**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**


______________




**FORM
      10-QSB**


______________




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




**For
      the quarterly period ended** **September
      30** **,
      2006**




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




**For
      the transition period from _____________**




**Commission
      File No. 000-50868**


______________




**ALLIANCE
      RECOVERY CORPORATION**


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


______________




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






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







**(519)
                671-0417**(Issuer’s
                telephone number)




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




Check
      whether the registrant has filed all documents and reports required to be filed
      by Sections 12, 13, or 15(d) of the Exchange Act subsequent to the distribution
      of securities under a plan confirmed by a court. Yes o No x




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




Yes
            x
            Noo




State
        the
        number of shares outstanding of each of the issuer’s classes of common equity,
        as of November 8, 2006: 18,933,825 shares of common stock.




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




















**Item
      1.**  **Financial
      Information**




BASIS
      OF
      PRESENTATION




The
      accompanying reviewed financial statements are presented in accordance with
      generally accepted accounting principles for interim financial information
      and
      the instructions to Form 10-QSB and item 310 under subpart A of Regulation
      S-B.
      Accordingly, they do not include all of the information and footnotes required
      by generally accepted accounting principles for complete financial statements.
      In the opinion of management, all adjustments (consisting only of normal
      occurring accruals) considered necessary in order to make the financial
      statements not misleading, have been included. Operating results for the nine
      months ended September, 2006 are not necessarily indicative of results that
      may
      be expected for the year ending December 31, 2006. The financial statements
      are
      presented on the accrual basis.
















**ALLIANCE
      RECOVERY CORPORATION**


**(A
      DEVELOPMENT STAGE COMPANY)**






**CONTENTS**


PAGE
            1
            CONDENSED
                BALANCE SHEET AS OF SEPTEMBER 30, 2006 (UNAUDITED)PAGE
            2
            CONDENSED
                STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS
                ENDED SEPTEMBER 30, 2006 AND 2005 AND FOR THE PERIOD FROM NOVEMBER 6,
                2001 (INCEPTION) TO SEPTEMBER 30, 2006 (UNAUDITED)PAGES
            3
                -
                4
            CONDENSED
                STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIENCY FOR PERIOD FROM NOVEMBER
                6, 2001 (INCEPTION) TO SEPTEMBER 30, 2006
                (UNAUDITED)PAGE
            5
            CONDENSED
                STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
                2006 AND 2005 (RESTATED) AND FOR THE PERIOD FROM NOVEMBER 6, 2001
                (INCEPTION) TO SEPTEMBER 30, 2006 (UNAUDITED)PAGES
            6
                -
                15
            NOTES
                TO CONDENSED FINANCIAL STATEMENTS
                (UNAUDITED)


















**ALLIANCE
      RECOVERY CORPORATION**


**(A
      DEVELOPMENT STAGE COMPANY)**


**CONDENSED
      BALANCE SHEET**


**AS
      OF SEPTEMBER 30, 2006**


**(UNAUDITED)**




**ASSETS****CURRENT
                  ASSETS**Cash
              
              $
              7,172Property
                  and Equipment, net
              
              
              5,303**TOTAL
                  ASSETS**
              
              $
              12,475**LIABILITIES
                  AND STOCKHOLDERS’ DEFICIENCY****CURRENT
                  LIABILITIES**Accounts
                  payable and accrued expenses
              
              $
              52,030Due
                  to related party
              
              
              337,813Notes
                  payable - related party
              
              
              100,000**TOTAL
                  CURRENT LIABILITIES**
              
              
              489,843**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
              
              
              (2,318,710
              )Total
                  Stockholders’ Deficiency
              
              
              (1,562,191
              )**TOTAL
                  LIABILITIES AND STOCKHOLDERS’ DEFICIENCY**
              
              $
              12,475







See
      accompanying notes to condensed financial statements.








