UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ______________  FORM 10-QSB ______________  x
        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the quarterly period ended June 30, 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 ofincorporation 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. YesxNoo  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. YesoNox  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 August 11, 2006: 18,933,825 shares of common stock.  Transitional Small Business Disclosure Format (check one): YesoNox     Item 1.
        Financial Information







ALLIANCE RECOVERY CORPORATION

(A DEVELOPMENT STAGE COMPANY)





CONTENTS


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

ALLIANCE RECOVERY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONDENSEDBALANCE SHEET

AS OF JUNE 30, 2006

(UNAUDITED)










ASSETSCURRENT ASSETSCash
        $
        92,508Total Current Assets
        
        92,508PROPERTY AND EQUIPMENT, NET
        
        5,861TOTAL ASSETS
        $
        98,369LIABILITIES AND STOCKHOLDERS DEFICIENCYCURRENT LIABILITIESAccounts payable and accrued expenses
        $
        74,179Due to related party
        
        328,197Notes payable, net of discount of $1,990
        
        103,010Notes payable  related party, net of discount of $4,126
        
        195,874TOTAL LIABILITIES
        
        701,260COMMITMENTS AND CONTINGENCIESCommon stock subject to rescission offer, $0.01 par value, 1,986,646 shares issued and outstanding
        
        1,084,823STOCKHOLDERS DEFICIENCYCommon stock, $0.01 par value, 100,000,000 shares authorized, 16,810,510 shares issued and outstanding
        
        168,105Additional paid in capital
        
        377,414Subscriptions receivable
        
        (6,300)Accumulated deficit during development stage
        
        (2,226,933)Total Stockholders Deficiency
        
        (1,687,714)TOTAL LIABILITIES AND STOCKHOLDERS DEFICIENCY
        $
        98,369

See accompanying notes to condensed financial statements.

1



ALLIANCE RECOVERY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONDENSEDSTATEMENTS OF OPERATIONS

(UNAUDITED)










For the Three Months Ended June 30, 2006
        
        For the Three Months Ended June 30, 2005
        
        For the Six Months Ended June 30, 2006
        
        For the Six Months Ended June 30, 2005
        
        For the Period from
November 6, 2001 (Inception) to June 30, 2006 (Restated)OPERATING EXPENSESConsulting fees
        $
        -
        $
        37,425
        $
        -
        $
        72,771
        $
        526,868Consulting fees  related party
        
        62,500
        
        62,500
        
        125,000
        
        125,000
        
        1,083,333Professional fees
        
        14,740
        
        13,215
        
        29,282
        
        37,676
        
        256,183General and administrative
        
        6,019
        
        16,782
        
        28,155
        
        34,436
        
        255,187Total Operating Expenses
        
        83,259
        
        129,922
        
        182,437
        
        269,883
        
        2,121,571LOSS FROM OPERATIONS
        
        (83,259)
        
        (129,922)
        
        (182,437)
        
        (269,883)
        
        (2,121,571)OTHER EXPENSEInterest expense
        
        (3,067)
        
        -
        
        (4,998)
        
        -
        
        (3,117)Total Other Expense
        
        (3,067)
        
        -
        
        (4,998)
        
        -
        
        (3,117)LOSS BEFORE PROVISION FOR INCOMETAXES
        
        (86,326)
        
        (129,922)
        
        (187,435)
        
        (269,883)
        
        (2,124,688)Provision for Income Taxes
        
        -
        
        -
        
        -
        
        -
        
        -NET LOSS
        $
        (86,326)
        $
        (129,922)
        $
        (187,435)
        $
        (269,883)
        $
        (2,124,688)Net loss per share - basic and diluted
        $
        (0.01)
        $
        (0.01)
        $
        (0.01)
        $
        (0.02)
        $
        (0.13)Weighted average number of shares outstanding during the period - basic and diluted
        
        16,819,510
        
        16,456,510
        
        16,819,510
        
        16,456,510
        
        16,479,126




See accompanying notes to condensed financial statements.

