UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 _______________
  FORM
10-Q
 _______________
  x
              QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
  For
the quarterly period ended September 30, 2008
  o
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 
 For the transition period from
______to______.
  ALLIANCE
RECOVERY CORPORATION
 (Exact
name of registrant as specified in Charter
  DELAWARE
              
              333-121659
              
              30-0077338(State
      or other jurisdiction of
                incorporation
      or organization)
              
              (Commission
      File No.)
              
              (IRS
      Employee Identification No.)
 
 1000
N.W., ST, SUITE 1200, WILMINGTON, DE  19801
 (Address
of Principal Executive Offices)
 _______________
  (302)
651-0177
 (Issuer
Telephone number)
 _______________
  (Former
Name or Former Address if Changed Since Last Report)
  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 Noo
  Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company filer.
 See definition of “accelerated filer” and “large accelerated filer” in
Rule 12b-2 of the Exchange Act (Check one):
  Large
Accelerated Filer o     Accelerated
Filer o     Non-Accelerated
Filer o    Smaller
Reporting Company x
 
 Indicate
by check mark whether the registrant is a shell company as defined in Rule 12b-2
of the Exchange Act. Yes o No x
  State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of as of November 19, 2008:  30,510,800 shares of Common
Stock.
  
 
   ALLIANCE
RECOVERY CORPORATION
 
 FORM
10-Q
  September
30, 2008
  INDEX
  PART
I-- FINANCIAL INFORMATION
  Item
      1.
              Financial
      StatementsItem
      2.
              Management’s
      Discussion and Analysis of Financial ConditionItem
      3
              Quantitative
      and Qualitative Disclosures About Market RiskItem
      4T.
              Control
      and Procedures
  PART
II-- OTHER INFORMATION
  Item
      1
              Legal
      ProceedingsItem
      1A
              Risk
      FactorsItem
      2.
              Unregistered
      Sales of Equity Securities and Use of ProceedsItem
      3.
              Defaults
      Upon Senior SecuritiesItem
      4.
              Submission
      of Matters to a Vote of Security HoldersItem
      5.
              Other
      InformationItem
      6.
              Exhibits
      and Reports on Form 8-K
  SIGNATURE






Item 1. Financial
Information




ALLIANCE
RECOVERY CORPORATION




(A
DEVELOPMENT STAGE COMPANY)




CONDENSED
BALANCE SHEETS




ASSETSSeptember
      30,
              
              
              Decemner
      31,2008
              
              
              2007CURRENT
      ASSETS
              
              
              (Unaudited)Cash
              
              
              $
              90
              
              
              $
              27,541Prepaid
      expenses
              
              
              
              5,000
              
              
              
              -Total
      Current Assets
              
              
              
              5,090
              
              
              
              27,541Property
      and Equipment, net
              
              
              
              837
              
              
              
              2,512TOTAL
      ASSETS
              
              
              $
              5,927
              
              
              $
              30,053LIABILITIES AND
      STOCKHOLDERS’ DEFICIENCYCURRENT
      LIABILITIESAccounts
      payable
              
              
              $
              98,758
              
              
              $
              54,316Accrued
      expenses
              
              
              
              54,210
              
              
              
              30,834Due
      to related party
              
              
              
              425,863
              
              
              
              427,493Notes
      payable - convertible related party, net of discount of $250 and $0
      respectively
              
              
              
              289,750
              
              
              
              -Notes
      payable - net of discount of $0
              
              
              
              -
              
              
              
              25,000Notes
      payable - related party
              
              
              
              -
              
              
              
              200,000TOTAL
      CURRENT LIABILITIES
              
              
              
              868,581
              
              
              
              737,643Notes
      payable - convertible related party, net of discount of $0 and $19,622,
      respectively
              
              
              
              53,368
              
              
              
              120,378Note
      payable - convertible , net of discount of $0 and $5,468,
      respectively
              
              
              
              -
              
              
              
              94,533TOTAL
      LONG TERM LIABILITIES
              
              
              
              53,368
              
              
              
              214,911TOTAL
      LIABILITIES
              
              
              
              921,949
              
              
              
              952,554COMMITMENTS
      AND CONTINGENCIES
              
              
              
              -
              
              
              
              -Common
      Stock Subject to Rescission Offer, $.01 par value,1,986,646
      shares issued and outstanding
              
              
              
              1,084,823
              
              
              
              1,084,823STOCKHOLDERS’
      DEFICIENCYCommon
      stock, $0.01 par value, 100,000,000 shares authorized, 26,774,154 and
      18,103,779 shares issued and outstanding, respectively
              
              
              
              267,742
              
              
              
              181,038Additional
      paid in capital
              
              
              
              3,434,748
              
              
              
              929,517Subscriptions
      receivable
              
              
              
              (6,600
              )
              
              
              (6,600
              )Deferred
      compensation
              
              
              
              (323,552
              )
              
              
              (53,902
              )Accumulated
      deficit during development stage
              
              
              
              (5,373,183
              )
              
              
              (3,057,377
              )Total
      Stockholders’ Deficiency
              
              
              
              (2,000,845
              )
              
              
              (2,007,324
              )TOTAL LIABILITIES AND
      STOCKHOLDERS’ DEFICIENCY
              
              
              $
              5,927
              
              
              $
              30,053




See
accompanying notes to unaudited financial statements.














ALLIANCE
RECOVERY CORPORATION




(A
DEVELOPMENT STAGE COMPANY)




CONDENSED
STATEMENTS OF OPERATIONS


(UNAUDITED)




For
      the Three Months Ended September 30,
              
              
              For
      the Nine Months Ended September 30,
              
              
              For
      The Period From November 6, 2001 (Inception)2008
              
              
              2007
              
              
              2008
              
              
              2007
              
              
              to September
      30, 2008OPERATING
      EXPENSESConsulting
      fees
              
              $
              141,991
              
              
              
              17,500
              
              
              $
              212,281
              
              
              $
              17,500
              
              
              $
              739,149Consulting
      fees - related party
              
              
              62,500
              
              
              
              62,500
              
              
              
              187,500
              
              
              
              187,500
              
              
              
              1,708,333Professional
      fees
              
              
              36,918
              
              
              
              18,345
              
              
              
              89,740
              
              
              
              51,479
              
              
              
              459,446Investor
      relations
              
              
              315,199
              
              
              
              -
              
              
              
              591,664
              
              
              
              -
              
              
              
              852,818Director
      Fees
              
              
              -
              
              
              
              -
              
              
              
              522,224
              
              
              