F-1






**ALLIANCE
        RECOVERY CORPORATION**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **CONDENSED
        STATEMENTS OF OPERATIONS**
 **(UNAUDITED)**




For
                  the Three Months September 30,
              
              For
                  the Nine Months September 30,
              
              For
                  The Period From November 6, 2001 (Inception) to September 30,
                  20062006
              
              2005
              
              2006
              
              2005**OPERATING
                  EXPENSES**Consulting
                  fees
              
              $
              1,500
              
              $
              135,271
              
              
              1,500
              
              $
              67,963
              
              $
              528,368Consulting
                  fees - related party
              
              
              62,500
              
              
              62,500
              
              
              187,500
              
              
              187,500
              
              
              1,208,333Professional
                  fees
              
              
              11,718
              
              
              37,676
              
              
              41,000
              
              
              57,709
              
              
              282,443General
                  and administrative
              
              
              7,861
              
              
              38,236
              
              
              36,016
              
              
              94,262
              
              
              285,184**TOTAL
                  EXPENSES**
              
              
              83,579
              
              
              273,683
              
              
              266,016
              
              
              407,434
              
              
              2,304,328Interest
                  Expense
              
              
              8,198
              
              
              -
              
              
              13,196
              
              
              -
              
              
              14,382**NET
                  LOSS BEFORE INCOME TAXES**
              
              
              (91,777
              )
              
              (273,683
              )
              
              (279,212
              )
              
              (407,434
              )
              
              (2,318,710
              )Provision
                  for income taxes
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -**NET
                  LOSS**
              
              $
              (91,777
              )
              $
              (273,683
              )
              
              (279,212
              )
              $
              (407,434
              )
              $
              (2,318,710
              )Net
                  loss per share - basic and diluted
              
              $
              (0.01
              )
              
              (0.02
              )
              
              (0.02
              )
              
              (0.02
              )
              $
              (0.14
              )Weighted
                  average number of shares outstanding during the period - basic
                  and
                  diluted
              
              
              16,911,526
              
              
              16,817,680
              
              
              16,844,677
              
              
              16,693,632
              
              
              16,517,130


See
        accompanying notes to condensed financial statements.
     F-2




**ALLIANCE
        RECOVERY CORPORATION**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **CONDENSED
        STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIENCY**
 **FOR
        THE PERIOD FROM NOVEMBER 6, 2001 (INCEPTION) TO SEPTEMBER 30,
        2006**
 **(UNAUDITED)**




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, nine months ended September 30, 2006
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              (279,212
              )
              
              (279,212
              )**BALANCE,
                  SEPTEMBER 30, 2006**
              
              
              16,947,179
              
              $
              169,472
              
              $
              593,347
              
              $
              (6,300
              )
              $
              -
              
              $
              (2,318,710
              )
              $
              (1,562,191
              )


See
        accompanying notes to condensed financial statements.






F-3




**ALLIANCE
        RECOVERY CORPORATION**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **CONDENSED
        STATEMENTS OF CASH FLOWS**
 **(UNAUDITED)**




For
                  The
                Nine
                  Months Ended September 30, 2006
              
              For
                  The
                Nine
                  Months Ended September 30, 2005 (Restated)
              
              For
                  The Period From November 6, 2001 (Inception) To
                September
                  30, 2006**CASH
                  FLOWS FROM OPERATING ACTIVITIES:**Net
                  loss
              
              $
              (279,212
              )
              $
              (407,434
              )
              $
              (2,318,710
              )Adjustments
                  to reconcile net loss to net cash used in operating
                  activities:Stock
                  issued for services
              
              
              6,237
              
              
              110,196
              
              
              440,155Depreciation
                  expense
              
              
              1,675
              
              
              1,674
              
              
              5,863Amortization
                  of note payable discount
              
              
              5,114
              
              
              -
              
              
              12,300Changes
                  in operating assets and liabilities:Prepaid
                  expenses
              
              
              -
              
              
              (1,621
              )
              
              -Due
                  to related party
              
              
              29,654
              
              
              -
              
              
              337,813Accounts
                  payable and accrued expenses
              
              
              24,968
              
              
              (18,724
              )
              
              64,330Net
                  Cash Used In Operating Activities
              
              
              (211,564
              )
              
              (315,909
              )
              
              (1,458,249
              )**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:**Cash
                  overdraft
              
              
              -
              
              
              9,019
              
              
              -Proceeds
                  from issuance of debt
              
              
              -
              
              
              -
              
              
              98,700Proceeds
                  from issuance of debt - related party
              
              
              200,000
              
              
              -
              
              
              194,000Proceeds
                  from issuance of common stock subject to rescission
              
