative to conventional
      pyrolysis operations.




**PRODUCT
      DISTRIBUTION**




Our
        future Vice President of Marketing working in conjunction with our future
        Vice
        President of Technology will also develop and implement campaigns related
        to the
        sale of our various byproducts. 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, the Company could be delayed in its ability to
        generate revenue.
 
 3


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 Vice President 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 customer’s requirements for recycled
        content. Alliance carbon black is advantageous to other forms of recycle
        content
        as it is a virgin product made from oil that is a waste rubber
        derivative.
  The
        sale
        of steam and/or hot water will occur as a result of a marketing effort to
        identify and enter into discussions with an existing hydroponics greenhouse
        operator that desires to enter into a relationship with us to move into specific
        jurisdiction where ARC facilities will be located immediately in, or adjacent
        to
        large metropolitan centers. Management discussions with several greenhouse
        operators suggests that in addition to the availability of discounted heat
        from
        us, hydroponics greenhouse operators like to distribute product from operations
        that are positioned adjacent to large markets. 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.


**PROCESS
      OF TIRE DERIVED FUEL**




At
        the
        present time, shredding tires removes the hollow donut shaped tire from the
        environment which in many jurisdiction is considered public health risk.
        Waste
        tires, when left in dumps or collected out of doors collect water. The sun
        heats
        the tire and water up in the daytime hours and the density of the rubber
        holds
        some of the heat at night. As a result the water in the waste tires becomes
        an
        ideal breeding ground for mosquitoes. There remains an extreme public health
        concern pertaining to diseases carried by mosquitoes. When waste tires are
        stored near urban areas they become a public health concern thereby making
        it
        necessary for waste operators to shred the tire so water cannot be collected.
        As
        a result, a significant investment has been made by these operators in shredders
        to support their operations. The cost of maintaining and operating the shredder
        appears to be significant. Management believes that the cost of shredding
        each
        tire can in some jurisdiction be equivalent to the disposal fee making it
        necessary for operators to rely on the sale of tire derived fuel to sustain
        their economic viability. However, our consulting engineers have advised
        us that
        in almost all jurisdictions in the United States the blending of TDF with
        coal
        or other fuels is limited to 10-15 % of total fuel consumed. Our consulting
        engineers have also advised Management that to dispose of shredded rubber,
        shreds are now being mixed with soil used to top dress municipal waste sites.
        Obviously, once mixed with soil at a landfill site, the oil resource in the
        rubber waste is no longer recoverable.


The
      fuel
      in TDF is simply as a result of the combustion (burning) of the rubber.
      Catastrophic tire fires that have occurred in the US and around the world have
      clearly demonstrated that rubber can burn and generate vast amounts of heat
      as a
      result. As the rubber is consumed in the fire, it releases both oil and gases
      that are highly volatile making the rubber a good fuel. However, as also
      witnessed in tire uncontrolled fires, a tremendous amount of black soot, gases
      and ash are released into the atmosphere. It is the material that is ultimately
      released into the atmosphere that limits the amount of rubber that can be
      blended with other fuels. Exhaust scrubbing systems intended for a specific
      fuel
      are easily overloaded with the emissions from the burning of TDF.






4






It
      will
      be necessary for management to carefully examine the disposal methods being
      utilized in a jurisdiction, including TDF production, prior to committing to
      a
      particular site. The cost associated with breaking into a market that has
      invested in shredding could be significant.




**RESEARCH
      AND DEVELOPMENT**




The
            entire research and development effort has been supported by Mr. Vaisler
& his family prior to our incorporation. It commenced over 9 years ago.
            The
            Company has not estimated the total. The number of hours of R&D activity
            pertaining to the development of our business and technology. Furthermore,
            we
            have also relied on the R&D of other groups to augment our overall R&D
            efforts with off-the-shelf technology and processes that are currently
            commercially available.


**FINANCING**


We
        will
        need to complete a $20,000,000 financing (private placement of debt/equity)
        in
        order to construct the first facility.


**EXPANSION**




Our
      focus
      is to turn environmentally friendly waste to energy, and also sell them as
      carbon black and similar product byproducts. As a result of the readily
      available fuel source in specific areas, expansion will be targeted toward
      high-density population areas in the U.S. where scrap rubber generation and
      a
      disposal infrastructure already exists. ARC Facilities will provide the needed
      point of disposition for scrap rubber disposal within a community’s industrial
      areas. Within these communities there currently exists a disposal infrastructure
      including retailers, waste haulers and disposal companies, tire jockeys and
      recyclers, truck and industrial re-treaders, and independent truckers and
      trucking companies, which could benefit from the availability of a nearby point
      of final disposition for rubber waste. Points of final disposition are not
      usually found in or immediately adjacent to large urban centers.




Our
      expansion into these high-density population areas in the U.S. will position
      us
      as a convenient and cost effective alternative to the customary practice of
      hauling the waste rubber long distances to permitted disposal sites. Extensive
      public education campaigns will be targeted at these urban centers to raise
      the
      level of awareness pertaining to responsible disposal of rubber waste by having
      communities become a part of the “environmental alliance”. Awareness campaigns
      involving the public, retailers, state legislators and regulators will be
      utilized to market ARC installations as a final point of disposition for rubber
      waste within communities (target locations) where the waste is
      generated.




Based
      upon the first facility, each ARC Unit’s disposal capacity will be capable of
      processing 100,000,000 pounds of waste rubber annually. This is equivalent
      to
      approximately 5,000,000 passenger tires. Normally, within the industrial makeup
      of these communities, there are numerous industries requiring the carbon black,
      steel and steam and/or hot water available from our processing system.
      Discussions with a greenhouse operator have commenced to locate hydroponics
      operations immediately adjacent to ARC installations. ARC will provide the
      hydroponics operations with heat recovered from the overall ARC process thereby
      minimizing any contribution to global warming. In the simplest of terms, the
      hydroponics green house acts like a radiator for the reciprocating engines
      making electricity, as well as acting as the radiator for the rubber to oil
      conversion process. ARC installations will provide required disposal
      infrastructure to select urban areas where large volumes of scrap rubber are
      generated and there are few, if any, points of final disposition for this waste.
      The obvious benefit to these urban centers is the minimization of transportation
      pertaining to disposal and the additional positive environmental impact
      associated with community based disposal and the production of electrical energy
      to meet soaring demands without the consumption of non-renew
      resources.


The
          Rubber Manufacturers Association suggests that in their report, US Scrap
          Tire
          Markets, 2003 edition, that as many as 290 Million tires are disposed of
          every
          year in the US. That is approximately one tire for every man, woman and
          child in
          the US today. We plan on locating on a site with access to the Great Lakes,
          so
          that in the event sufficient tires were not immediately available from
          the
          immediate jurisdiction surrounding the installation, marketing efforts
          could
          extend to other states connected to the Great Lake system. The densely
          populated
          areas on the southern shores of these lakes, referred to as the “rust belt” and
          Ontario to the north could all support an ARC installation on their own.
          The
          populations of the entire area are as follows:




5




Michigan
            10,050,446Ohio
            11,421,267New
                York
            19,157,532Pennsylvania
            12,335,091Ontario
            12,439,800




**PRODUCT,
        MARKETS & SERVICES**




The
      North
      American carbon black consumption is approximately six (6) billion pounds
      annually, and the global consumption of carbon black is approximately 17.2
      billion pounds annually. Our energy and carbon black process innovation provides
      a technically and economically viable industrial solution to waste rubber
      disposal which is a major global environmental issue in the U.S. and
      internationally.




We
      will
      generate electrical energy for regional use and supply 700 series carbon black
      to the rubber formulation and product industry. Carbon black can also be blended
      with the product of larger manufacturers of carbon black to facilitate EPA
      and
      state environmental “efforts” to include scrap rubber derivatives in new rubber
      formulations. According to the technical representatives of ITRN, a manufacturer
      of rubber formulations, customers are now demanding as much as 25% recycled
      content in rubber compounds. The use of carbon black manufactured from a
      feedstock oil derivative from waste rubber, does not impact upon the overall
      quality of the rubber ultimately produced. According to ITRN technical
      representatives, there are significant quality issues related to the use of
      recycled crumb rubber in rubber formulations they produce. At present,
      approximately 95% of the US carbon black market is controlled by five (5)
      manufacturers.




The
      ARC
      Process will have the capacity to manufacture up to 14,000,000 lbs. of carbon
      black annually from the rubber-to fuel oil conversion processes. This represents
      only a fraction of carbon black consumed in the growing U.S. market. In addition
      to the production of carbon black, the thermal reduction of rubber in the
      process system will also generate quality additional residual by-products.
      As
      well as the production of gases which are used as fuel in the process,
      approximately 90,000 barrels of No. 4 grade fuel oil for energy production
      and
      2,300 tons of scrap steel are generated annually, which all contribute to our
      projected profitability. Carbon black and steel are products that can be sold
      into existing domestic and international markets.





The
      addition of oil burning reciprocating engines to make electricity is a natural
      addition to the ARC process and will provide an additional $3,000,000 in net
      revenues for us. By consuming the oil generated in the process, the facility
      is
      capable of generating electrical energy with a baseload of 8 MW. Thus, by
      recovering the oil and gases from thermally decomposed waste rubber and
      producing 14,000,000 pounds of carbon black annually, this technology will
      be
      saving the oil and gas non-renewable resources needed to produce an equivalent
      amount of carbon black from a conventional manufacturing process while also
      using the surplus fuel oil to make electricity. We are also prepared to operate
      the electrical generation capacity as a peaker, supplying electricity during
      peak usage periods at prices that can be three to four times the basic rates.
      The entire electrical generation business component will be managed by an
      electrical utility company ultimately contracted to operate our generation
      capacity.