              -
              
              
              
              522,224General
      and administrative
              
              
              10,290
              
              
              
              61,861
              
              
              
              41,567
              
              
              
              146,356
              
              
              
              374,190TOTAL
      OPERATING EXPENSES
              
              
              566,898
              
              
              
              160,206
              
              
              
              1,644,976
              
              
              
              402,835
              
              
              
              4,656,160OTHER
      EXPENSESLoss
      on debt conversion
              
              
              -
              
              
              
              -
              
              
              
              514,492
              
              
              
              -
              
              
              
              514,492Interest
      Expense
              
              
              28,730
              
              
              
              9,484
              
              
              
              156,338
              
              
              
              33,780
              
              
              
              202,53128,730
              
              
              
              9,484
              
              
              
              670,830
              
              
              
              33,780
              
              
              
              717,023NET
      LOSS BEFORE PROVISION FORINCOME
      TAXES
              
              
              (595,628
              )
              
              
              (169,690
              )
              
              
              (2,315,806
              )
              
              
              (436,615
              )
              
              
              (5,373,183
              )PROVISION
      FOR INCOME TAXES
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -NET
      LOSS
              
              $
              (595,628
              )
              
              $
              (169,690
              )
              
              $
              (2,315,806
              )
              
              $
              (436,615
              )
              
              $
              (5,373,183
              )Net
      loss per share - basic and diluted
              
              $
              (0
              )
              
              $
              (0
              )
              
              $
              (0
              )
              
              $
              (0
              )Weighted
      average number of shares outstanding during the period - basic and
      diluted
              
              
              25,699,891
              
              
              
              17,323,266
              
              
              
              21,492,693
              
              
              
              17,093,294




See
accompanying notes to unaudited financial statements.









ALLIANCE
RECOVERY CORPORATION




(A
DEVELOPMENT STAGE COMPANY)




CONDENSED
STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIENCY


(UNAUDITED)


(Restated)


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 payable to common stock
              
              
              136,669
              
              
              
              1,367
              
              
              
              215,933
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              217,300Net
      Loss, 2006
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (360,016
              )
              
              
              (360,016
              )BALANCE,
      December 31, 2006
              
              
              16,947,179
              
              
              
              169,472
              
              
              
              593,347
              
              
              
              (6,300
              )
              
              
              -
              
              
              
              (2,399,514
              )
              
              
              (1,642,995
              )Common
      stock issued for services ($0.51 per share)
              
              
              300,000
              
              
              
              3,000
              
              
              
              150,000
              
              
              
              (300
              )
              
              
              (152,700
              )
              
              
              -
              
              
              
              -Common
      stock issued for consulting services ($.30 per share)
              
              
              278,000
              
              
              
              2,780
              
              
              
              80,620
              
              
              
              -
              
              
              
              (83,400
              )
              
              
              -
              
              
              
              -Common
      stock issued for consulting services ($.15 per share)
              
              
              240,000
              
              
              
              2,400
              
              
              
              33,600
              
              
              
              -
              
              
              
              (36,000
              )
              
              
              
              
              
              
              -Common
      stock issued for cash
              
              
              338,600
              
              
              
              3,386
              
              
              
              43,802
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              47,188Amortization
      of deferred compensation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              218,198
              
              
              
              -
              
              
              
              218,198Warrants
      issued for convertible debt
              
              
              -
              
              
              
              -
              
              
              
              28,148
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              28,148Net
      Loss, December 31, 2007
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (657,863
              )
              
              
              (657,863
              )BALANCE,
      December 31, 2007
              
              
              18,103,779
              
              
              
              181,038
              
              
              
              929,517
              
              
              
              (6,600
              )
              
              
              (53,902
              )
              
              
              (3,057,377
              )
              
              
              (2,007,324
              )Common
      stock issued for consulting services ($.39 per share)
              
              
              1,000,000
              
              
              
              10,000
              
              
              
              380,000
              
              
              
              -
              
              
              
              (390,000
              )
              
              
              
              
              
              
              -Common
      stock issued for consulting services ($.32 per share)
              
              
              157,000
              
              
              
              1,570
              
              
              
              48,670
              
              
              
              -
              
              
              
              (50,240
              )
              
              
              
              
              
              
              -Common
      stock issued for consulting services ($.12 per share)
              
              
              1,157,000
              
              
              
              11,570
              
              
              
              127,270
              
              
              
              -
              
              
              
              (138,840
              )
              
              
              
              
              
              
              -Common
      stock issued for consulting services ($.10 per share)
              
              
              500,000
              
              
              
              5,000
              
              
              
              45,000
              
              
              
              -
              
              
              
              
              
              
              
              -
              
              
              
              50,000Common
      stock issued for consulting services ($.125 per share)
              
              
              1,500,000
              
              
              
              15,000
              
              
              
              172,500
              
              
              
              -
              
              
              
              (187,500
              )
              
              
              -
              
              
              
              -Common
      stock issued for consulting services ($.08 per share)
              
              
              100,000
              
              
              
              1,000
              
              
              
              7,000
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              8,000Common
      stock issued for consulting services ($.04 per share)
              
              
              833,320
              
              
              
              8,333
              
              
              
              25,000
              
              
              
              -
              
              
              
              (33,333
              )
              
              
              -
              
              
              
              -Amortization
      of deferred compensation
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              530,263
              
              
              
              -
              
              
              
              530,263Conversion
      of notes payable to common stock
              
              
              16,667
              
              
              
              167
              
              
              
              24,833
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              25,000Conversion
      of notes payable and accrued interest to common stock
              
              
              2,648,388
              
              
              
              26,484
              
              
              
              928,284
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              954,768Common
      stock issued for cash
              
              
              758,000
              
              
              
              7,580
              
              
              
              156,602
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              164,182Warrants
      issued for convertible debt
              
              
              -
              
              
              
              -
              
              
              
              67,848
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              67,848Stock
      options issued for Directors fees
              
              
              -
              
              
              
              -
              
              
              
              522,224
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              522,224Net
      Loss, For the nine months ended, September 30, 2008
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (2,315,806
              )
              
              
              (2,315,806
              )26,774,154
              
              
              $
              267,742
              
              
              $
              3,434,748
              
              
              $
              (6,600
              )
              
              $
              (323,552
              )
              
              $
              (5,373,183
              )
              
              $
              (2,000,845
              )




See
accompanying notes to unaudited financial statements











ALLIANCE
RECOVERY CORPORATION




(A
DEVELOPMENT STAGE COMPANY)