              
              -
              
              
              -
              
              
              1,084,823Proceeds
                  from issuance of common stock
              
              
              -
              
              
              226,960
              
              
              99,064Net
                  Cash Provided By Financing Activities
              
              
              200,000
              
              
              235,979
              
              
              1,476,587NET
                  INCREASE (DECREASE) IN CASH
              
              
              (11,564
              )
              
              (79,930
              )
              
              7,172CASH
                  AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
              
              
              18,736
              
              
              82,021
              
              
              -CASH
                  AND CASH EQUIVALENTS AT END OF PERIOD
              
              $
              7,172
              
              $
              2,091
              
              $
              7,172**SUPPLEMENTAL
                  DISCLOSURE OF CASH FLOW INFORMATION:**Cash
                  paid for income taxes
              
              $
              -
              
              $
              -
              
              $
              -Cash
                  paid for interest expense
              
              $
              -
              
              $
              -
              
              $
              -**SUPPLEMENTAL
                  DISCLOSURE OF NON-CASH INVESTING AND FINANCING
                  ACTIVITIES:**During
                  the nine month period ended September 30, 2006, stockholders converted
                  $205,000 of notes payable and $12,300 of accrued interest into
                  136,669
                  shares of common stock.




See
        accompanying notes to condensed financial statements.






F-4


**ALLIANCE
        RECOVERY CORPORATION**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED FINANCIAL STATEMENTS**
 **AS
        OF SEPTEMBER 30, 2006**
 **(UNAUDITED)**
   **NOTE
        1**   **SUMMARY
        OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION**
  ***(A)
        Basis of Presentation***
  The
        accompanying unaudited condensed financial statements have been prepared
        in
        accordance with accounting principles generally accepted in The United States
        of
        America and the rules and regulations of the Securities and Exchange Commission
        for interim financial information. Accordingly, they do not include all the
        information necessary for a comprehensive presentation of financial position
        and
        results of operations.
  It
        is
        management’s opinion, however that all material adjustments (consisting of
        normal recurring adjustments) have been made which are necessary for a fair
        financial statements presentation. The results for the interim period are
        not
        necessarily indicative of the results to be expected for the year.
  ***(B)
        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 September 30, 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.
       F-5
  **ALLIANCE
        RECOVERY CORPORATION**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED FINANCIAL STATEMENTS**
 **AS
        OF SEPTEMBER 30, 2006**
 **(UNAUDITED)**
   ***(E)
        Stock-Based Compensation***
  In
        December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment," which
        replaces SFAS No. 123 and supersedes APB Opinion No. 25. Under SFAS No. 123(R),
        companies are required to measure the compensation costs of share-based
        compensation arrangements based on the grant-date fair value and recognize
        the
        costs in the financial statements over the period during which employees
        are
        required to provide services. Share-based compensation arrangements include
        stock options, restricted share plans, performance-based awards, share
        appreciation rights and employee share purchase plans. In March 2005 the
        SEC
        issued Staff Accounting Bulletin No. 107, or "SAB 107". SAB 107 expresses
        views
        of the staff regarding the interaction between SFAS No. 123(R) and certain
        SEC
        rules and regulations and provides the staff's views regarding the valuation
        of
        share-based payment arrangements for public companies. SFAS No. 123(R) permits
        public companies to adopt its requirements using one of two methods. On April
        14, 2005, the SEC adopted a new rule amending the compliance dates for SFAS
        123R. Companies may elect to apply this statement either prospectively, or
        on a
        modified version of retrospective application under which financial statements
        for prior periods are adjusted on a basis consistent with the pro forma
        disclosures required for those periods under SFAS 123. Effective January
        1,
        2006, the Company has fully adopted the provisions of SFAS No. 123R and related
        interpretations as provided by SAB 107. As such, compensation cost is measured
        on the date of grant at their fair value. Such compensation amounts, if any,
        are
        amortized over the respective vesting periods of the option grant. The Company
        applies this statement prospectively.
  ***(F)
        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 September 30, 2006 and 2005, 3,032,752 and
        2,876,502; respectively of common share equivalents were anti-dilutive and
        not
        used in the calculation of diluted net loss per share.
  ***(G)
        Business Segments***
  The
        Company operates in one segment and therefore segment information is not
        presented.
  ***(H)
        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.
  ***(I)
        Recent Accounting Pronouncements***
  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-6
  **ALLIANCE
        RECOVERY CORPORATION**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED FINANCIAL STATEMENTS**
 **AS
        OF SEPTEMBER 30, 2006**
 **(UNAUDITED)**
  