2



ALLIANCE RECOVERY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONDENSEDSTATEMENTS OF CHANGES IN STOCKHOLDERS DEFICIENCY

FOR THE PERIOD FROM NOVEMBER 6, 2001 (INCEPTION) TO JUNE 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)

See accompanying notes to condensed financial statements.

3



ALLIANCE RECOVERY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONDENSEDSTATEMENTS OF CHANGES IN STOCKHOLDERS DEFICIENCY

FOR THE PERIOD FROM NOVEMBER 6, 2001 (INCEPTION) TO JUNE 30, 2006

(UNAUDITED)










Common Stock
        
        Additional Paid-In
        
        Subscription
        
        Deferred Stock
        
        Accumulated Deficit During DevelopmentShares
        
        Amount
        
        Capital
        
        Receivable
        
        Compensation
        
        Stage
        
        TotalCommon 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
        
        -
        
        6,237Net loss for the six months ended June 30, 2006
        
        -
        
        -
        
        -
        
        -
        
        -
        
        (187,435)
        
        (187,435)BALANCE, JUNE 30, 2006
        
        16,810,510
        $
        168,105
        $
        377,414
        $
        (6,300)
        $
        -
        $
        (2,226,933)
        $
        (1,687,714)

See accompanying notes to condensed financial statements.

4



ALLIANCE RECOVERY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

CONDENSEDSTATEMENTS OF CASH FLOWS

(UNAUDITED)










For the Six Months Ended
June 30, 2006
        
        For the Six Months Ended
June 30, 2005 (Restated)
        
        For the
Period From
December 17, 1999
(Inception) to
June 30, 2006CASH FLOWS FROM OPERATING ACTIVITIES:Net loss
        $
        (187,435)
        $
        (269,883)
        $
        (2,226,933)Adjustments to reconcile net loss to net cash used in operating activities:Stock issued for services
        
        6,237
        
        72,771
        
        440,155Depreciation expense
        
        1,117
        
        1,117
        
        5,305Amortization
        
        4,998
        
        -
        
        6,184Changes in operating assets and liabilities:Due to related party
        
        20,038
        
        -
        
        328,197Accounts payable and accrued expenses
        
        28,817
        
        (33,734)
        
        61,879Net Cash Used In Operating Activities
        
        (126,228)
        
        (229,729)
        
        (1,385,213)CASH FLOWS FROM INVESTING ACTIVITIES:Purchase of property and equipment
        
        -
        
        -
        
        (11,166)Net Cash Provided By Financing Activities
        
        -
        
        -
        
        (11,166)CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of debt
        
        -
        
        -
        
        105,000Proceeds from issuance of debt  related party
        
        200,000
        
        -
        
        200,000Proceeds from issuance of common stock subject to rescission
        
        -
        
        183,000
        
        1,084,823Proceeds from issuance of common stock
        
        -
        
        -
        
        99,064Net Cash Provided By Financing Activities
        
        200,000
        
        183,000
        
        1,488,887NET INCREASE (DECREASE) IN CASH
        
        73,772
        
        (46,729)
        
        92,508CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
        
        18,736
        
        82,021
        
        -CASH AND CASH EQUIVALENTS AT END OF PERIOD
        $
        92,508
        $
        35,292
        $
        92,508SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:Cash paid for interest
        $
        -
        $
        -
        $
        -Cash paid for taxes
        $
        -
        $
        -
        $
        -

See accompanying notes to condensed financial statements.

5



ALLIANCE RECOVERY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSEDFINANCIAL STATEMENTS

AS OF JUNE 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 June 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.











6



ALLIANCE RECOVERY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSEDFINANCIAL STATEMENTS

AS OF JUNE 30, 2006

(UNAUDITED)







(E) Stock-Based Compensation



The Company applies Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and Related Interpretations, in accounting for stock warrants issued to employees. Under APB No. 25, employee compensation cost is recognized when estimated fair value of the underlying stock on date of grant exceeds exercise price of the stock option. For stock options and warrants issued to non-employees, the Company applies Statements of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, which requires the recognition of compensation cost based upon the fair value of stock warrants at the grant date using the Black-Scholes option pricing model.