To
      determine the revenue potential from the sale of electricity, we have considered
      current electrical rates offered by Detroit Edison. Detroit Edison rates for
      residential and commercial consumption range from $ .08286/kwh to $ .09696/kwh.
      In discussions with various operations and management companies, we were advised
      that the wholesale rate of baseload in Michigan is $0.0656/kwh. Total revenue
      is
      calculated as follows:




-
            8000kwh
                x 24 hours = 192000kwh/Day-
            192,000kwh/Day
                x 325 Days/year = 62,400,000kwh/Year-
            62,400,000kwh/Year
                x $0.0656/kwh = $4,093,440/Year




Although
      there are no final agreements in place, during discussions with contract
      operators and management companies, we were advised that payment for their
      services to operate the entire electrical generation facility as well as to
      sell
      the electricity is up to $0.01kwh.




62,400,000kwh/Year
      x $0.01/kwh = $624,000






6




Based
      on
      the above, annual net revenues of $3,469,440 can be anticipated.




We
      have
      rounded the net revenue figure down to $3,000,000




**Environmental
      Impacts of Products and Production Processes**




Our
      ability to manufacture a new product from a scrap rubber derivative (fuel oil),
      in a conventional and environmentally friendly manner is an extremely attractive
      alternative to current recycling approaches which are simply not capable of
      dealing with the annually generated volume of rubber waste in the U.S. in a
      feasible or environmentally friendly way. Current recycling efforts in the
      U.S.
      simply cannot deal, in an economically viable manner, with the volume of waste
      rubber generated annually. Many of these efforts simply change the shape of
      the
      problem into a consumer product that is ultimately disposed of at conventional
      dump sites.




In
      an
      attempt to generate opportunities to utilize waste rubber, like scrap tires,
      in
      various new products which include rubber shreds, go into jogging mats, mud
      flaps, stable mats, pickup bed liners, and many similar products. Ultimately,
      however, these consumer goods will be disposed of in a landfill. The donut
      shape
      of the tire has been changed, but the problems associated with appropriately
      disposing of the waste remains. Rubber products in landfills cannot be
      recovered, thereby making it impossible to recover the hydrocarbon resource
      available in the waste rubber.




Steel
      recovered from the thermal reduction/conversion process is ultimately put into
      new steel products. Most metals today are recycled, so it is highly unlikely
      that the recovered steel would ever find its way into a landfill. The ARC
      process results in the total consumption of rubber waste. The marketable
      by-products include electrical energy, carbon black, steel, thermal energy/hot
      water, none of which results in rubber landfill, and all of which are, in fact,
      recyclable consumer goods.




The
      ARC
      manufacturing process does not qualify as a federally regulated source of
      emissions. Only state and local approvals are required. ARC’s ability to permit
      facilities in large urban centers will allow the Company to establish a network
      of facilities in communities where rubber waste is generated rather than hauling
      this waste hundreds of miles for shredding to TDF (define) and subsequently
      transporting the TDF to combustion markets, perhaps close to the communities
      where the tires originated.




Furthermore,
      markets for the sale of the commodity like products we generate also exists
      within large metropolitan communities that we target for subsequent plant
      installations. The aforementioned business provides us an industrial solution
      to
      a major environmental problem. In addition, the availability of power generation
      equipment can be leveraged and will permit ARC to offer energy solutions based
      upon resource recovery. Availability of reliable sources of electricity has
      come
      to the forefront of public concern, as a result of the State of California
      energy crisis in the winter of 2001 and industry de-regulation in the U.S.
      and
      Canada.




We
      believe that our emissions will be well below the Federal Guidelines. As such
      we
      believe that we will not be a federally- regulated source of emissions. Based
      on
      previous process studies, the ARC Process to produce oil, carbon black, and
      steel from used tires is not expected to create emissions of a quantity and
      type
      that will be large enough to trigger a Federally-mandated Title V “Renewable
      Operating Permit.” The Michigan state-required “Permit to Install/New Source
      Review” program will require that a state-issued permit be applied
      for.




The
      electric generating process utilizing the produced oil in engine-driven
      generators may fall within other regulatory guidelines that require additional
      permitting measures such as a “Renewable Operating Permit,” whether or not the
      emissions are above certain thresholds. Requirements for such permits depend
      on
      certain factors unrelated to emissions limits, such as the percentage sulfur
      content in the oil, the rated capacity of the generator, or whether the
      electricity is sold publicly. Also, certain guidelines regarding Nitrogen and
      Sulfur oxides and overall emissions from electric generating facilities are
      federally mandated, but are implemented through state regulations. Therefore,
      the state would issue such a permit, if one is needed. Certain of these
      guidelines relate to “fossil-fueled” generators, but it is not yet established
      whether the state would consider the tire-derived oil to be “fossil.” It may be
      noted that the emissions regulations regarding such electrical generating
      facilities are yet evolving, with changes as recent as 2004.






7




Typically,
      states and/or localities regulate employee relations, zoning, noise, aesthetics,
      lighting, parking, fencing, signs, odors, fire prevention devices, nuisances,
      roadway access, plumbing, electrical, and other building codes. These types
      of
      regulations may require specific design attributes for the site, building,
      and
      equipment. There are no known special regulations at this site that would create
      abnormal difficulties over and above those encountered in the development of
      any
      other industrial site and have been anticipated in the budgets that have been
      prepared.




We
      also
      have to meet the following federal regulations:




a.
            The
                facility would have to meet OSHA-mandated safety guidelines, and
                EPA-mandated Storm Water runoff guidelines. These programs are implemented
                by the State of Michigan and are typically required for all industrial
                and/or commercial operations that meet the reporting guidelines.b.
            If
                the facility discharges process water into a local sewer system,
                it will
                need to meet any pretreatment guidelines established by the locality.c.
            The
                only Federally-implemented discharge program known to apply is the
                (40CFR112) Oil Pollution Prevention and Response regulations, which
                require most oil storage facilities to be constructed to good engineering
                practice, including dikes, and to have a Spill Prevention Control
                and
                Countermeasures (SPCC) Plan.d.
            It
                is currently unknown what, if any, impact that evolving Homeland
                Security
                actions and guidelines would impose on industrial operations such
                as ARC
                proposes to build and operate.




**The
      Industry**




ARC
      installations will provide a final point of disposition for waste rubber either
      in, or immediately adjacent to, the communities where the waste was generated.
      Generally, the U.S. waste industry is not prepared to address the problems
      associated with specific kinds of waste rubber and particularly scrap tires.
      The
      carbon black industry has manufactured carbon black for 80 years by burning
      a
      fuel oil. Industry estimates indicate that approximately 7 billion pounds of
      carbon black are consumed in the U.S. each year with global consumption at
      17
      billion pounds. Carbon black manufactured by us will be sold into existing
      U.S.
      and international carbon black markets and be produced as a result of the
      thermal reduction of rubber waste to fuel oil, the oil thereby being the
      feedstock for carbon black production. The surplus fuel oil can be used to
      fuel
      generators to make electrical energy. We will be uniquely positioned in several
      industries: rubber waste disposal, manufacturing, and power
      generation.




As
      rubber
      waste is the source of fuel oil, it is important to understand the waste
      industry as it relates to scrap tire disposal which will constitute a
      significant volume of the waste rubber processed at an ARC installation. Scrap
      tires are a major environmental problem. It is estimated by the United States
      Environmental Protection Agency (the “EPA”) that there are over 1.5 to 3 billion
      used tires in landfills and stockpiles in the United States and that an
      additional 292 million tires are discarded in the United States every year.
      “Disposing” of tires by stockpiling is not a viable long-term solution because
      of fire hazards and the likelihood of spreading disease. “Disposing” of whole
      tires in landfills is, generally, prohibited or restricted by
      regulation.




**Scrap
      Tire Distribution Chain**




In
      general, the scrap tire distribution chain consists of the tire end-user
      (business or consumer), new tire retailers, used tire brokers, solid waste
      disposal companies, haulers and tire processors. Most scrap tires are originally
      obtained by new tire retailers from consumers who may pay the retailer a fee
      for
“disposing” of their used tires. Retailers may pay either a scrap tire broker, a
      solid waste disposal company, a hauler or a tire processor to remove scrap
      tires
      from their place of business. Scrap tire brokers typically retain some tires
      for
      resale as used tires and pay either a waste disposal company, a hauler or a
      tire
      processor to remove the remaining scrap tires from their place of business.
      Solid waste disposal companies may stockpile scrap tires or pay a processor
      to
      dispose of their tires. Haulers transport scrap tires between parties in the
      distribution chain and may also act as a used tire broker or other party in
      the
      distribution chain. Not until a tire processor processes the scrap tires are
      the
      tires ultimately disposed of.




8


**Our
      products and services include:**




**Tipping
      Fees**




The
      fees
      paid by those who have scrap tires for their ultimate disposal are referred
      to
      as tipping fees. Tipping fees will be an important source of revenue for
      Alliance. As of May, 1991, 21 states had special fees for tires or vehicles.
      Some states have enacted legislation which directly mandates the payment of
      tipping fees. Other states have implemented programs which make funds available
      for the payment of tipping fees. For instance, some states raise funds, through
      retail taxes on purchases of new tires or through annual motor vehicle license
      fees, which are specifically allocated to the disposal of tires. These states
      often bear the responsibility for disposing of tires directly and use the funds
      raised from the net proceeds of the particular program to pay for such disposal.
      Other states provide for a tax to be paid by purchasers of new tires, to be
      retained by the retailer selling the tire, who must in turn pay for the disposal
      of such scrap tires. Other states rely on the market to regulate tipping fees.
      We estimate that in large urban cities, average tipping fees could be as much
      as
      U.S. $3.00 to $5.00 per tire. In our financial projection, we have budgeted
      tipping fees at U.S. $0.85 per tire.