 
 
 **NOTE
        2**  **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 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.
        As
        of September 30, 2006 the Company recorded and accrued interest expense of
        $2,082.
  **NOTE
        3**  **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.
     F-7
  **ALLIANCE
        RECOVERY CORPORATION**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED FINANCIAL STATEMENTS**
 **AS
        OF SEPTEMBER 30, 2006**
 **(UNAUDITED)**
    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 September
        30,
        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 September
        30,
        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 September
        30, 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 September 30, 2006.
 
 
 **NOTE
        4**  **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).
  For
        the
        year ended December 31, 2005 the Company collected $42,774 of subscription
        receivables.
  
  F-8
  **ALLIANCE
        RECOVERY CORPORATION**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED FINANCIAL STATEMENTS**
 **AS
        OF SEPTEMBER 30, 2006**
 **(UNAUDITED)**
    ***(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 shares of common stock 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
        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, 2003 and 2002, 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 recognized consulting expense of $143,463 under
        the agreement. For the six months ended June 30, 2006 the Company recognized
        consulting expense of $6,237 under the agreement.
    F-9
  **ALLIANCE
        RECOVERY CORPORATION**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED FINANCIAL STATEMENTS**
 **AS
        OF SEPTEMBER 30, 2006**
 **(UNAUDITED)**
    In
        December 2005 the Company issued 5,000 shares of common stock with a fair
        market
        value of $2,500 for services.
  ***(D)
        Common Stock and Warrants Issued for Conversion of Notes
        Payable***
 
 Between
        October and December 2005 three investors and a director loaned the Company
        a
        total of $205,000. The notes are unsecured, due one year from the date of
        issuance and are non interest bearing for the first nine months, then accrued
        interest at a rate of 6% per annum for the remaining three months.  The
        Company imputed interest of $12,300 on the non interest bearing portion of
        the
        notes at a rate of 6% per annum. On July 21, 2006, we amended four promissory
        notes (the “Amended Notes”) originally executed on October 7, 2005 in favor of
        Lewis Martin, James E. Schiebel, Susan Hutchison, and Walter Martin respectively
        (each a “Holder” and collectively the “Holders”). The Amended Notes provide for
        a conversion feature pursuant to which each Holder is entitled to convert
        the
        outstanding principal amount into shares of the Company’s common stock at a
        conversion rate of $1.50 per share. In addition, upon conversion, each Holder
        is
        entitled to receive a warrant to purchase one-quarter of one share of our
        common
        stock exercisable within one-year of issuance at an exercise price of $1.50
        per
        share. On July 24, 2006, pursuant to the terms of the Amended Notes, the
        Holders
        converted the principal amount outstanding into shares of our common stock.
        Based on same, we issued an aggregate of 136,669 shares of our common stock
        and
        a price of $1.50 per share (the “Conversion Shares”). In addition, we issued
        warrants with a cashless exercise provision to purchase an aggregate of 51,250
        shares of our common stock to the Holders exercisable within one year of
        issuance at a price per share of $1.50 (the “Conversion Warrants”). The
        Conversion Shares and shares underlying the Conversion Warrants are restricted
        in accord with Rule 144 promulgated under the Securities Act of 1933, as
        amended.
 
 ***(E)
        Common Stock Warrants***
  The
        Company issued 382,573 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.
  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 3,032,752 and 2,876,502 warrants outstanding
        at
        September 30, 2006 and 2005, respectively. The Company has reserved 3,032,752
        shares of common stock for the future exercise of the warrants at September
        30,
        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
        5**  **RELATED
        PARTY TRANSACTIONS**
  See
        Note
        2 & 6.
 