CONDENSED
STATEMENTS OF CASH FLOWS


(UNAUDITED)




For
      the Nine Months Ended September 30,
              
              
              For
      The Period From2008
              
              
              2007
              
              
              November
      6, 2001 (Inception) To September 30, 2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
              
              $
              (2,315,806
              )
              
              $
              (436,615
              )
              
              $
              (5,373,183
              )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Stock
      issued for services
              
              
              588,263
              
              
              
              104,523
              
              
              
              1,246,616Stock
      options issued for directors fees
              
              
              522,224
              
              
              
              
              
              
              
              522,224Loss
      on debt conversion
              
              
              514,492
              
              
              
              -
              
              
              
              514,492Depreciation
      expense
              
              
              1,675
              
              
              
              1,675
              
              
              
              10,329Amortization
              
              
              92,688
              
              
              
              2,274
              
              
              
              109,746Changes
      in operating assets and liabilities:Prepaid expenses
              
              
              (5,000
              )
              
              
              -
              
              
              
              (5,000
              )Due
      to related party
              
              
              (1,630
              )
              
              
              67,867
              
              
              
              425,863Accounts
      payable
              
              
              44,442
              
              
              
              -
              
              
              
              98,758Accrued
      Expenses
              
              
              63,651
              
              
              
              3,698
              
              
              
              105,285Net
      Cash Used In Operating Activities
              
              
              (495,001
              )
              
              
              (256,578
              )
              
              
              (2,344,870
              )CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchase
      of property and equipment
              
              
              -
              
              
              
              -
              
              
              
              (11,166
              )Net
      Cash Used In Investing Activities
              
              
              -
              
              
              
              -
              
              
              
              (11,166
              )CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from issuance of debt
              
              
              -
              
              
              
              50,000
              
              
              
              263,500Proceeds
      from issuance of debt - related party
              
              
              53,368
              
              
              
              90,000
              
              
              
              347,368Proceeds
      from issuance of convertible debt - related party
              
              
              250,000
              
              
              
              100,001
              
              
              
              250,000Proceeds
      from issuance of convertible debt
              
              
              -
              
              
              
              -
              
              
              
              100,001Proceeds
      from issuance of common stock subject to rescission
              
              
              -
              
              
              
              -
              
              
              
              1,084,823Proceeds
      from issuance of common stock
              
              
              164,182
              
              
              
              -
              
              
              
              310,434Net
      Cash Provided By Financing Activities
              
              
              467,550
              
              
              
              240,001
              
              
              
              2,356,126NET
      INCREASE (DECREASE) IN CASH
              
              
              (27,451
              )
              
              
              (16,577
              )
              
              
              90CASH
      AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
              
              
              27,541
              
              
              
              32,037
              
              
              
              -CASH
      AND CASH EQUIVALENTS AT END OF PERIOD
              
              $
              90
              
              
              $
              15,460
              
              
              $
              90Supplemental
      disclosure of non cash investing & financing
    activities:Cash
      paid for income taxes
              
              $
              -
              
              
              $
              -
              
              
              $
              -Cash
      paid for interest expense
              
              $
              -
              
              
              $
              -
              
              
              $
              -In
      February 2008 a note holder converted converted a $25,000 note payable
      into 16,667 shares of common stock ($1.50) per share.In
      May 2008 two Directors of the Company converted a total of $300,000 of
      debt and accrued interest of $32,735 into 2,218,233 shares of common
      stockIn
      June 2008 a note holder converted $100,001 of notes payable and accrued
      interest of $7,781 into 431,128 shares of common stock




See
accompanying notes to unaudited  financial statements













ALLIANCE
RECOVERY CORPORATION




(A
DEVELOPMENT STAGE COMPANY)




NOTES
TO UNAUDITED FINANCIAL STATEMENTS




AS
OF SEPTEMBER 30, 2008




NOTE
1            
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES AND ORGANIZATION




(A)
Basis of Presentation




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




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




(B)  Organization




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




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




(C) 
Use of Estimates




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




(D) 
Cash and Cash Equivalents




For
purposes of the cash flow statements, the Company considers all highly liquid
investments with original maturities of three months or less at the time of
purchase to be cash equivalents. The Company at times has cash in excess of FDIC
insurance limits and places its temporary cash investments with high credit
quality financial institutions. At September 30, 2008, the Company did not have
any balances that exceeded FDIC insurance limits.




(E) 
Property and Equipment




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




(F) 
Stock-Based Compensation




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




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













(G) 
Loss Per Share




Basic and
diluted net loss per common share is computed based upon the weighted average
common shares outstanding as defined by Financial Accounting Standards No. 128,
“Earnings Per Share.” As of September 30, 2008 and 2007,   3,549,551
and 1,948,647; respectively of common share equivalents were outstanding but
anti-dilutive and therefore not used in the calculation of diluted net loss per
share.




(H) 
Business Segments




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




(I)  Long-Lived
Assets




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




(J) 
Recent Accounting Pronouncements




In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
160, “Noncontrolling Interests in Consolidated Financial Statements – an
amendment of ARB No. 51”.  This statement improves the relevance,
comparability, and transparency of the financial information that a reporting
entity provides in its consolidated financial statements by establishing
accounting and reporting standards that require; the ownership interests in
subsidiaries held by parties other than the parent and the amount of
consolidated net income attributable to the parent and to the non-controlling
interest be clearly identified and presented on the face of the consolidated
statement of income, changes in a parent’s ownership interest while the parent
remains its controlling financial interest in its subsidiary be accounted for
consistently, when a subsidiary is deconsolidated, any retained non-controlling
equity investment in the former subsidiary be initially measured at fair value,
entities provide sufficient disclosures that clearly identify and distinguish
between the interests of the parent and the interests of the non-controlling
owners.  SFAS No. 160 affects those entities that have an outstanding
non –controlling interest in one or more subsidiaries or that deconsolidate a
subsidiary.  SFAS No. 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15,
2008.  Early adoption is prohibited.  The adoption of this
statement is not expected to have a material effect on the Company’s financial
statements.




In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement
No. 133”(SFAS161). This statement is intended to improve transparency in
financial reporting by requiring enhanced disclosures of an entity’s derivative
instruments and hedging activities and their effects on the entity’s financial
position, financial performance, and cash flows.SFAS161 applies to all
derivative instruments within the scope of SFAS 133, “Accounting for Derivative
Instruments and Hedging Activities” (SFAS 133) as well as related hedged items,
bifurcated derivatives, and nonderivative instruments that are designated and
qualify as hedging instruments. Entities with instruments subject toSFAS161 must
provide more robust qualitative disclosures and expanded quantitative
disclosures.SFAS161 is effective prospectively for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008, with
early application permitted. We are currently evaluating the disclosure
implications of this statement.