While
      determining the ideal jurisdictions for ARC installations, it was concluded
      that
      locating an ARC facility as close as possible to where the rubber waste is
      generated had a significant positive impact on the environment as it would
      greatly reduce the requirement to transport the waste, often several hundred
      miles, to a facility for sorting and some form of processing prior to final
      disposition. The emissions associated with transportation of the rubber waste
      as
      well as wear and tear on the roadways as well as the cost of transportation
      all
      negatively impact the vast majority of current rubber waste disposal scenarios.
      Rubber waste is generated where people live. As a result, large metropolitan
      centers generate vast quantities of rubber waste that generally requires some
      form of truck transportation prior to final disposition. The costs associated
      with collection, sorting, transportation and final disposition are
      significant.




Our
      examination of these larger metropolitan jurisdictions included discussions
      with
      retail operators. As an example, in the cities of New York & Baltimore and
      their surrounding communities, retail operators were charging purchasers of
      new
      tires $3.00 to $5.00 /tire as a disposal fee. The vast majority of those
      retailers charged $5.00/tire for a passenger tire equivalent (PTE). A passenger
      tire equivalent is approximately twenty (2) pounds and the disposal fee
      nationwide is based upon PTEs. Larger light truck, heavy truck and off-road
      vehicle tires are charged significantly more as a result of their size, weight
      and conveyance characteristics. Obviously, a larger off-road tire, weighing
      several hundred pounds is extremely difficult to handle and convey.




Within
      the large metropolitan centers there exists a disposal infrastructure currently
      servicing the retailers. This infrastructure of truckers, waste operators and
      small independents routinely travel to retailers to pickup waste tires.
      Retailers pay a disposal fee to have the waste tires removed and transported.
      A
      portion of the disposal fee pays for conveyance and the balance covers the
      ultimate disposition of the waste tire.




Although
      we recognize that disposal fees charged by scrap tire collectors at final points
      of disposition are significantly higher than $.85, management has deliberately
      been extremely conservative in projecting incomes based upon the $.85/PTE for
      final disposition. Furthermore, management believes that a lower fee will
      encourage the existing disposal infrastructure to utilize an ARC facility’s
      capacity either in or immediately adjacent to a large metropolitan center rather
      than the current practice of hauling the waste often several hundred miles,
      or
      in some cases, to out-of-state disposal operations.




**Sale
      of the Recovered Steel**




Approximately
      one pound of steel can be recovered from each scrap passenger tire. Scrap steel
      can be used as an input into carbon steel manufactured by steel mills. A recent
      expansion of the number of small-scale “mini” mills catering to local markets
      has increased local demand for scrap steel. Scrap steel is also sold into export
      markets, notably Japan. International demand for United States scrap steel
      has
      had a positive impact on the demand for and price of scrap steel. Although
      the
      U.S. steel industry is in decline, demand for scrap steel remains significant
      with regional prices varying from U.S. $65.00 to $124.00 per ton. In our
      financial projections, the realizable price for scrap steel produced was
      budgeted at U.S. $65.00 per ton. Based on inputs of 4,600,000 tires annually,
      each ARC Unit will be designed to produce approximately 2,300 tons of scrap
      steel per year.






9




**Sale
      of the Manufactured Carbon Black**




As
      the
      rubber is thermally reduced to fuel oil, approximately 14 million pounds of
      commercial grade carbon black is expected to be manufactured. Carbon black
      can
      be sold to industry for reuse as a re-enforcing agent in synthetic rubber
      compounds for inks, paints, plastics, radiator hoses, fan belts, trim rubber,
      floor mats, etc. Because the principal use of carbon black is as a raw material
      in automotive parts, demand for carbon black is dependent on the automotive
      industry. Also, since carbon black is derived from petrochemical products,
      its
      price is susceptible to variations in the price of oil. According to the
      Business Intelligence Center report at Reed Business Information as of 12/31/04
      the US national average for Carbon Black was $.45/lb The manufactured price
      of
      carbon black is directly related to the price of a barrel of oil. In our
      financial projections, the realizable price for carbon black produced was
      budgeted at U.S. $0.22 per pound. Based on inputs of 4.6 Million tires annually,
      each ARC Unit is designated to produce approximately 14 million pounds of carbon
      black per year.




The
      thermal conversion chemistry maintained within the manufacturing furnace of
      the
      ARC unit, is based upon existing manufacturing methods utilized by conventional
      carbon black manufacturers. This chemistry has been utilized for approximately
      80 years in carbon black manufacturing facilities around the world. By
      controlling the time, temperature and turbulence within the furnace, commercial
      grades of carbon black can be produced.




Based
      upon the amount of oil generated by each PTE, management and their engineering
      consultants after examining conventional carbon black manufacturing methods
      and
      chemical reactions believe that the least amount of carbon black that could
      be
      generated is approximately 3 pounds. For the purpose of understanding this
      projection consider that each hour 1800 pounds of carbon black are generated
      utilizing the aforementioned carbon black manufacturing conditions maintained
      in
      the process furnace. To continue being conservative in this projection it has
      been determined that the total number of hours the ARC facility will operate
      in
      1 year is equivalent to 325 days. Similar to other carbon black or thermal
      processing manufacturing facilities, the ARC facility will be operated 24
      hours/day producing 14,040,000 of carbon black annually
      (1800x24x325=14,040,000).




**Sale
      of Steam and/or Hot Water**




Steam
      and/or hot water can be sold to industry or greenhouse operators at the avoided
      cost.




We
      have
      had discussions with hydroponics greenhouse operators pertaining to a
      co-location of a greenhouse immediately adjacent to the Alliance showcase
      installation. Hydroponics greenhouses require vast amounts of hot water which
      is
      generally generated from the consumption of natural gas or fuel oil that fuel
      boilers within the greenhouse complex.




An
      ARC
      installation has the ability to recover heat from both the rubber to oil
      conversion and the generation of electricity. Several of the turn-key electrical
      generation systems identified by us are equipped with standard heat recovery
      technology capable of producing steam and/or hot water. The heat recovery
      equipment can be utilized to produce steam and/or heat hot water or can also
      heat an oil product. Ultimately, the distance from the greenhouse operation
      determines whether one uses hot water, steam or oil. Hot oil can retain heat
      longer and can be sent a greater distance than steam or hot water. The steam
      and/or hot water or heated oil can be transferred in an insulated piped to
      the
      adjacent greenhouse operation and subsequently put through a heat exchanger
      to
      heat the hot water reservoir maintained at the hydroponics
      operation.




The
      sale
      of heat to the greenhouse operator at their avoided cost of production less
      an
      appropriate discount can provide an additional source of revenue, although
      we
      have not factored revenues from the sale of heat into the Financial
      Projections.




**INTELLECTUAL
      PROPERTY**




The
      necessary technology that is required for our operation is presently owned
      by
      Peter Vaisler. While employed by us, Mr. Vaisler will provide us with such
      technology at no cost to us until the end of his employment term. In the event
      Mr. Vaisler is no longer employed by us, the technology that he has
      provided to us may be used by us for a one time fee equal to the current
      replacement value of such technology determined by an engineer’s opinion
      acceptable to both parties.


10


We
      may
      terminate Mr. Vaisler’s employment agreement for “cause.” Either party may
      terminate the employment agreement with thirty (30) days prior written notice
      to
      the other party.




As
        a
        result of discussions with patent attorneys, we believe that the rubber to
        oil
        system components may be patentably distinct. However, we have also been
        advised
        to treat the main rubber to oil system components as a “black box” and to seek
        patent protection on both the feed side and exhaust side of the process furnace
        immediately prior to going from final fabrication design to actual equipment
        fabrication. As a result of secrecy agreements with our consulting engineers
        and
        the overall system engineering team, all intellectual property developed
        as a
        result of their efforts is our property. In any event, if we should not proceed
        with patent protection or not be able to obtain patent protection; it is
        highly
        unlikely that our business would be negatively impacted. The length of time
        it
        would take a competitor to replicate and integrate the various system components
        would be lengthy. Raising the capital required to develop a competitive system
        would also be a lengthy process. During that period, we would have already
        established ourselves in targeted markets.


We
      presently have no copyrights, patents or trademarks.




**EMPLOYEES**




During
          the fiscal year ended December 31, 2006, we had no employees. Upon receiving
          funding for our initial facility, Peter Vaisler will become our first full-time
          employee. We have no other firm commitments for employment but it
          is expected that subsequent to Mr. Vaisler’s employment, 6 key management, and
          support positions, will be filled to address financial, business, construction,
          and regulatory matters. In
          addition at our first operating subsidiary installation, we expect to employ
          approximately 25 people on a full-time basis. We will employ additional
          people
          as we continue to implement our plan of operation. This will be undertaken
          as
          follows:




We
        will
        operate processing facilities as subsidiaries. Each subsidiary will be required
        to have the following full time employees:




General
                Manager
            
            $
            95,
                000Secretary
            
            $
            40
                ,000Bookkeeper
            
            $
            35,
                0003
                Shift Supervisor/System Operators
            
            $
            165,
                0006
                Machinery Operators
            
            $
            240,
                0006
                Production/Packaging
            
            $
            180,
                0003
                Maintenance Mechanics
            
            $
            120,000





We
        estimate that benefits will equal 20% of expected salaries.   Such
        salary and benefit estimations are incorporated into our Valuation Report
        projections.
 