 **NOTE
        6**  **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 (See
        Note 5). The Company has accrued
     F-10
  **ALLIANCE
        RECOVERY CORPORATION**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED FINANCIAL STATEMENTS**
 **AS
        OF SEPTEMBER 30, 2006**
 **(UNAUDITED)**
   $337,813
        under the agreement to the consultant at September 30, 2006. For the period
        November 6, 2001(inception) to September 30, 2006, the Company recorded
        $1,208,333 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 shares of common stock 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 has been amortized
        over the life of the agreement ($0.50 per share)).
  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
    F-11
  **ALLIANCE
        RECOVERY CORPORATION**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED FINANCIAL STATEMENTS**
 **AS
        OF SEPTEMBER 30, 2006**
 **(UNAUDITED)**
   $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. During the three months ended March 31, 2006 and 2005 and
        for
        the period from November 6, 2001 to March 31, 2006, the Company recorded
        consulting expense of $6,237, $35,346 and $149,700, respectively under the
        agreement.
  ***(B)
        License Agreement***
  Upon
        effectiveness of the employment agreement with our Chief Executive Officer
        and
        President, the Company will be entitled to use certain technology and know-how
        that is owned by our Chief Executive Officer and President royalty free until
        the end of the employment agreement. Upon termination of the employment
        agreement with the Chief Executive Officer and President, the Company has
        the
        right to license the technology for a one time fee. The license fee will
        be
        negotiated by the Company and the Chief Executive Officer and will equal
        the
        replacement value of such technology and will be determined with reference
        to
        the engineer’s opinion dated March 6, 2002, a copy of which is attached to the
        employment agreement (See Note6(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
        Notes
        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
    F-12
  **ALLIANCE
        RECOVERY CORPORATION**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED FINANCIAL STATEMENTS**
 **AS
        OF SEPTEMBER 30, 2006**
 **(UNAUDITED)**
   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
        state
        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.
 
 **NOTE
        7**  **GOING
        CONCERN**
  As
        reflected in the accompanying financial statements, the Company is in the
        development stage with no operations, has a stockholders’ deficiency of
        $1,562,191, a working capital deficiency of $482,671 and used cash in operations
        from inception of $1,458,249. These factors raise substantial doubt about
        the
        Company’s 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.
     F-13
  **ALLIANCE
        RECOVERY CORPORATION**
 **(A
        DEVELOPMENT STAGE COMPANY)**
 **NOTES
        TO CONDENSED FINANCIAL STATEMENTS**
 **AS
        OF SEPTEMBER 30, 2006**
 **(UNAUDITED)**
    **NOTE
        8**  **SUBSEQUENT
        EVENTS**
  
 In
        October 2006 an investor loaned the Company a total of $25,000. The note
        is
        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






F-14


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




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




**Overview**




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




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




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




The
      successful implementation of the business plan will also be dependent on our
      ability to meet the challenges of developing a management team capable of not
      only the construction and operation of the first installation but also marketing
      management and the implementation of specific marketing strategies. These
      strategies will include the utilization of specific existing distributors
      currently in the business of marketing carbon black. As well, we will be going
      to regional disposal operators and collectors to offer our services as a point
      of final disposition for their collection and disposal
      requirements.




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




No
      revenues have been generated to date 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, 562 , 191 and cash
      used in operations from inception through September
      30 ,
      2006 of
      $1, 458,249 .
      As of September
      30 ,
      2006,
      we had a working capital deficiency of $ 477,368 .













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 $2,681,502 from the exercise of warrants to purchase
        2,681,502 shares of our common stock which are exercisable at $1.00 per share.
        In addition, we will also receive $1,250,000 from the exercise of warrants
        to
        purchase an aggregate of 200,000 shares held by Mirador Consulting Inc. Such
        warrants are exercisable at the following prices: 100,000 at $5.00 per share
        and
        100,000 at $7.50 per share. In addition, we will also receive $226,875 from
        the
        exercise of warrants to purchase an aggregate of 151,250 shares of our common
        stock which are exercisable at $1.50 per share. Therefore, we will receive
        aggregate proceeds of $4,158,377 from the exercise of all 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 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.