In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of accounting
principles and provides entities with a framework for selecting the principles
used in preparation of financial statements that are presented in conformity
with GAAP. The current GAAP hierarchy has been criticized because it is directed
to the auditor rather than the entity, it is complex, and it ranks FASB
Statements of Financial Accounting Concepts, which are subject to the same level
of due process as FASB Statements of Financial Accounting Standards, below
industry practices that are widely recognized as generally accepted but that are
not subject to due process. The Board believes the GAAP hierarchy should be
directed to entities because it is the entity (not its auditors) that is
responsible for selecting accounting principles for financial statements that
are presented in conformity with GAAP. SFAS 162 is effective 60 days following
the SEC’s approval of PCAOB Auditing Standard No. 6, Evaluating Consistency
of Financial Statements (AS/6). The adoption of FASB 162 is not expected to have
a material impact on the Company’s financial position.





In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts-an interpretation of FASB Statement No. 60.” Diversity
exists in practice in accounting for financial guarantee insurance contracts by
insurance enterprises under FASB Statement No. 60, Accounting and Reporting by
Insurance Enterprises. This results in inconsistencies in the recognition and
measurement of claim liabilities. This Statement requires that an insurance
enterprise recognize a claim liability prior to an event of default (insured
event) when there is evidence that credit deterioration has occurred in an
insured financial obligation. This Statement requires expanded disclosures about
financial guarantee insurance contracts. The accounting and disclosure
requirements of the Statement will improve the quality of information provided
to users of financial statements.  SFAS 163 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. The adoption of FASB 163 is not
expected to have a material impact on the Company’s financial
position.













(K) Fair Value of Financial
Instruments.




The
carrying amounts reported in the balance sheet for cash, accounts payable,
accrued expenses and notes payable approximate fair value based on the
short-term maturity of these instruments.




(L) Income
Taxes




The
Company accounts for income taxes under the Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes” (“Statement
109”).  Under Statement 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statements carrying amounts of existing assets and liabilities and
their respective tax bases.  Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled.  Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.





(M) Convertible Notes
Payable




The
Company is accounting for the unsecured convertible promissory notes (the
“Notes”) issued  under EITF 00-27,‘‘Application of Issue
98-5 to Certain Convertible Instruments’’ .  While the embedded
conversion option is not required to be bifurcated, the Notes do contain a
contingent beneficial conversion feature and the warrants are bifurcated to the
notes payable and warrants based on the fair value.  The fair value of the
warrants is recorded as a discount on the notes payable and amortized over the
life of the notes.




NOTE 
2            PROPERTY AND
EQUIPMENT





Property
and equipment at September 30, 2008 and December 31, 2007 were as
follows:




September
      30, 2008
              (UNAUDITED)
            
            
            December
      31,
              2007Computer
            
            $
            11,166
            
            
            $
            11,166Less
      accumulated depreciation
            
            
            (10,329
            )
            
            
            (8,654
            )$
            837
            
            
            $
            2,512




During
the three and nine months ended September 30, 2008 and 2007 and for the
period from November 6, 2001 to September 30, 2008, the Company recorded
depreciation expense of $558, $558, $1,675, $1,675 and $10,329
respectively.




NOTE  3
          
NOTES





September
      30, 2008
              (UNAUDITED)
            
            
            December
      31,
              2007Note
      Amount
            
            $
            -
            
            
            $
            25,000Discount
            
            
            -
            
            
            
            -Net
            
            $
            -
            
            
            $
            25,000




In
December 2006, an investor loaned the Company a total of $25,000. The note is
unsecured, due one year from the date of issuance and is non-interest bearing
for the first nine months, then accrues interest at a rate of 6% per annum for
the remaining three months. The Company imputed interest on the non
interest-bearing portion of the notes at a rate of 6% per annum. During the
years ended December 31, 2007 and 2006 the Company recorded a discount on the
notes of $1,500 and amortized $341 and $1,159 of the discount respectively as
interest expense. As of December 31, 2007 the note was in default. In February
2008, the note was converted into 16,667 shares of common stock ($1.50 per
share) and the accrued interest of $1,500 was forgiven.














NOTE 
4            NOTES PAYABLE -
RELATED PARTY




In June
2006, a Director of the Company loaned the Company $100,000. The loan bears a
rate of interest of 8% per annum and is payable twelve months from the date of
issuance. In addition the Company issued the director warrants to purchase
100,000 shares of common stock with an exercise price of $1.50 per share for one
year from the date of the note. The loan is unsecured and was due June 28, 2007.
The note was extended until June 28, 2008.  In December 2006, the
Director loaned the Company an additional $50,000. The loan bears a rate of
interest of 8% per annum and is payable eighteen months from the date of
issuance. In January 2007, a director of the Company loaned the Company $50,000.
The loan bears interest at a rate of 8% per annum. The loan is unsecured and due
July 31, 2008. As of December 31, 2007, the Company has an outstanding balance
under the three note agreements of $200,000 and recorded accrued interest
expense of $20,797 related to these three notes. In May 2008, the notes and
accrued interest of $26,192 were converted into 1,507,939 shares of common stock
($0.15 per share). The Company recognized a loss on conversion of $346,827 based
on a fair value of $0.38 per share of common stock on the date of
conversion.





In June
2008, a Director of the Company and his Son loaned the Company $30,000 and
$23,368, respectively. The loans bear a rate of interest of 8% per annum and are
payable twenty-four months from the date of issuance or when the Company deems
it has sufficient funds to repay the loans or receives $20,000,000 of project
financing.  As of September 30, 2008, the Company has recorded accrued
interest due to the Director of the Company and his Son of $563 and $631
respectively.