 Although
        the management team will be augmented by specific consultants to address
        technical, compliance and engineering issues, the ARC corporate offices will
        require a management team to support the installation, start-up, operations,
        sales of disposal services, product sales, and finance of the initial showcase
        facility and any subsequent installations, in addition to all corporate matters
        including regulatory and compliance issues.
  Our
          President and CEO will initially augment our management team with a CFO/Business
          Manager. Reporting to the President, the CFO/Business Manager will be
          responsible for corporate finances, regulatory and compliance matters and
          the
          overall day-to-day management of the corporate offices. Initially, the
          corporate
          offices will be located at the showcase installation as a matter of convenience.
          The entire management team will be focused on the equipment fabrication
          and
          installation, start-up, and operations of the showcase facility. At this
          time,
          an Executive Secretary will join the management team to assist both the
          President and CEO and the CFO/Business Manager. The next additions to the
          management team are VP Technology and VP Marketing. Reporting to the President,
          the VP Technology having a background in a hydrocarbon related industry
          and the
          manufacturing of carbon products will head up the engineering team responsible
          for the completion of all system design, fabrication, installation, site
          development, software development, procurement and contract management.
          The VP
          Technology will coordinate our engineering team of consultants and will
          work
          closely with the CFO/Business Manager to implement accounting policies
          and
          controls pertaining to the development and operations of the subsidiary
          showcase
          facility. The VP Marketing will be responsible for the development and
          implementation of a marketing campaign pertaining to the sale of disposal
          services to the existing infrastructure within the jurisdiction. The VP
          Marketing working in conjunction with the VP Technology will also develop
          and
          implement campaigns related to the sale of our various byproducts. In addition
          to the President and CEO, the corporate office staff during the construction
          and
          installation process shall be as follows:


11


CFO/Business
        Manager - $100,000; VP Technology - $85,000; VP Marketing - $85,000; and
        Executive Secretary - $40,000


**Item
      2.**   **Description
      of Property**




During
            the fiscal year ended December 31, 2006 we did not own or lease any property.
            Our President, Mr. Vaisler uses various offices including his home office,
            directors’ offices, and the offices of legal counsel at no cost to
            us.
 There
        are
        no limitations pertaining to the use of Mr. Vaisler’s home office. However,
        subsequent to the financing for the first facility, an office construction
        trailer will be moved to the selected site and the corporate office functions
        will be based there until such time as the showcase installation offices
        are
        complete. Upon completion of the showcase facility’s offices, the corporate
        offices will be moved into the office area until such time as the facility
        is
        fully operational.


**Item
      3.**   **Legal
      Proceedings**




We
        are
        not presently a party to any litigation, nor to our knowledge and belief
        is any
        litigation threatened or contemplated.


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




During
        the fiscal year ended December 31, 2006, we did not present any matters for
        approval by the affirmative vote of all shareholders.


**Item
      5.**   **Market
      for Common Equity and Related Stockholder Matters**





**No
      Public Market for Common Stock**




During
        the fiscal year ended December 31,2006, there was no public market for our
        common stock. We were in the application process for a quotation of our shares
        of common stock on the Over the Counter Bulletin Board. During that process
        we
        could not provide any assurance that our shares would be quoted on the Over
        the
        Counter Bulletin Board or, if quoted, that a public market would
        materialize.


On
        January 26, 2007, our shares of common stock received a quotation on the
        Over
        the Counter Bulletin Board under the symbol “ARVY.” As of March 16, 2007, its
        closing stock price was $.40.


**Holders**





As
      of
      December 31, 2006, in accordance with our transfer agent records, there were
      98
      holders of our shares of common stock.





**Dividends**





Since
      inception we have not paid any dividends on our common stock. We currently
      do
      not anticipate paying any cash dividends in the foreseeable future on our common
      stock. Although we intend to retain our earnings, if any, to finance the
      exploration and growth of our business, our Board of Directors will have the
      discretion to declare and pay dividends in the future.





Payment
      of dividends in the future will depend upon our earnings, capital requirements,
      and other factors, which our Board of Directors may deem relevant.







12





**Recent
      Sales of Unregistered Securities**


On
            September 19, 2006, we issued 5,000 shares of our restricted common stock
            to the
            following party for cash consideration of $1.00 per share or $5,000 in
            the
            aggregate: Pamela J. Boyd - 5,000. Ms. Boyd is a present shareholder.
            Such
            shares 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 shares. Such issuance qualified for exemption under
            Section
            4(2) of the Securities Act of 1933 since the issuance of such shares
            by us did
            not involve a public offering. Ms. Boyd was a sophisticated investor
            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 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, Ms. Boyd had the necessary investment intent as required
            by Section
            4(2) since they agreed to and received a share certificate bearing a
            legend
            stating that such shares are restricted pursuant to Rule 144 of the 1933
            Securities Act. These restrictions ensure 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 the above transaction.
 
 Our
        shares of common stock are currently quoted on the Over the Counter Bulletin
        Board under the symbol “ARVY” and has been since January 26, 2007. There is a
        limited trading market for our shares of common stock.


**Stock
      Option Grants**





As
      of
      December 31, 2006, we have not granted any stock options.





**Item
      6.**   **Management’s
      Discussion of Financial Condition and Results of
      Operations**





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.


13


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 year ended December 31, 2006, 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
        $1,642,995 and cash used in operations from inception through December 31,
        2006
        of $1,508,384. As of December 31, 2006, we had a working capital deficiency
        of
        $562,917.


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.


We
        will
        receive proceeds of $1,954,896 from the exercise of the 1,954,896 warrants
        which
        are exercisable at $1.00 per share. In addition, we will also receive also
        receive $1,250,000 from the exercise of the 200,000 Mirador warrants which
        are
        exercisable at the following prices: 100,000 at $5.00 per share and 100,000
        at
        $7.50 per shares. Therefore, we will receive aggregate proceeds of $3,204,896
        from the exercise of the outstanding warrants. Any proceeds from the exercise
        of
        the warrants will be allocated for general working
        capital.


**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. Our existing shareholders have
      indicated a willingness to invest further capital in us.






14




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.




15




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
            
            $
            480,0002)
                Site Lease Matters & Development Fees
            
            $
            260,0003)
                Site Engineering, Regulatory & Compliance
            
            $
            211,5004)
                Site Work
            
            $
            1,125,6005)
                Buildings
            
            $
            798,5006)
                Rubber to Oil Thermal Conversion Process Equipment
            
            $
            7,736,5007)
                Warehouse & Conveyance Equipment Leases/Purchases
            
            $
            74,0838)
                Government Relations
            
            $
            41,0009)
                Administrative Construction Expenses
            
            $
            153,00010)Legal,
                Accounting, Travel & Misc. Fees & Expenses
            
            $
            322,00011)Media,
                Promotion & Government Relations
            
            $
            313,00013)Salaries,
                Wages & Fees
            
            $
            846,43414)Consulting
                Engineers
            
            $
            33,00015)Turn-key
                Energy System & Installation
            
            $
            5,000,00016)Financing
                Fees
            
            $
            2,000,00017)Financing
                Legal & Accounting
            
            $
            300,00018)Administrative
                Contingency
            
            $
            305,383Total
            
            $
            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.


16


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.
    17
  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 $1,642,995, a working
        capital deficiency of $562,917 and used cash in operations from inception
        of
        $1,508,384. 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
        audited balance sheet as of December 31, 2006 reflects assets of $36,782
        consisting of cash of $32,037 and property and equipment of $4,745 and total
        liabilities of $594,954 consisting of accounts payable and accrued expenses
        of
        $59,262, an amount of $361,851 due to a related party, a note payable of
        $150,000, and a note payable due to a related party of $23,841.


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.


**Item
      7.**  **Financial
      Statements and Supplementary Data**





The
      financial statements of the Company, together with the report of the auditors,
      are as follows:









18






ALLIANCE
        RECOVERY CORPORATION
 
 (A
        DEVELOPMENT STAGE COMPANY)
 
 FINANCIAL
        STATEMENTS
 
 AS
        OF
        DECEMBER 31, 2006
 
  
 
   ALLIANCE
        RECOVERY CORPORATION
 
 (A
        DEVELOPMENT STAGE COMPANY)
 
  
  
 CONTENTS
 
  F-1
              REPORT
                  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMF-2
              BALANCE
                  SHEET AS OF DECEMBER 31, 2006F-3
              STATEMENTS
                  OF OPERATIONS FOR THE YEARS ENDED DECEMBER 2006 AND 2005 AND FOR
                  THE
                  PERIOD FROM NOVEMBER 6, 2001 (INCEPTION) TO DECEMBER 31,
                  2006F-4
              STATEMENTS
                  OF CHANGES IN STOCKHOLDERS’ DEFICIENCY FOR PERIOD FROM NOVEMBER 6, 2001
                  (INCEPTION) TO DECEMBER 31, 2006F-5
              STATEMENTS
                  OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005 AND
                  FOR THE
                  PERIOD FROM NOVEMBER 6, 2001 (INCEPTION) TO DECEMBER 31,
                  2006F-6
                  - F-14
              NOTES
                  TO FINANCIAL STATEMENTS
  
   
 
  
  
  **REPORT
          OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 
 To
          the
          Board of Directors of:
 Alliance
          Recovery Corporation
 
 We
          have
          audited the accompanying balance sheet of Alliance Recovery Corporation
          as of
          December 31, 2006, and the related statements of operations, changes in
          stockholders’ deficiency and cash flows for the years ended December 31, 2006
          and 2005. These financial statements are the responsibility of the Company’s
          management. Our responsibility is to express an opinion on these financial
          statements based on our audits.
 
 We
          conducted our audits in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform the audits to obtain reasonable assurance about whether the
          financial statements are free of material misstatement. An audit includes
          examining, on a test basis, evidence supporting the amounts and disclosures
          in
          the financial statements. An audit also includes assessing the accounting
          principles used and significant estimates made by management, as well as
          evaluating the overall financial statement presentation. We believe that
          our
          audits provide a reasonable basis for our opinion.
 
 In
          our
          opinion, the financial statements referred to above present fairly in all
          material respects, the financial position of Alliance Recovery Corporation
          as of
          December 31, 2006 and the results of its operations and its cash flows
          for the
          two years then ended in conformity with accounting principles generally
          accepted
          in the United States of America.
 