We
      intend
      to seek a quotation of our common stock on the OTC Bulletin Board. We will
      need
      to have an NASD registered broker-dealer file an application for such quotation.
      There are no quantitative or qualitative requirements for a quotation on the
      OTC
      Bulletin Board. The efforts of our management team and our consultants and
      advisors will be to complete appropriate financing arrangements. The completion
      of the $20 million financing will be our exclusive effort prior to the
      construction and development of the first installation.




Upon
      completion of the $20 million 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 the 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.




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 securing the capital required to implement our business
      plan.




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
      the Company not be able to 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 the Company has 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 the Company 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., the commercial operation of the Company would
      be delayed thereby not allowing the Company 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 supplier/fabricators. Regulatory changes causing delays in
      the
      construction, processing equipment installation and start-up of the showcase
      facility will lengthen the period of time for the Company to start to generate
      revenues from operations. The Company will only be in the position to commence
      a
      US expansion of processing facilities upon the successful completion, start-up
      and operation of the showcase facility.




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




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




Pursuant
      to preliminary discussions with corporate finance professionals, items #12
      and
      #13 set forth below include anticipated fees and expenses pertaining to the
      $20
      million 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)
                Administrative and Insurance
            $
            572,0003)
                Site Costs & Development Fees
            $
            264,0004)
                Media, Promotion & Government Relations
            $
            376,0005)
                Salaries, Wages & Fees
            $
            843,1526)
                Project Management, Legal, and Accounting
            $
            321,3007)
                Site Work
            $
            1,337,1008)
                Buildings
            $
            998,5009)
                Rubber to Oil Thermal Conversion Process Equipment
            $
            7,750,00010)Turn-key
                Energy System & Installation
            $
            5,000,00011)
                Warehouse & Conveyance Equipment Leases/Purchases
            $
            74,08312)
                Financing, Legal, & Accounting
            $
            200,00013)
                Administrative Contingency
            $
            1,783,865TOTAL
            $
            20,000,000




During
      the construction and installation of the first facility, management’s future
      Vice President of Marketing with assistance from its 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, 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 the Company’s 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 management’s belief, that
      since the early 1990s the federal EPA has been concerned with the interstate
      transportation of waste. The federal position seems to be that communities
      that
      generate should be responsible for the ultimate disposition of the waste within
      their municipality. An attempt to limit interstate transportation of waste
      was
      contained in the Interstate Modal Transportation Act which was never approved
      as
      originally proposed.




Community
      based environmental initiatives are being encouraged. Dealing with waste at
      the
      source is considered much more environmentally friendly than trucking the waste
      hundreds of miles away. The first installation is perceived as a convenient
      and
      environmentally friendly solution to rubber waste. The targeted marketing
      campaign will exploit the current thinking pertaining to community based waste
      reduction and processing and waste to energy initiatives. However, there may
      be
      difficulties associated with encouraging the existing disposal and
      transportation infrastructure to utilize the Alliance installation as an
      alternative to their current method of disposal. Historic relationships between
      the existing infrastructure serving retailers and dumps or processors often
      hundreds of miles away and the financial commitment to 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.







A
      targeted marketing campaign pertaining to the sale of carbon black and scrap
      steel will also commence prior to completion of construction. However, the
      Company 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
      the operation of 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 supplier/fabricators correction of deficiencies,
      the
      Company could be delayed in its 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 the Companies 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,
      the Company’s 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 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, the Company 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 several of the hydroponics operators
      that have discussed our ability to generate heat, that a 15 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, the
      Company will be positioned to provide details as to the amount of steam and/or
      hot water that be generated for conveyance to the greenhouse via an insulated
      pipeline. A heat exchanger will transfer the heat from the ARC steam and/or
      hot
      water to the hot water in the hydroponics operator’s underground reservoir. The
      ARC cooled condensate and/or water will be returned to the ARC via the
      aforementioned pipeline heated again and once again returned to the greenhouse
      in a closed loop system.