NOTE 
5            CONVERTIBLE NOTES
PAYABLE - RELATED PARTY





September
      30, 2008
              (UNAUDITED)
            
            
            December
      31, 2007Note
      Amount
            
            $
            343,368
            
            
            $
            140,000Discount
            
            
            (250
            )
            
            
            (19,622
            )Net
            
            
            343,118
            
            
            
            120,378




In May
2007, a Director of the Company loaned the Company $50,000. The loan bears a
rate of interest of 8% per annum and is payable twenty-four months from the date
of issuance. The holder of the note has the right to convert the note into
common stock of the Company at the market value on the date of conversion but
not at a price less than $0.20 per share of common stock.  In
addition, the Company issued the director warrants to purchase 25,000 shares of
common stock with an exercise price of $1.00 per share for two years from the
date of the note. The loan is unsecured and due May 17, 2009.  The
fair value of the warrants was estimated on the grant date using the
Black-Scholes option pricing model with the following weighted average
assumptions: expected dividend yield 0%, volatility 103%, risk-free interest
rate of 4.87%, and expected warrant life of two years. The value of the warrants
on the date of issuance was $837. The Company will amortize the value over
the term of the note.  In May 2008, the notes and accrued interest of
$4,077 were converted into 360,513 shares of common stock ($0.15 per share). The
Company recognized a loss on conversion of $82,917 based on a fair value of
$0.38 per share of common stock on the date of conversion.




In June
2007, the wife of the Director loaned the Company an additional $40,000. The
loan bears a rate of interest of 8% per annum and is payable twenty-four months
from the date of issuance. The holder of the note has the right to convert the
note into common stock of the Company at the market value on the date of
conversion but not at a price less than $0.20 per share of common stock. The
loan is unsecured and due July 3, 2009. In addition the Company issued the
director warrants to purchase 20,000 shares of common stock with an exercise
price of $1.00 per share for two years from the date of the note. The fair value
of the warrants was estimated on the grant date using the Black-Scholes option
pricing model with the following weighted average assumptions: expected dividend
yield 0%, volatility 103%, risk-free interest rate of 4.87%, and expected
warrant life of two years. The fair value of the warrants on the date of
issuance was $669. The Company will amortize the value over the term of the
note.





In
November 2007, a Director of the Company loaned the Company an additional
$50,000. The loan bears a rate of interest of 10% per annum and is payable
twenty-four months from the date of issuance. The holder of the note has the
right to convert the note into common stock of the Company at the market value
on the date of conversion but not at a price less than $0.11 per share of common
stock.  In addition the Company issued the director warrants to
purchase 454,550 shares of common stock with an exercise price of $0.50 per
share for two years from the date of the note. The loan is unsecured and due
November 25, 2009.The fair value of the warrants was estimated on the grant date
using the Black-Scholes option pricing model with the following weighted average
assumptions: expected dividend yield 0%, volatility 134%, risk-free interest
rate of 2.92%, and expected warrant life of two years. The value of the warrants
on the date of issuance was $19,351. The Company will amortize the value over
the term of the note.  As December 31, 2007 the Company recorded
accrued interest expense of $4,614 and amortization expense of $1,235 related to
these three notes. In May 2008, the notes and accrued interest of $2,466 were
converted into 349,773 shares of common stock ($0.15 per share). The Company
recognized a loss on conversion of $80,446 based on a fair value of $0.38 per
share of common stock on the date of conversion














In April
2008, a Director of the Company and his Son each loaned the Company $125,000.
The loans bear a rate of interest of 3.33% per month and are payable July 3,
2008. The holder of the note has the right to convert the note into common stock
of the Company at the market value on the date of conversion but not at a price
less than $0.20 per share of common stock.  In addition the Company
issued the director and his son warrants to each purchase 625,000 shares of
common stock with an exercise price of $0.20 per share and expire April 5,
2018.  The loans are unsecured. The fair value of the warrants was
estimated on the grant date using the Black-Scholes option pricing model with
the following weighted average assumptions: expected dividend yield 0%,
volatility 116%, risk-free interest rate of 1.63%, and expected warrant life of
one year. The value of the warrants on the date of issuance was $67,848. The
Company will amortize the value over the term of the note. As of November 14,
2008, these loans are in default.




NOTE 
6   CONVERTIBLE NOTES PAYABLE




September
      30, 2008
              (UNAUDITED)
            
            
            December
      31, 2007Note
      Amount
            
            $
            -
            
            
            $
            100,001Discount
            
            
            -
            
            
            
            (5,468
            )Net
            
            $
            -
            
            
            $
            94,533




In July
2007, a third party loaned Company loaned the Company $100,001. The loan bears a
rate of interest of 8% per annum and is payable twenty-four months from the date
of issuance. The holder of the note has the right to convert the note into
common stock of the Company at the market value on the date of conversion but
not at a price less than $0.20 per share of common stock.  In addition
the Company issued the director warrants to purchase 100,001 shares of common
stock with an exercise price of $1.00 per share for two years from the date of
the note. The loan is unsecured and due July 5, 2009.The fair value of the
warrants was estimated on the grant date using the Black-Scholes option pricing
model with the following weighted average assumptions: expected dividend yield
0%, volatility 111%, risk-free interest rate of 4.99%, and expected warrant life
of two years. The fair value of the warrants on the date of issuance was $7,291.
The Company will amortize the value over the term of the note.  As of
December 31, 2007 the Company recorded and accrued interest expense of $3,923
and amortization expense of $1,823 related to the note. In June 2008, the notes
and accrued interest of $7,540 were converted into 430,163 shares of common
stock ($0.25 per share). The Company recognized a loss on conversion of $4,302
based on a fair value of $0.26 per share of common stock on the date of
conversion.




NOTE 
7    EQUITY SUBJECT TO RESCISSION




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




During
2002, the Company received cash and subscriptions receivable of $148,000 for
296,000 units consisting of one share of common stock and one common stock
warrant exercisable for a period of one year after an effective Registration
Statement is approved at an exercise price of $1.00 ($0.50 per share). Such
amounts have been recorded as equity subject to rescission as of December 31,
2007.




During
2003, the Company received cash and a subscription receivable of $661,323 for
1,322,646 units consisting of one share of common stock with one common stock
warrant exercisable for a period of one year after an effective Registration
Statement is approved at an exercise price of $1.00 ($0.50 per share). Such
amounts have been recorded as equity subject to rescission as of December 31,
2007.





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













In 2005,
the Company sold a total of 183,000 shares of common stock to nine individuals
for cash of $183,000 ($1.00per share). Such amounts have been recorded as equity
subject to rescission as of December 31, 2007.




NOTE 
8            STOCKHOLDERS'
EQUITY




(A)  Common
Stock Issued to Founders




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




(B)  Common
Stock and Warrants Issued for Cash




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




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




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





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





In 2006,
the Company sold a total of 338,600 shares of common stock for cash of $47,188
($0.1394 per share).





In 2008,
the Company sold a total of 758,000 shares of common stock for cash of $164,182
($0.2166 per share).