(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 June 30, 2006 and 2005, 2,981,502 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.



(L) 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.





7



ALLIANCE RECOVERY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSEDFINANCIAL STATEMENTS

AS OF JUNE 30, 2006

(UNAUDITED)








NOTE 2
        RESTATEMENT

The financial statements for the six months ended June 30, 2005 have been restated due to the Company discovering that the authorized capitalization was not sufficient to permit the Company issue common stock sold to investors during the private placement prior to July 2005. Between April 2002 and July 2005 the Company issued an aggregate of 1,986,646 shares of common stock. The following adjustments and reclassifications have been made to the June 30, 2005 financial statements are detailed as follows:




(a)
        Common stock has been restated to reduce the number of shares issued by 1,986,646.


(b)
        Additional paid-in capital has been restated by $1,084,823.


(c)
        The shares issued during April 2002 through July 2004 have been classified outside of equity in the balance sheet and classified as common stock subject to rescission.


NOTE 3
        PROPERTY AND EQUIPMENT

Property and equipment at June 30, 2006 were as follows:




Computer
        $
        11,166Less accumulated depreciation
        
        (5,305)$
        5,861

During the six months ended June 30, 2006 and 2005 and for the period from November 6, 2001 to June 30, 2006, the Company recorded depreciation expense of $1,117, $1,117 and $5,305, respectively.




NOTE 4
        NOTES PAYABLE


Note amount
        $
        105,000Discount
        
        (1,990)Balance
        $
        103,010

Between October and December 2005 three investors loaned the Company a total of $105,000. 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 on the non interest bearing portion of the notes at a rate of 6% per annum. At June 30, 2006 the Company recorded a discount on the notes of $6,300.



8



ALLIANCE RECOVERY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSEDFINANCIAL STATEMENTS

AS OF JUNE 30, 2006

(UNAUDITED)





During the three and six months ended June 30, 2006 and 2005 and for the period from November 6, 2001 to June 30, 2006, the Company recorded amortization expense of $3,124, $0 and $1,571,$0, and $4,310, respectively.




NOTE 5
        NOTES PAYABLE  RELATED PARTY


Note amount
        $
        200,000Discount
        
        (4,126)Balance
        $
        195,874

In February, 2006 a director of the Company loaned the Company $100,000. The loan is interest free for the first nine months and six percent interest for the last three months. The loan is unsecured and due March 8, 2007.



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.



The Company imputed interest on the non interest bearing portion of the notes at a rate of 6% per annum. At June 30, 2006 the Company recorded a discount on the notes of $6,000. During the three and six months ended June 30, 2006 and 2005 and for the period from November 6, 2001 to June 30, 2006, the Company recorded amortization expense of $1,874, $0, $1,874, $0 and $1,874, respectively.




NOTE 6
        EQUITY SUBJECT TO RESCISSION

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







9



ALLIANCE RECOVERY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSEDFINANCIAL STATEMENTS

AS OF JUNE 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 June 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 June 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 June 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 June 30, 2006.




NOTE 7
        STOCKHOLDERS EQUITY

(A) Common Stock Issued to Founders



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



(B) Common Stock and Warrants Issued for Cash



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



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



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



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





10



ALLIANCE RECOVERY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSEDFINANCIAL STATEMENTS

AS OF JUNE 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.



11



ALLIANCE RECOVERY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSEDFINANCIAL STATEMENTS

AS OF JUNE 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 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 common stock units for cash and services, the Company has an aggregate of 2,881,502 and 2,876,502 warrants outstanding at June 30, 2006 and 2005, respectively. The Company has reserved 2,881,502 shares of common stock for the future exercise of the warrants at December 31, 2005.



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 123 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.



(E) 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 8
        RELATED PARTY TRANSACTIONS

See Notes 5 and 7.