 The
          accompanying financial statements have been prepared assuming that the
          Company
          will continue as a going concern. As discussed in Note 10 to the financial
          statements, the Company had a working capital deficiency of $562,917, a
          stockholders’ deficiency of $1,642,995 and used cash in operations from
          inception of $1,508,384. This raises substantial doubt about its ability
          to
          continue as a going concern. Management’s plans concerning this matter are also
          described in Note 10. The accompanying consolidated financial statements
          do not
          include any adjustments that might result from the outcome of this
          uncertainty.
 
 
 
 WEBB
          & COMPANY, P.A.
 
 Boynton
          Beach, Florida
 March
          14,
          2007
 
  
 
 
  F-1
  
  
  
 **ALLIANCE
        RECOVERY CORPORATION**
 
 **(A
        DEVELOPMENT STAGE COMPANY)**
 
 **BALANCE
        SHEET**
 **ASSETS****CURRENT
                    ASSETS**Cash
                
                $
                32,037Property
                    and Equipment, net
                
                
                4,745**TOTAL
                    ASSETS**
                
                $
                36,782**LIABILITIES
                    AND STOCKHOLDERS’ DEFICIENCY****CURRENT
                    LIABILITIES**Accounts
                    payable and accrued expenses
                
                $
                59,262Due
                    to related party
                
                
                361,851Notes
                    payable - net of discount of $1,159
                
                
                23,841Notes
                    payable - related party
                
                
                150,000**TOTAL
                    CURRENT LIABILITIES**
                
                
                594,954**COMMITMENTS
                    AND CONTINGENCIES**
                
                
                -Common
                    Stock Subject to Rescission Offer, $.01 par value,1,986,646
                    shares issued and outstanding
                
                
                1,084,823**STOCKHOLDERS’
                    DEFICIENCY**Common
                    stock, $0.01 par value, 100,000,000 shares authorized, 16,947,179
                    shares
                    issued and outstanding
                
                
                169,472Additional
                    paid in capital
                
                
                593,347Subscriptions
                    receivable
                
                
                (6,300
                )Accumulated
                    deficit during development stage
                
                
                (2,399,514
                )Total
                    Stockholders’ Deficiency
                
                
                (1,642,995
                )**TOTAL
                    LIABILITIES AND STOCKHOLDERS’ DEFICIENCY**
                
                $
                36,782
 
   
 See
        accompanying notes to financial statements.
 
  
 
  F-2
 
   
  **ALLIANCE
        RECOVERY CORPORATION**
 
 **(A
        DEVELOPMENT STAGE COMPANY)**
 
 **STATEMENTS
        OF OPERATIONS**
  For
                    the Year Ended December 31,
                
                For
                    The Period From November 6, 2001 (Inception) to2006
                
                2005
                
                December
                    31, 2006**OPERATING
                    EXPENSES**Consulting
                    fees
                
                $
                -
                
                $
                75,271
                
                $
                526,868Consulting
                    fees - related party
                
                
                250,000
                
                
                250,000
                
                
                1,270,833Professional
                    fees
                
                
                49,530
                
                
                71,735
                
                
                290,973General
                    and administrative
                
                
                44,812
                
                
                147,285
                
                
                293,980**TOTAL
                    OPERATING EXPENSES**
                
                
                344,342
                
                
                544,291
                
                
                2,382,654**OTHER
                    EXPENSES**Interest
                    Expense
                
                
                15,674
                
                
                1,186
                
                
                16,860**NET
                    LOSS BEFORE PROVISION FOR****INCOME
                    TAXES**
                
                
                (360,016
                )
                
                (545,477
                )
                
                (2,399,514
                )**PROVISION
                    FOR INCOME TAXES**
                
                
                -
                
                
                -
                
                
                -**NET
                    LOSS**
                
                $
                (360,016
                )
                $
                (545,477
                )
                $
                (2,399,514
                ).Net
                    loss per share - basic and diluted
                
                
                (0.02
                )
                
                (0.03
                )
                $
                (0.15
                )Weighted
                    average number of shares outstanding during the period - basic
                    and
                    diluted
                
                
                16,835,972
                
                
                16,817,798
                
                
                16,538,164
   
 See
        accompanying notes to financial statements.
  
  F-3
  
  
  
 **ALLIANCE
        RECOVERY CORPORATION**
 
 **(A
        DEVELOPMENT STAGE COMPANY)**
 
 **STATEMENTS
        OF CHANGES IN STOCKHOLDERS’ DEFICIENCY**
 
 **FOR
        THE PERIOD FROM NOVEMBER 6, 2001 (INCEPTION)**
 
 **TO
        DECEMBER 31, 2006**
  Common
                    Stock
                
                Additional
                    Paid-In
                
                Subscription
                
                Deferred
                    Stock
                
                Accumulated
                    Deficit During DevelopmentShares
                
                Amount
                
                Capital
                
                Receivable
                
                Compensation
                
                Stage
                
                TotalCommon
                    stock issued to founders for services ($0.01 per share)
                
                
                8,410,000
                
                $
                84,100
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                -
                
                $
                84,100Common
                    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
                )
                
                -
                
                
                29,272Common
                    stock issued for services ($0.50 per share)
                
                
                100,000
                
                
                1,000
                
                
                49,000
                
                
                -
                
                
                (16,667
                )
                
                -
                
                
                33,333Collection
                    of subscriptions receivable
                
                
                -
                
                
                -
                
                
                -
                
                
                56,290
                
                
                -
                
                
                -
                
                
                56,290Net
                    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
                
                
                -
                
                
                43,750Net
                    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
                )
                
                -
                
                
                95,842Issuance
                    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
                
                
                -
                
                
                147,621Collection
                    of subscription receivable
                
                
                -
                
                
                -
                
                
                -
                
                
                42,774
                
                
                -
                
                
                -
                
                
                42,774Net
                    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
                
                
                -
                
                
                6,237Conversion
                    of notes payble to common stock
                
                
                136,669
                
                
                1,367
                
                
                215,933
                
                
                -
                
                
                -
                
                
                -
                
                
                217,300Net
                    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
                )
    See
        accompanying notes to financial statements.
 
  
 
  F-4
  
  
  
 **ALLIANCE
        RECOVERY CORPORATION**
 
 **(A
        DEVELOPMENT STAGE COMPANY)**
 
 **STATEMENTS
        OF CASH FLOWS**
  For
                    the Year Ended December 31,
                
                For
                    The Period From
                  November
                    6, 2001 (Inception) To2006
                
                2005
                
                December
                    31, 2006**CASH
                    FLOWS FROM OPERATING ACTIVITIES:**Net
                    loss
                
                $
                (360,016
                )
                $
                (545,477
                )
                $
                (2,399,514
                )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Stock
                    issued for services
                
                
                6,237
                
                
                147,621
                
                
                440,155Depreciation
                    expense
                
                
                2,233
                
                
                2,233
                
                
                6,421Amortization
                
                
                5,455
                
                
                1,186
                
                
                12,641Changes
                    in operating assets and liabilities:Prepaid
                    expensesDue
                    to related party
                
                
                53,692
                
                
                -
                
                
                361,851Accounts
                    payable and accrued expenses
                
                
                30,700
                
                
                (3,308
                )
                
                70,062Net
                    Cash Used In Operating Activities
                
                
                (261,699
                )
                
                (397,745
                )
                
                (1,508,384
                )**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
                
                
                25,000
                
                
                105,000
                
                
                123,700Proceeds
                    from issuance of debt - related party
                
                
                250,000
                
                
                -
                
                
                244,000Proceeds
                    from issuance of common stock subject to rescission
                
                
                -
                
                
                186,686
                
                
                1,084,823Proceeds
                    from issuance of common stock
                
                
                -
                
                
                42,774
                
                
                99,064Net
                    Cash Provided By Financing Activities
                
                
                275,000
                
                
                334,460
                
                
                1,551,587NET
                    INCREASE (DECREASE) IN CASH
                
                
                13,301
                
                
                (63,285
                )
                
                32,037CASH
                    AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
                
                
                18,736
                
                
                82,021
                
                
                -CASH
                    AND CASH EQUIVALENTS AT END OF PERIOD
                
                $
                32,037
                
                $
                18,736
                
                $
                32,037Supplemental
                    disclosure of non cash investing & financing
                    activities:Cash
                    paid for income taxes
                
                $
                -
                
                $
                -
                
                $
                -Cash
                    paid for interest expense
                
                $
                -
                
                $
                -
                
                $
                -
   
 See
        accompanying notes to financial statements.
 
   F-5
  
 **ALLIANCE
          RECOVERY CORPORATION**
 
 **(A
          DEVELOPMENT STAGE COMPANY)**
 
 **NOTES
          TO FINANCIAL STATEMENTS**
 
 **AS
          OF DECEMBER 31, 2006 and 2005**
 
 
 **NOTE
          1**  **SUMMARY
          OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION**
 
 (A)
              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.
 
 (B)
              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.
 
 (C)
              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 December 31, 2006, the Company did not
          have
          any balances that exceeded FDIC insurance limits.
 
 (D)
              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.
 
 (E)
              Income
                  Taxes 
 The
          Company accounts for income taxes under the Statement of Financial Accounting
          Standards No. 109, “Accounting for Income Taxes” (“Statement 109”). Under
          Statement 109, deferred tax assets and liabilities are recognized for the
          future
          tax consequences attributable to differences between the financial statement
          carrying amounts of existing assets and liabilities and their respective
          tax
          bases. Deferred tax assets and liabilities are measured using enacted tax
          rates
          expected to apply to taxable income in the years in which those temporary
          differences are expected to be recovered or settled. Under Statement 109,
          the
          effect on deferred tax assets and liabilities of a change in tax rates
          is
          recognized in income in the period that includes the enactment date. As
          of
          December 31, 2006 the Company has a net operating loss carryforward of
          $2,399,514 , available to offset future taxable income through 2026. The
          valuation allowance at December 31, 2006 was $815,835. The net change in
          the
          valuation allowance for the year ended December 31, 2006 was an increase
          of
          $122,405.
 F-6
  (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.
  