(C)  Common
Stock and Warrants Issued for Services




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




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




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




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




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














In March
2007, the Company entered into a consulting agreement with a consultant to
provide management and public relations services. The agreement calls for the
consultant to provide services for a period of one year and the consultant to
receive compensation of $4,000 per month. In addition the Company sold the
consultant 300,000 shares of common stock for cash proceeds of $300 and recorded
the fair value of the common stock of $153,000. The fair value of the common
stock will be recognized over the term of the agreement. The Company has also
agreed to pay the public relation firm a 5% finder fee for any business or
capital raise derived from its relationship with the public relations firm. The
fair value of the common stock will be recognized over the term of the
agreement.  For these three and nine months ended September 30, 2008 and
2007, the Company recorded an expense of $0, $27,502, $38,175, and $87,023,
respectively under this agreement.




In July
2007, the Company entered into a consulting agreement with a consultant to
provide public relations services. The agreement calls for the consultant to
provide services for a period of one month and the consultant to receive
compensation of 278,000 shares of common stock with the fair value of the common
stock of $83,400 ($.30 per share). The fair value of the common stock will be
amortized over the term of the agreement. For the year ended December 31, 2007
the Company recorded an expense of $83,400 under this
agreement.




In
November 2007, the Company entered into a consulting agreement with a consultant
to provide public relations services. The agreement calls for the consultant to
provide services for a period of six months and the consultant to receive
compensation of 240,000 shares of common stock with the fair value of the common
stock of $36,000 ($.15 per share). The fair value of the common stock will be
amortized over the term of the agreement. For the year ended December 31, 2007
the Company recorded an expense of $9,600 under this agreement and deferred
compensation of $26,400.  For the nine months ended September 30,
2008, the Company recorded an expense of $26,400 under this
agreement.




In
December 2007, the Company entered into a consulting agreement with a consultant
to provide public relations services. The agreement calls for the consultant to
provide services for a period of six months and the consultant to receive
compensation of 500,000 shares of common stock with the fair value of the common
stock of $50,000 ($.10 per share) per month. In March 2008 the Company entered
into a settlement agreement whereby the consultant acknowledged that no services
had been performed on behalf of the Company and that all stock issued to them
was returned and cancelled by Company.





In May
2008, the Company entered into a consulting agreement with a consultant to
provide services. The agreement calls for the consultant to provide services for
a period of six months and the consultant to receive compensation of
1,000,000 shares of common stock with the fair value of the common stock of
$390,000 ($0.39 per share). The fair value of the common stock will be amortized
over the term of the agreement. For the three and nine month ended September 30,
2008 the Company recorded an expense of $195,000 and $261,950, respectively
under this agreement and deferred compensation of $128,050.




In May
2008 the Company issued a total of 1,700,000 common stock options to the
Company’s officers and directors for director fees. The fair value of the
options  were estimated on the grant date using the Black-Scholes
option pricing model with the following weighted average assumptions: expected
dividend yield 0%, volatility 263%, risk-free interest rate of 2.05%, and
expected warrant life of one year. The value of the warrants on the date of
issuance was $522,224.





In June
2008, the Company entered into a consulting agreement with a consultant to
provide services. The agreement calls for the consultant to provide services for
a period of six months and the consultant to receive compensation of
1,000,000 shares of common stock with the fair value of the common stock of
$120,000 ($0.12 per share). The fair value of the common stock will be amortized
over the term of the agreement. For the three and nine month ended September 30,
2008 the Company recorded an expense of $60,000 and $63,340 under this agreement
and deferred compensation of $56,660.





In June
2008, the Company entered into a consulting agreement with a consultant to media
services. The agreement calls for the consultant to provide services and the
consultant to receive compensation of 314,000 shares of common stock with the
fair value of the common stock of $69,080 ($0.22 per share). During the
three months ended September 30, 2008, the consultant completed the services and
the Company expensed deferred compensation of $69,080.





In July
2008, the Company entered into a consulting agreement with a consultant to
provide public relations services. The agreement calls for the consultant to
provide services for a period of one month and the consultant to receive
compensation of 500,000 shares of common stock with the fair value of the common
stock of $50,000 ($.10 per share). For the three and nine months ended September
30, 2008 the Company record an expense of $50,000.




In July
2008, the Company entered into a consulting agreement with a consultant for
financial advisory services.  The agreement calls for the consultant
to provide services and the consultant to receive compensation of 1,000,000
shares of common stock with the fair value of the common stock of $125,000
($0.125 per share). For the three and nine months ended September 30, 2008
the Company recorded an expense of $54,861 and deferred compensation of
$70,139.














In
September 2008, the Company entered into a consulting agreement with a
consultant for financial advisory services.  The agreement calls for
the consultant to provide services and the consultant to receive compensation of
500,000 shares of common stock with the fair value of the common stock of
$62,500 ($0.125 per share).  For the three and nine months ended
September 30, 2008 the Company recorded an expense of $26,389 and deferred
compensation of $36,111.





In
September 2008, the Company entered into a consulting agreement with a
consultant for financial advisory services.  The agreement calls for
the consultant to provide services and the consultant to receive compensation of
833,320 shares of common stock with the fair value of the common stock of
$33,333 ($0.04 per share).  For the three and nine months ended
September 30, 2008 the Company recorded an expense of $741 and deferred
compensation of $32,592.





In
September 2008, the Company issued a consultant 100,000 shares of common stock
with the fair value of the common stock of $8,000 ($.08 per share) to provide
accounting services. For the three and nine months ended September 30, 2008 the
Company record an expense of $8,000.




(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, the
Company  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 at 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.





In June
2006, a Director of the Company loaned the Company $100,000. The loan bears a
rate of interest of 8% per annum and is payable twelve months from the date of
issuance. In addition the Company issued the director warrants to purchase
100,000 shares of common stock with an exercise price of $1.50 per share for one
year from the date of the note. The loan is unsecured and was due June 28, 2007.
The note was extended until June 28, 2008.  In December 2006, the
Director loaned the Company an additional $50,000. The loan bears a rate of
interest of 8% per annum and is payable eighteen months from the date of
issuance. In January 2007, a director of the Company loaned the Company $50,000.
The loan bears interest at a rate of eight percent per annum. The loan is
unsecured and due July 31, 2008. As of December 31, 2007, the Company has an
outstanding balance under the three note agreements of $200,000 and recorded
accrued interest expense of $20,797 related to these three notes. In May 2008,
the notes and accrued interest of $26,192 were converted into 1,507,939 shares
of common stock ($.15 per share). The Company recognized a loss on conversion of
$346,827 based on a fair value of $0.38 per share of common stock on the date of
conversion.