NOTE 9
        COMMITMENTS AND CONTINGENCIES

(A) Consulting Agreements



During December 2001, the Company entered into an agreement with a consultant to serve as its interim President for a term of up to five years. The agreement called for annual compensation of $250,000. The agreement expires the earlier of December 2006 or on the effectiveness of an SB-2 Registration Statement (See Note 10). The Company has accrued



12



ALLIANCE RECOVERY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSEDFINANCIAL STATEMENTS

AS OF JUNE 30, 2006

(UNAUDITED)





$328,197 under the agreement to the consultant at June 30, 2006. For the period November 6, 2001(inception) to June 30, 2006, the Company recorded $1,083,333 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 will be amortized over the life of the agreement ($0.50 per share) (See Note 6(A)).



In January 2005, the Company entered into a consulting agreement with a consultant to provide management and public relations services. The agreement calls for the consultant to provide services for a period of one year and the consultant to receive compensation of



13



ALLIANCE RECOVERY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSEDFINANCIAL STATEMENTS

AS OF JUNE 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 Note 5(A)).



(C) Employment Agreement



During 2004, the Company entered into an employment agreement with a consultant to assume the position of Chief Executive Officer and President for a term of five years at an annual minimum salary of $250,000 with additional bonuses and fringe benefits. The agreement is to become effective upon the approval by the Securities and Exchange Commission on the SB-2 Registration Statement (See 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



14



ALLIANCE RECOVERY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSEDFINANCIAL STATEMENTS

AS OF JUNE 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 10
        GOING CONCERN

As reflected in the accompanying financial statements, the Company is in the development stage with no operations, has a stockholders deficiency of $1,687,714, a working capital deficiency of $608,752 and used cash in operations from inception of $1,385,213. 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.







15



ALLIANCE RECOVERY CORPORATION

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSEDFINANCIAL STATEMENTS

AS OF JUNE 30, 2006

(UNAUDITED)








NOTE 11
        SUBSEQUENT EVENTS

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 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.





16







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 $1,687,714 and cash used in operations from inception through June 30, 2006 of $1,385,213. As of June 30, 2006, we had a working capital deficiency of $608,752.





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 $2,881,502 from the exercise of warrants to purchase 2,881,502 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 $4,358,377 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 $1,687,714, a working capital deficiency of $608,752 and used cash in operations from inception of $1,385,213. 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 June 30, 2006 reflects assets of $98,369 consisting of cash of $92,508 and property and equipment of $5,861 and total liabilities of $701,260 consisting of accounts payable and accrued expenses of $74,179, an amount of $328,197 due to a related party, and a two notes payable of $103,010 and $195,874 respectively.



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 price



plus interest at the legal rate and the value of the security at the time it was disposed of by the investor plus the amount of any income, if any, received from the security by the investor. Generally, certain state securities laws provide that no suit can be maintained by an investor to enforce any liability created under certain state securities statues if the seller makes a written offer to refund the consideration paid together with interest at the legal rate less the amount of any income, if any, received on the security or to pay damages and the investor refuses or fails to accept the offer within a specified period of time, generally not exceeding 30 days from the date the offer is received.



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



In addition, the various states in which the purchasers reside could bring administrative actions against as a result of the rescission offer. The remedies vary from state to state but could include enjoining us from further violations of the subject state law, imposing civil penalties, seeking administrative assessments and costs for the investigations or bringing suit for damages on behalf of the purchaser.



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



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



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 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.



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 June 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 first 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.

None




Item 3.
        Defaults Upon Senior Securities.

None




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

No matter was submitted during the quarter ending June 30, 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.




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


(a)
        Reports on Form 8-K and Form 8K-A
        Incorporated by reference to Form 8-K filed on March 23, 2006 (File No. 333-121659)(b)
        ExhibitsExhibit Number
        Exhibit Title31.1
        Certification of Peter Vaisler pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
        Certification of Peter Vaisler pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.







SIGNATURES



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



ALLIANCE RECOVERY CORPORATION



By:/s/Peter Vaisler

Peter Vaisler,

Chairman of the Board of Directors,

President, Chief Executive Officer,

Principal Financial Officer and

Principal Accounting Officer



August 11, 2006