 (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 December 31, 2006 and 2005, 2,154,896 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   SFAS
          No.
          154 (“SFAS 154”), Accounting Changes and Error Corrections, was issued in May
          2005 and replaces APB Opinion No. 20 and SFAS No. 3 (“SFAS 3”). SFAS No. 154
          requires retrospective application for voluntary changes in accounting
          principle
          in most instances and is required to be applied to all accounting changes
          made
          in fiscal years beginning after December 15, 2005. The Company’s expected
          April 1, 2006 adoption of SFAS No. 154 is not expected to have a material
          impact on the Company’s consolidated financial condition or results of
          operations.
 
 SFAS
          155,
“Accounting for Certain Hybrid Financial Instruments” and SFAS 156, “Accounting
          for Servicing of Financial Assets” were recently issued. SFAS 155 and 156 have
          no current applicability to the Company and have no effect on the financial
          statements.
  F-7




**NOTE
        2** **PROPERTY
        AND EQUIPMENT**




Property
        and
        equipment at December 31, 2006 were as follows:




Computer
              
              $
              11,166Less
                  accumulated depreciation
              
              
              (6,421
              )$
              4,745




During
        the years
        ended December 31, 2006 and 2005 and for the period from November 6, 2001
        to
        December 31, 2006, the Company recorded depreciation expense of $2,233, $2,233
        and $6,421 respectively.




**NOTE
        3** **NOTES
        PAYABLE**




Note
                  Amount
              
              $
              25,000Discount
              
              
              (1,159
              )Balance
              
              $
              23,841






F-8


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 December 31, 2006
        the
        Company recorded a discount on the notes of $1,500 and amortized $341 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 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 As of December 31, 2006 the Company recorded and accrued
          interest expense of $5,719.
 **NOTE
          5** **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 December
        31,
        2006.
  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 December
        31,
        2006.
  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 December
        31, 2006.
  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 December 31, 2006.
  **NOTE
        6** **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.
   F-9
  
 (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.
 
 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 .


(D)
            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 included in general and administrative expense at the grant
          date.  As
          of
          December 31, 2006, the warrants have expired
  In
          connection with the issuance of common stock units for cash and services,
          the
          Company has an aggregate 2,154,896 and 2,881,502 warrants outstanding at
          December 31, 2006 and 2005, respectively. The Company has reserved 2,154,896
          shares of common stock for the future exercise of the warrants at December
          31,
          2006.






F-10




(E)
              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.
 
 (F)
              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 2,154,896 and 2,881,572 warrants outstanding
          at
          December 31, 2006 and 2005, respectively. The Company has reserved 2,154,896
          shares of common stock for the future exercise of the warrants at December
          31,
          2006.


(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.




**NOTE
        7** **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 As of December 31, 2006 the Company recorded and accrued
          interest expense of $5,719
 
 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 SB-2 Registration Statement.
          The
          Company has accrued $361,851 under the agreement to the consultant at December
          31, 2006. For the Period November 6, 2001(Inception) to December 31, 2006
          the
          Company recorded $1,270,833 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 (See
          Note
          8(A) and 10).






F-11


**NOTE
        8** **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 SB-2 Registration Statement.
        The
        Company has accrued $361,851 under the agreement to the consultant at December
        31, 2006. For the Period November 6, 2001(Inception) to December 31, 2006
        the
        Company recorded $1,270,833 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 6(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-12




(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 5(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 (See
        Note
        8(A) and 10).
 
 (D)
            Rescission
                Offer 
 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 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-13






**NOTE
        9** **GOING
        CONCERN**
  As
          reflected in the accompanying financial statements, the Company is in the
          development stage with no operations, a stockholders’ deficiency of $1,642,995,
          a working capital deficiency of $562,917 and used cash in operations from
          inception of $1,508,384. 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
        10** **SUBSEQUENT
        EVENTS**
 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.
 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.






F-14





**Item
      8.**   **Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure**





None.





**Item
      8A.**  **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 December 31, 2006.
      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 and principal
      financial officers, 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 fiscal year ending December 31, 2006
        that has materially affected, or is reasonably likely to materially affect,
        our
        internal control over financial reporting.


**Item
      8B.****Other
      Information**




**Rescission
      Offer**




**Background**




In
      November 2005, we concluded a rescission offer to certain purchasers of our
      securities. Between April 1, 2002 and July 1, 2005, we conducted several private
      offerings of our securities. Between April 2002 and June 2004, we conducted
      a
      private offering of units consisting of one share of common stock and warrants
      to purchase common stock at a price per unit of $0.50 (the "Initial Offering").
      Pursuant to the Initial Offering, we issued an aggregate of 1,803,646 shares
      of
      our common stock and warrants to purchase an aggregate of 1,803,646 common
      shares. We raised a total of $901,823 in the Initial Offering. Between March
      2005 and July 1, 2005, we conducted a private offering of shares of our common
      stock at a price per share of $1.00 (the "Second Offering"). Pursuant to the
      Second Offering, we issued an aggregate of 183,000 shares of our restricted
      common stock. We raised a total of $183,000 in the Second Offering.




Upon
      the
      completion of the Initial Offering, we discovered that our authorized
      capitalization was not sufficient to permit us to issue the common share
      component of the units to the investors. We amended our Certificate of
      Incorporation on July 1, 2004 to increase our authorized shares of common stock
      to 100,000,000 common shares, which enabled us to undertake the Initial Offering
      with sufficient authorized capitalization.




However,
      both the Initial Offering and Second Offering violated federal securities laws
      based on the inadequacy of our disclosures made in our offering documents
      concerning the lack of authorized common stock.




Based
      on
      potential violations that may have occurred under U.S. securities laws, we
      determined to make a rescission offer both to investors who acquired our units
      pursuant the Initial Offering as well as to investors in our Second Offering,
      since they were not informed of the rescission offer. The rescission offer
      was
      conducted privately in October 2005 and November 2005.






19




If
      all
      eligible investors had elected to accept the rescission offer, we would have
      been required to refund investments totaling $1,084,823, plus interest on those
      funds from the date of investment through the date of the acceptance of the
      rescission offer at 6% per annum. None of the investors accepted the rescission
      offer which expired on December 8, 2005.




**Potential
      Liabilities**




Our
      failure to disclose the lack of sufficient authorized capital and the rescission
      offer made to the earlier investors in our private placement to the later
      investors created certain liabilities for us under federal securities and
      related laws. Generally, 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.




We
      believe that by making the rescission offer, the likelihood of potential
      contingent liability of our company for a violation of federal securities or
      related laws to our stockholders who did not accept the rescission offer may
      be
      substantially reduced, but not necessarily terminated. However, as a result
      of
      the possible failure to comply with the disclosure obligations described above,
      our liability to our stockholders who fail to accept the rescission offer,
      or
      who make no election as to the rescission offer, may continue for a period
      of
      time until the applicable statutes of limitations have run. The applicable
      statutes of limitations vary from state to state and under federal law, the
      longest of which would be for up to three years from the occurrence of the
      violation. Additionally, any existing rights for rescission or damages under
      applicable securities or related laws of any of our stockholders may survive
      and
      not be barred by our making the rescission.




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.




We
      are
      also subject to compliance with the General Corporation Law of Delaware, the
      state of our incorporation, with respect to the rescission offer. While the
      General Corporation Law of Delaware does not address the issue of rescissions
      in
      relation to capital impairment matters, we do not believe that any payments
      made
      in relation to the rescission offer will represent proscribed transactions
      based
      on any of the statutory references relevant to capital impairment. There is
      nothing in the related laws and interpretation of the Delaware General
      Corporation Law which would classify a rescission offer as a stock redemption
      given that we did not seek to repurchase or redeem the shares, but rather
      afforded investors a right to treat their prior purchase as a nullity.


20


Our
      financial statements reflect that we have the amounts attributable to the
      private placement have been segregated on our balance sheet from our capital.
      Consequently, any payments resulting from the rescission offer are not derived
      from the capital segment of our financial statements and should not be deemed
      impairment of capital. In effect, any payments would be in the nature of
      settlements of obligations rather than redemption or similar retirements of
      capital.





**PART
      III**





**Item
      9.**   **Directors
      and Executive Officers of the Registrant**





The
      directors and executive officers of the Company are:




**Name**
            **Age**
            **Position/Date**Peter
                Vaisler
            56
            Director,
                President, Chief Executive Officer; as of November 2001
              Principal
                Financial Officer, Principal Accounting Officer; as of February
                2005David
                Williams
            65
            Director;
                as of January 2004Walter
                Martin
            65
            Director;
                as of January 2004




**PETER
      VAISLER** has been
      the President, CEO and Director of Alliance Recovery Corporation since inception
      November 2001. On February 11, 2005, he became our principal financial officer
      and principal accounting officer. Since 1995, Mr. Vaisler and a team of
      third party engineers and scientists have been working to develop the ARC Unit
      by integrating existing manufacturing and energy components into a single
      process system to thermally reduce waste rubber to a fuel oil for use as a
      feedstock to generate electricity. Using knowledge gleaned from research and
      development projects by several U.S. and international groups, Mr. Vaisler
      and his team applied existing chemical manufacturing processes to thermally
      reduce rubber to fuel oil for energy production. A by-product of the ARC thermal
      reduction of rubber to fuel oil is a commercial grade of carbon black.
      Mr. Vaisler and his team also developed and implemented strategies related
      to site selection, regulatory affairs, permitting and communications with a
      view
      to refining the business concept to the point that installation of the ARC
      Unit
      could be accomplished in various U.S. jurisdictions. Mr. Vaisler managed
      the engineering team and coordinated design and fabrication activities
      addressing technical refinements to the integration of “off-the-shelf” system
      components that will be purchased by Alliance for the first
      installation.