In
December 2006, an investor loaned the Company a total of $25,000. The note is
unsecured, due one year from the date of issuance and is non-interest bearing
for the first nine months, then accrues interest at a rate of 6% per annum for
the remaining three months. The Company imputed interest on the non
interest-bearing portion of the notes at a rate of 6% per annum. During the
years ended December 31, 2007 and 2006 the Company recorded a discount on the
notes of $1,500 and amortized $341 and $1,159 of the discount respectively as
interest expense. As of December 31, 2007 the note was in default. In February
2008, the principal of $25,000 was converted into 16,667 shares of common
stock ($1.50 per share) and the accrued interest of $1,500 was
forgiven.





In May
2007, a Director of the Company loaned the Company $50,000. The loan bears a
rate of interest of 8% per annum and is payable twenty-four months from the date
of issuance. The holder of the note has the right to convert the note into
common stock of the Company at the market value on the date of conversion but
not at a price less than $0.20 per share of common stock.  In addition
the Company issued the director warrants to purchase 25,000 shares of common
stock with an exercise price of $1.00 per share for two years from the date of
the note. The loan is unsecured and due May 17, 2009.The fair value of the
warrants was estimated on the grant date using the Black-Scholes option pricing
model with the following weighted average assumptions: expected dividend yield
0%, volatility 103%, risk-free interest rate of 4.87%, and expected warrant life
of two years. The value of the warrants on the date of issuance was $837. The
Company will amortize the value over the term of the note. In May 2008, the
notes and accrued interest of $4,077 were converted into 360,513 shares of
common stock ($0.15 per share). The Company recognized a loss on conversion of
$82,917 based on a fair value of $0.38 per share of common stock on the date of
conversion.














In June
2007 the wife of the Director loaned the Company an additional $40,000. The loan
bears a rate of interest of 8% per annum and is payable twenty-four months from
the date of issuance. The holder of the note has the right to convert the note
into common stock of the Company at the market value on the date of conversion
but not at a price less than $0.20 per share of common stock. The loan is
unsecured and due July 3, 2009. In addition the Company issued the director
warrants to purchase 20,000 shares of common stock with an exercise price of
$1.00 per share for two years from the date of the note. The fair value of the
warrants was estimated on the grant date using the Black-Scholes option pricing
model with the following weighted average assumptions: expected dividend yield
0%, volatility 103%, risk-free interest rate of 4.87%, and expected warrant life
of two years. The fair value of the warrants on the date of issuance was $669.
The Company will amortize the value over the term of the note.





In
November 2007, a Director of the Company loaned the Company an additional
$50,000. The loan bears a rate of interest of 10% per annum and is payable
twenty-four months from the date of issuance. The holder of the note has the
right to convert the note into common stock of the Company at the market value
on the date of conversion but not at a price less than $0.11 per share of common
stock.  In addition the Company issued the director warrants to
purchase 454,550 shares of common stock with an exercise price of $.50 per share
for two years from the date of the note. The loan is unsecured and due November
25, 2009.The fair value of the warrants was estimated on the grant date using
the Black-Scholes option pricing model with the following weighted average
assumptions: expected dividend yield 0%, volatility 134%, risk-free interest
rate of 2.92%, and expected warrant life of two years. The value of the warrants
on the date of issuance was $19,351. The Company will amortize the value over
the term of the note.  As December 31, 2007 the Company recorded
accrued interest expense of $4,614 and amortization expense of $1,235 related to
these three notes. In May 2008, the notes and accrued interest of $2,466 were
converted into 349,773 shares of common stock ($0.15 per share). The Company
recognized a loss on conversion of $80,446 based on the a fair value of $0.38
per share of common stock on the date of conversion





In July
2007, a third party loaned Company loaned the Company $100,001. The loan bears a
rate of interest of 8% per annum and is payable twenty-four months from the date
of issuance. The holder of the note has the right to convert the note into
common stock of the Company at the market value on the date of conversion but
not at a price less than $0.20 per share of common stock.  In addition
the Company issued the director warrants to purchase 100,001 shares of common
stock with an exercise price of $1.00 per share for two years from the date of
the note. The loan is unsecured and due July 5, 2009.The fair value of the
warrants was estimated on the grant date using the Black-Scholes option pricing
model with the following weighted average assumptions: expected dividend yield
0%, volatility 111%, risk-free interest rate of 4.99%, and expected warrant life
of two years. The fair value of the warrants on the date of issuance was $7,291.
The Company will amortize the value over the term of the note.  As of
December 31, 2007 the Company recorded and accrued interest expense of $3,923
and amortization expense of $1,823 related to the note. In June 2008, the notes
and accrued interest of $7,540 were converted into 430,163 shares of common
stock ($0.25 per share). The Company recognized a loss on conversion of $4,302
based on a fair value of $0.26 per share of common stock on the date of
conversion.





In April
2008, a Director of the Company and his Son each loaned the Company $125,000.
The loans bear a rate of interest of 3.33% per month and are payable July 3,
2008. The holder of the note has the right to convert the note into common stock
of the Company at the market value on the date of conversion but not at a price
less than $0.20 per share of common stock.  In addition the Company
issued the director and his son warrants to each purchase 625,000 shares of
common stock with an exercise price of $0.20 per share and expire April 5,
2018.  The loans are unsecured. The fair value of the warrants was
estimated on the grant date using the Black-Scholes option pricing model with
the following weighted average assumptions: expected dividend yield 0%,
volatility 116%, risk-free interest rate of 1.63%, and expected warrant life of
one year. The value of the warrants on the date of issuance was $67,848. The
Company will amortize the value over the term of the note. As of September 15 ,
2008, these loans are in default.




(E)
Common Stock Warrants




The
Company issued 765,146 warrants during 2004, at an exercise price of $1.00 per
share to a consultant for services. The fair 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 fair value was immaterial and therefore no expense was
recorded in general and administrative expense at the grant date. As of December
31, 2006, the warrants have expired.




In
connection with the issuance of a $100,000 note payable on June 28, 2006, the
Company issued a total of 100,000 common stock warrants with an exercise price
of $1.50 per share. The warrants expired June 29, 2007. The fair 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 fair value was immaterial
and therefore no expense was recorded.













In
connection with the 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. These warrants expired during the
quarter ended September 30, 2007




In
connection with the issuance of common stock units for cash and services, the
Company has an aggregate of 3,549,551 and 2,403,197 warrants outstanding at
September 30, 2008 and December 31, 2007, respectively. The Company has
reserved 3,549,551 shares of common stock for the future exercise of the
warrants at September 30, 2008.