Several
      methods of compensation for ARC heat sources have been discussed. These include
      a percentage of the hydroponics greenhouse gross or net sales and discounted
      avoided cost which is the operators cost of natural gas or fuel oil less a
      negotiated discount. The Company will not be positioned to enter into specific
      negotiations until such time as the $20 Million 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, 562,191 a
      working capital deficiency of $ 477,368 and
      used
      cash in operations from inception of $ 1,458,249 .
      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 the Company is 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
      unaudited balance sheet as of September
      30 ,
      2006
      reflects assets of $ 12,475 consisting of cash of $ 7,172 and
      property and equipment of $ 5,303 and
      total liabilities of $ 489,843 consisting of accounts payable and accrued expenses of $ 52,030 ,
      an
      amount of $ 337,183 due to a
      related party, and a note payable of $ 100,000.





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




**Recent
      Accounting Pronouncements**




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.




**Rescission
      Offer**




Background




In
      November 2005, we concluded a rescission offer to certain purchasers of our
      securities. Between April 2002 and June 2004, we conducted private offerings
      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 Offerings”). Pursuant to the
      Initial Offerings, 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 Offerings.




Upon
      the
      completion of the Initial Offerings, 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 Offerings with
      sufficient authorized capitalization.




Between
      March 2005 and May 2005, we conducted nine separate private offerings of shares
      of our common stock at a price per share of $1.00 (the “Second Offerings”).
      Pursuant to the Second Offerings, we issued an aggregate of 183,000 shares
      of
      our restricted common stock. We raised a total of $183,000 in the Second
      Offerings.




The
      Initial Offerings and Second Offerings may have violated federal securities
      laws
      based on the inadequacy of our disclosures made in our private placement
      memoranda 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.











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, as set forth in this section, 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 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. 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.




**Subsequent
      Events**




In
      October 2006 an investor loaned the Company a total of $25,000. The note is
      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




**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 of estimates and underlying accounting assumptions adhere to
      GAAP and are consistently and conservatively applied. We base our estimates
      on
      historical experience and on various other assumptions that we believe to be
      reasonable under the circumstances. Actual results may differ materially from
      these estimates under different assumptions or conditions. We continue to
      monitor significant estimates made during the preparation of our financial
      statements.




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




**Off
      Balance Sheet Arrangements**




We
      have
      no off-balance sheet arrangements.







**Item
      3.**  **Controls
      and Procedures**




**Evaluation
      of disclosure controls and procedures**




Under
      the
      supervision and with the participation of our management, including our
      principal executive officer and principal financial officer, we conducted an
      evaluation of our disclosure controls and procedures, as such term is defined
      under Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities
      Exchange Act of 1934, as amended (Exchange Act), as of September 30, 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 officer and
      principal financial officer, or persons performing similar functions, as
      appropriate to allow timely decisions regarding required
      disclosure.




**Changes
      in internal controls**




There
      were no changes (including corrective actions with regard to significant
      deficiencies or material weaknesses) in our internal controls over financial
      reporting that occurred during the third quarter of fiscal 2006 that has
      materially affected, or is reasonably likely to materially affect, our internal
      control over financial reporting.



















**PART
      II - OTHER INFORMATION**


**Item
      1.**   **Legal
      Proceedings.**




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





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




On
      July
      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
      Conversion Warrants were issued pursuant to an exemption from registration
      under
      Section 4(2) of the Securities Act of 1933.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.





**Item
      3.**   **Defaults
      Upon Senior Securities.**




None





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




No
      matter
      was submitted during the quarter ending September
      31 ,
      2006,
      covered by this report to a vote of our shareholders, through the solicitation
      of proxies or otherwise.





**Item
      5.**   **Other
      Information.**




None





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




(a)
            Reports
                on Form 8-K and Form 8K-ANone(b)
            Exhibits**Exhibit
                Number**
            **Exhibit
                Title**31.1
            Certification
                of Peter Vaisler pursuant to 18 U.S.C. Section 1350 as adopted pursuant
                to
                Section 302 of the Sarbanes-Oxley Act of 2002.32.1
            Certification
                of Peter Vaisler pursuant to 18 U.S.C. Section 1350 as adopted pursuant
                to
                Section 906 of the Sarbanes-Oxley Act of 2002.






















**SIGNATURES**




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




**ALLIANCE
      RECOVERY CORPORATION**




By: /s/ *Peter
      Vaisler*


Peter
      Vaisler,


Chairman
      of the Board of Directors,


President,
      Chief Executive Officer,


Principal
      Financial Officer and


Principal
      Accounting Officer




November
      9 ,
      2006