From
      1979
      to 1985, Mr. Vaisler was a senior executive for Topaz Foods Limited based
      in St. Thomas, Ontario, Canada. He was responsible for project management with
      a
      Canadian food manufacturer coordinating the design, installation, and start-up
      of a new manufacturing process, including conveyance and packaging machinery
      innovations. As a Project Manager, Mr. Vaisler coordinated the activities
      of European based engineers & fabricators, and North American contractors in
      connection with the use of fractional evaporators for manufacture of fruit
      and
      berry concentrates.




From
      1986
      to 1989, Mr. Vaisler worked for Corporate Planning Consultants based in
      London, Ontario, Canada. He assisted in technology based industries and health
      care institutions with the commercialization of technological innovations.
      As
      part of his responsibilities, Mr. Vaisler initiated technical and business
      activities pertaining to biomedical waste disposal utilizing “state-of-the-art”
incinerators. His interest in the thermal reduction of rubber waste to fuel
      oil
      commenced during this period in his career.




In
      November 1989, Mr. Vaisler joined Conjoint Export Services. As Director of
      International Trade Development for a Canadian and U.S. initiative, he provided
      export market management services to primarily technology based manufacturers
      seeking both export and import market growth. Mr. Vaisler commenced his
      activities pertaining to the development of the ARC Unit in 1994.
      Mr. Vaisler obtained a Bachelor of Arts degree from the University of
      Western Ontario in 1974.




**DAVID
      WILLIAMS** has been
      our director since 2004. He has business experience in the area of Investment
      Management. Mr. Williams graduated from Bishops University in Quebec,
      Canada in 1963 with a Bachelor of Business Administration, gaining his Masters
      in Business Administration from Queens’ University in Kingston, Ontario in 1964
      and later was a recipient of a Doctor of Civil Laws from Bishops in
      1996.






21






David
      Williams has been involved in the investment management business for over 30
      years with experience in corporate finance. David began his career in the
      investment business as a bond and money market trader. From 1966, he acted
      as an
      investment analyst and portfolio manager with Hodgson, Roberton, Laing and
      Company, one of Canada’s oldest investment counseling firms. Mr. Williams’
responsibilities included; equity and fixed income analysis and management
      of
      personal investment portfolios. In 1966 David joined, and later became a senior
      partner of, Beutel Goodman and Company, a value management company dealing
      in
      equity and fixed income assets, with $30 million under management.
      Mr. Williams, along with several partners, successfully built the company
      to the point where it had $11.6 billion under management in 1993. David’s
      responsibilities over the years have included managing substantial institutional
      portfolios as well as extensive marketing and client liaison work with many
      of
      the firms’ most important clients demonstrating a large capacity for managing
      large portfolios. He ceased working for Beutel, Goodman and Company in December
      1993. He has been managing Roxborough Holdings Limited since February
      1994.




Mr. Williams
      currently includes charitable and special interests programs in his daily
      activities while remaining on the Board of Directors of such companies as:
      Bennett Environmental Inc. (TSX listed) ) which specializes in thermal treatment
      of contaminated soil; MetroOne Telecommunications Inc. (NASDAQ listed) which
      provides major telephone companies with enhanced directory services; and ReFocus
      Group Inc. (OTC BB listed) which is a medical treatment device company
      specializing in vision disorders.




Mr. Williams’
      past directorships include: Drug Royalty Corporation Inc. which specializes
      in
      medical devices and pharmaceutical products; Equisure Financial Inc., a company
      involved in general and life insurance as well as financial planning; and Duff
      & Phelps LLC, a NASDAQ listed company with interest in middle market mergers
      and acquisitions.




Mr. Williams
      currently continues to manage Roxborough Holdings Ltd., a family owned private
      equity holding company which is an equity investor in a variety of private
      and
      public companies.




**WALTER
      MARTIN** has been
      our director since 2004. Walter Martin brings more than two decades of corporate
      finance experience to the Company. Mr. Martin began his career with
      Versatile Investments before moving to Brightside Financial Corporation. In
      1983
      as one of three founders of Brightside Financial Mr. Martin helped built
      the Company to hold over 160 sales advisors administering over $1 Billion when
      it was sold to Assante Corporation. Mr. Martin continued to work for
      Assante Corporation after its buyout by Brightside until its full integration.
      From 1996 to the present, Mr. Martin has worked for Assante Corp., a
      financial planning firm based in Canada. He was a Vice President from 1996-2002,
      and a consultant from 2002 to the present. Mr. Martin currently sits as a
      member on the board of three companies in the software and mutual fund
      industries, as well as a charitable company serving refugees.




**Term
      of Office**




Our
      directors are appointed for a one-year term to hold office until the next annual
      general meeting of our shareholders or until removed from office in accordance
      with our bylaws. Our officers are appointed by our board of directors and hold
      office until removed by the board.




All
      officers and directors listed above will remain in office until the next annual
      meeting of our stockholders, and until their successors have been duly elected
      and qualified. There are no agreements with respect to the election of
      Directors. We have not compensated our Directors for service on our Board of
      Directors, any committee thereof, or reimbursed for expenses incurred for
      attendance at meetings of our Board of Directors and/or any committee of our
      Board of Directors. Officers are appointed annually by our Board of Directors
      and each Executive Officer serves at the discretion of our Board of Directors.
      We do not have any standing committees. Our Board of Directors may in the future
      determine to pay Directors’ fees and reimburse Directors for expenses related to
      their activities.




None
      of
      our Officers and/or Directors have filed any bankruptcy petition, been convicted
      of or been the subject of any criminal proceedings or the subject of any order,
      judgment or decree involving the violation of any state or federal securities
      laws within the past five (5) years.




22





**Audit
      Committee**




We
        do not
        have a standing audit committee of the Board of Directors. Management has
        determined not to establish an audit committee at present because of our
        limited
        resources and limited operating activities do not warrant the formation of
        an
        audit committee or the expense of doing so. We do not have a financial expert
        serving on the Board of Directors or employed as an officer based on
        management’s belief that the cost of obtaining the services of a person who
        meets the criteria for a financial expert under Item 401(e) of Regulation
        S-B is
        beyond its limited financial resources and the financial skills of such an
        expert are simply not required or necessary for us to maintain effective
        internal controls and procedures for financial reporting in light of the
        limited
        scope and simplicity of accounting issues raised in our financial statements
        at
        this stage of our development.


**Certain
      Legal Proceedings**




No
        director, nominee for director, or executive officer has appeared as a party
        in
        any legal proceeding material to an evaluation of his ability or integrity
        during the past five years.


**Compliance
      With Section 16(A) Of The Exchange Act.**




Section
        16(a) of the Exchange Act requires the Company’s officers and directors, and
        persons who beneficially own more than 10% of a registered class of the
        Company’s equity securities, to file reports of ownership and changes in
        ownership with the Securities and Exchange Commission and are required to
        furnish copies to the Company. During 2006, Form 3’s were filed by each officer,
        director and 10% or greater shareholder. To the best of the Company’s knowledge,
        no other reports are required to be filed. However, the Form 3 filings
        undertaken in 2006 do not agree with the Company’s transfer agent records. The
        Company is looking into its discrepancy and will make the appropriate filings
        upon determining what the discrepancy is.




**Code
      Of Ethics**




The
        company has adopted a Code of Ethics applicable to its Chief Executive Officer
        and Principal Financial Officer. The Code of Ethics was filed with our Form
        10-KSB for the year ending December 31, 2005 as Exhibit 14 (SEC File No.
        333-121659).


**Item
      10.**  **Executive
      Compensation**





**Compensation
      of Executive Officers**




**Summary
        Compensation Table.** The
        following table sets forth information concerning the annual and long-term
        compensation awarded to, earned by, or paid to the named executive officer
        for
        all services rendered in all capacities to our company, or any of its
        subsidiaries, for the years ended December 31, 2006, 2005 and 2004:


**SUMMARY
      COMPENSATION TABLE**




**Annual
                Compensation****Name/Title**
            **Year**
            **Salary**
            **Bonus**
            **Other
                Annual**
              **Compensation**
            **Restricted**
              **Option
                Stocks/Payouts Awarded**Peter
                Vaisler
              Director,
                CEO
            2006
            $250,000
                *
            0
            10,236
            02005
            $250,000
                *
            0
            0
            02004
            $250,000
                *
            0
            0
            0







23


*
        Represents non-salary compensation pursuant to Mr. Vaisler’s consulting
        agreement with us. Please note that Mr. Vaisler has accrued, but deferred
        such compensation and as noted below, his actual employment agreement will
        not
        become effective until the date on which we raise all, or substantially all,
        of
        the project financing pertaining to the construction of our first facility.
        Please also note that the other annual compensation represents a car allowance
        provided to Mr. Vaisler in accordance with his consulting agreement with
        us.


**Consulting
      Agreement**


We
        have a
        consulting agreement, as amended, with Peter Vaisler, who is also our President
        and Chief Executive Officer. The consulting agreement, as amended, calls
        for
        Mr. Vaisler to provide technology that he has developed for us, along with
        the use of his know-how and industry contacts to facilitate the realization
        of
        our business objectives. Mr. Vaisler will be paid $250,000 annually for his
        consulting services. The consulting agreement, as amended, commenced on December
        1, 2001 and will expire upon the date on which we raise all, or substantially
        all, of the project financing pertaining to the construction of our first
        facility. At such time, the Employment Agreement, as set forth below, will
        commence.


**Employment
      Agreement**




We
        have a
        five-year employment agreement with Mr. Vaisler to act as our President and
        Chief Executive Officer on a full-time basis. The agreement was originally
        to
        commence on the date on which our SB-2 Registration Statement was declared
        effective by the SEC. However, the Employment Agreement was amended to commence
        upon on the date on which we raise all, or substantially all, of the project
        financing pertaining to the construction of our first facility. The Employment
        Agreement will expire five years from such date. The annual base salary is
        $250,000 with additional cash compensation as defined in the agreement. He
        also
        receives an automobile allowance, and we shall use our best efforts to maintain
        Director’s and Officer’s liability insurance. We will also provide contributions
        to any self-directed employee benefit plan. While employed by us,
        Mr. Vaisler will provide us with certain technology at no cost to us until
        the end of the employment term. In the event Mr. Vaisler is no longer
        employed by us, the technology that he has provided to us may be used by
        us for
        a one time fee equal to the current replacement value of such technology
        determined by an engineer’s opinion acceptable to both parties. We may terminate
        Mr. Vaisler’s employment agreement for “cause.” Either party may terminate
        the employment agreement with thirty (30) days prior written notice to the
        other
        party.


**Compensation
      of Directors**




Directors
        are permitted to receive fixed fees and other compensation for their services
        as
        directors. The Board of Directors has the authority to fix the compensation
        of
        directors. No amounts have been paid to, or accrued to, directors in such
        capacity.


**Item
      11.**  **Security
      Ownership of Certain Beneficial Owners and Management**





**SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**





The
      following table sets forth the number and percentage of shares of our common
      stock owned as of December 31, 2006 by all persons (i) known to us who own
      more
      than 5% of the outstanding number of such shares, (ii) by all of our directors,
      and (iii) by all officers and directors of us as a group. Unless otherwise
      indicated, each of the stockholders has sole voting and investment power with
      respect to the shares beneficially owned.


24






**Title
                  of Class**
              **Name
                  and Address**
                **of
                  Beneficial Owner**
              **Amount
                  and Nature of Beneficial Owner (1)**
              **Percent
                  of Class (2)**Common
                  Stock
              Peter
                  Vaisler (3)
                1133
                  St. Anthony Road
                London,
                  Ontario, Canada N6H 2P9
              7,750,000
              36.75%Common
                  Stock
              David
                  Williams (4)
                45
                  St. Claire Avenue West, Suite 1202
                Toronto,
                  ON M4V 1K9
              2,924,160
              13.87%Common
                  Stock
              Walter
                  Martin (5)
                20
                  Sandpiper Ct.,
                Elmira,
                  ON N3B 3C5
              505,000
              2.39%Common
                  Stock
              Suzy
                  Jafine (In Trust) (6)
                80
                  West Drive
                Brampton,
                  Ontario, Canada L6T 3T6
              1,450,000
              6.88%Common
                  Stock
              Saul
                  Brothers Partnership (7)
                10850
                  Hickory Lane
                Highlands
                  Ranch, CO 80126
              1,450,000
              6.88%Common
                  Stock
              Duffy
                  Herman & Tricia Morris
                1001
                  Kupulau Drive
                Kihei,
                  HI 96753
              1,450,000
              6.88%Officers
                  and Directors
                As
                  a Group (3 persons)
              
              11,179,160
              53.01%




(1)
              All
                  of the persons are believed to have sole voting and investment
                  power over
                  the shares of common stock listed or share voting and investment
                  power
                  with his or her spouse, except as otherwise provided. The amounts
                  listed
                  in this column represent the total amount of (i) shares currently
                  held by
                  each shareholder; and, (ii) shares issuable pursuant to the exercise
                  of
                  options held by such shareholder.(2)
              For
                    purposes of this table only, this percentage is based on 21,088,721
                    shares
                    outstanding as of December 31, 2006 consisting of 2,154,896 options
                    to
                    purchase shares of our common stock and 18,933,825 shares of
                    common stock
                    issued and outstanding.(3)
              Mr. Vaisler
                  owns his shares through Emerald City Corporation, S.A., a corporation
                  domiciled in Costa Rica. Mr. Vaisler does not own any rights to
                  options, warrants, rights, conversion privileges or any other similar
                  obligations.(4)
              Mr.
                  Williams owns his shares through Roxborough Holdings Limited, a
                  corporation domiciled in Ontario, Canada. Roxborough Holdings Limited
                  owns
                  2,712,080 shares of our common stock and warrants to purchase an
                  additional 112,080 shares of our common stock at an exercise price
                  of
                  $1.00 per share. In addition, Mr. Williams owns warrants to purchase
                  100,000 shares of our common stock at $1.50 per share.(5)
              Mr. Martin
                  owns (i) 240,000 shares of our common stock; (ii) warrants to purchase
                  an
                  additional 240,000 shares of our common stock exercisable at $1.00
                  per
                  share; and, (iii) warrants to purchase 25,000 shares of our common
                  stock
                  exercisable at $1.50 per
                  share.






25




(6)
              The
                  shares held by Suzy Jafine are not in a voting trust. Ms. Jafine does
                  not own any rights to options, warrants, rights, conversion privileges
                  or
                  any other similar obligations.(7)
              Saul
                  Brothers Partnership is beneficially owned equally by Ron Saul,
                  Richard
                  Saul, Lawrence Saul and David Saul. Saul Brothers Partnership does
                  not own
                  any rights to options, warrants, rights, conversion privileges
                  or any
                  other similar obligations.




**Item
      12.**  **Certain
      Relationships and Related Transactions**




We
        have a
        consulting agreement with Peter Vaisler. The Consulting Agreement, as amended,
        calls for Mr. Vaisler to provide technology that he has developed for us,
        along with the use of his know-how and industry contacts to facilitate the
        realization of our business objectives. The Consulting Agreement, as amended,
        commenced on December 1, 2001 and will expire upon the earlier of December
        1,
        2006, or the date on which we raise all, or substantially all, of the project
        financing pertaining to the construction of our first facility. To date,
        this
        has not occurred. At such time, the Employment Agreement, as set forth below,
        will commence.
  We
        have a
        five-year employment agreement with Peter Vaisler to act as our President
        and Chief Executive Officer on a full-time basis. The agreement was originally
        to commence on the date on which our SB-2 Registration Statement was declared
        effective by the SEC. However, the Employment Agreement was amended to commence
        upon on the date on which we raise all, or substantially all, of the project
        financing pertaining to the construction of our first facility. The Employment
        Agreement will expire five years from such date. The annual base salary is
        $250,000 with additional cash compensation as defined in the agreement. He
        also
        receives an automobile allowance, and we shall use our best efforts to maintain
        Director’s and Officer’s liability insurance. We will also provide contributions
        to any self-directed employee benefit plan. While employed by us,
        Mr. Vaisler will provide us with certain technology at no cost to us until
        the end of the employment term. In the event Mr. Vaisler is no longer
        employed by us, the technology that he has provided to us may be used by
        us for
        a one time fee equal to the current replacement value of such technology
        determined by an engineer’s opinion acceptable to both parties. We may terminate
        Mr. Vaisler’s employment agreement for “cause.” Either party may terminate
        the employment agreement with thirty (30) days prior written notice to the
        other
        party.


In
      February, 2006 Walter Martin, one of our directors, loaned us $100,000. The
      loan
      is interest free for the first nine months and six percent interest for the
      last
      three months. The loan is unsecured and due March 8, 2007.




26


**PART
      IV**





**Item
      13.**  **Exhibits
      List and Reports on Form 8-K**





**Exhibit
                Title**
            **Description**3.1
            Certificate
                  of Incorporation with Amendments to Certificate of Incorporation
                  (1)3.2
            By-Laws
                  (1)10.1
            Employment
                Agreement with Peter Vaisler (1)10.2
            Consulting
                Agreement with Peter Vaisler (1)10.3
            2006
                  Consulting Agreement with Mirador Consulting, Inc****10.4
            Amendment
                  to Employment Agreement with Peter Vaisler14
            Code
                of Ethics (2)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 2002.99.1
            Estimate
                of Valuation Letter from Resources International Ltd.(3)99.2
            Resource
                International, Ltd. Declaration of Independence and Statement of
                Qualifications (3)


(1)
      Incorporated by reference to Form SB-2 filed on December 27, 2004 (File No.
      333-121659)


(2)
      Incorporated by reference to Form 10-KSB filed on April 11, 2006 (File No.
      333-121659)


(3)
      Incorporated by reference to Post Effective Amendment No. 4 to Form SB-2 filed
      on September 6, 2006 (File No. 333-121659)








**Item
      14.**  **Principal
      Accountant Fees and Services**





**Audit
      Fees**




For
        our
        fiscal year ended December 31, 2006 and December 31, 2005, we were billed
        approximately $17,644 **** and
        $9,233, respectively, for professional services rendered for the audit and
        reviews of our financial statements.
 
 **Tax
        Fees**
 
 For
        our
        fiscal years ended December 31, 2006 and 2005, we were not billed for
        professional services rendered for tax compliance, tax advice, and tax
        planning.
 
 **All
        Other Fees**
 
 We
        incurred fees related to other services rendered by our principal accountant
        for
        the fiscal years ended December 31, 2006 and 2005 of $0 **** and
        $8,831 respectively. These fees were primarily for review of our SB-2
        registration statement.
 
 Please
        note that our Board of Directors, acting as an audit committee, pre-approved
        our
        auditor, Webb & Co. for the fiscal year ended December 31,
        2006.


27


**SIGNATURES**




Pursuant
        to the requirements of Section 13 or 15(d) of the Securities Exchange Act
        of
        1934, the registrant has duly 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**Chief
                Executive Officer
              Principal
                Financial Officer,
              Principal
                Accounting OfficerDated:
            March
                30, 2007




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities and on the dates indicated.




**Name**
            **Title**
            **Date**s/s
                Peter Vaisler
              **Peter
                Vaisler**
            Chief
                Executive Officer
              Principal
                Financial Officer,
              Principal
                Accounting Officer and Director
            March
                30, 2007s/s
                Walter Martin
              **Walter
                Martin**
            Director
            March
                  30, 2007s/s
                David Williams
              **David
                Williams**
            Director
            March
                  30, 2007





28