(F)
Amendment to Articles of Incorporation




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





(G)
Financing Agreement




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




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




During
the year ended December 31, 2007 the Company drew down a total of $47,188
and issued a total of 338,600 shares of common stock





During
the nine months ended September 30, 2008 the Company drew down a total
of $164,182 and issued a total of 758,000 shares of common
stock.





NOTE 
9            RELATED PARTY
TRANSACTIONS




In June
2006, a Director of the Company loaned the Company $100,000. The loan bears a
rate of interest of 8% per annum and is payable twelve months from the date of
issuance. In addition the Company issued the director warrants to purchase
100,000 shares of common stock with an exercise price of $1.50 per share for one
year from the date of the note. The loan is unsecured and was due June 28, 2007.
The note was extended until June 28, 2008.  In December 2006, the
Director loaned the Company an additional $50,000. The loan bears a rate of
interest of 8% per annum and is payable eighteen months from the date of
issuance. In January 2007 a director of the Company loaned the Company $50,000.
The loan bears interest at a rate of eight percent per annum. The loan is
unsecured and due July 31, 2008. As of December 31, 2007, the Company has an
outstanding balance under the three note agreements of $200,000 and recorded
accrued interest expense of $20,797 related to these three notes. In May 2008,
the notes and accrued interest of $26,192 were converted into 1,507,939 shares
of common stock ($0.15 per share). The Company recognized a loss on conversion
of $346,827 based on a fair value of $0.38 per share of common stock on the date
of conversion.





In May
2007, a Director of the Company loaned the Company $50,000. The loan bears a
rate of interest of 8% per annum and is payable twenty-four months from the date
of issuance. The holder of the note has the right to convert the note into
common stock of the Company at the market value on the date of conversion but
not at a price less than $0.20 per share of common stock.  In addition
the Company issued the director warrants to purchase 25,000 shares of common
stock with an exercise price of $1.00 per share for two years from the date of
the note. The loan is unsecured and due May 17, 2009.The fair value of the
warrants was estimated on the grant date using the Black-Scholes option pricing
model with the following weighted average assumptions: expected dividend yield
0%, volatility 103%, risk-free interest rate of 4.87%, and expected warrant life
of two years. The value of the warrants on the date of issuance was
$837.  The Company will amortize the value over the term of the
note.  In May 2008, the notes and accrued interest of $4,077 were
converted into 360,513 shares of common stock ($0.15 per share). The Company
recognized a loss on conversion of $82,917 based on a fair value of $0.38 per
share of common stock on the date of conversion.














In June
2007 the wife of the Director loaned the Company an additional $40,000. The loan
bears a rate of interest of 8% per annum and is payable twenty-four months from
the date of issuance. The holder of the note has the right to convert the note
into common stock of the Company at the market value on the date of conversion
but not at a price less than $0.20 per share of common stock. The loan is
unsecured and due July 3, 2009.  In addition the Company issued the
director warrants to purchase 20,000 shares of common stock with an exercise
price of $1.00 per share for two years from the date of the note. The fair
value of the warrants was estimated on the grant date using the Black-Scholes
option pricing model with the following weighted average assumptions: expected
dividend yield 0%, volatility 103%, risk-free interest rate of 4.87%, and
expected warrant life of two years. The fair value of the warrants on the date
of issuance was $669. The Company will amortize the value over the term of the
note.





In
November 2007, a Director of the Company loaned the Company an additional
$50,000. The loan bears a rate of interest of 10% per annum and is payable
twenty-four months from the date of issuance. The holder of the note has the
right to convert the note into common stock of the Company at the market value
on the date of conversion but not at a price less than $0.11 per share of common
stock.  In addition the Company issued the director warrants to
purchase 454,550 shares of common stock with an exercise price of $0.50 per
share for two years from the date of the note. The loan is unsecured and due
November 25, 2009.The fair value of the warrants was estimated on the grant date
using the Black-Scholes option pricing model with the following weighted average
assumptions: expected dividend yield 0%, volatility 134%, risk-free interest
rate of 2.92%, and expected warrant life of two years. The value of the warrants
on the date of issuance was $19,351. The Company will amortize the value over
the term of the note.  As December 31, 2007 the Company recorded
accrued interest expense of $4,614 and amortization expense of $1,235 related to
these three notes. In May 2008, the notes and accrued interest of $2,466 were
converted into 349,773 shares of common stock ($0.15 per share). The Company
recognized a loss on conversion of $80,446 based on a fair value of $0.38 per
share of common stock on the date of conversion





In June
2008, a Director of the Company and his Son loaned the Company a $30,000 and
$23,368, respectively. The loans bear a rate of interest of 8% per annum and are
payable twenty-four months from the date of issuance or when the Company deems
it has sufficient funds to repay the loans or receives $20,000,000 of project
financing.  As of September 30, 2008 the Company has recorded accrued
interest due to the Director of the Company and his Son of $563 and $631
respectively.





In April
2008, a Director of the Company and his Son each loaned the Company $125,000.
The loans bear a rate of interest of 3.33% per month and are payable July 3,
2008. The holder of the note has the right to convert the note into common stock
of the Company at the market value on the date of conversion but not at a price
less than $0.20 per share of common stock.  In addition the Company
issued the director and his son warrants to each purchase 625,000 shares of
common stock with an exercise price of $0.20 per share and expire April 5,
2018.  The loans are unsecured. The fair value of the warrants was
estimated on the grant date using the Black-Scholes option pricing model with
the following weighted average assumptions: expected dividend yield 0%,
volatility 116%, risk-free interest rate of 1.63%, and expected warrant life of
one year. The value of the warrants on the date of issuance was $67,848. The
Company will amortize the value over the term of the note. As of November 15 ,
2008, these loans are in default.




During
December 2001, the Company entered into an agreement with a consultant to serve
as its interim President for a term of up to five years. The agreement called
for annual compensation of $250,000. The agreement expires the earlier of
December 2006 or on the effectiveness of an employment agreement and is
renewable annually after December 2006. During 2006, the Company approved a
one-year renewal of the agreement. The Company has accrued $427,493 under the
agreement to the consultant at December 31, 2007. For the Period November 6,
2001(Inception) to December 31, 2007 the Company recorded $1,520,833 of expenses
associated with this agreement. For the Period November 6, 2001(Inception) to
September 30, 2008 the Company recorded $1,708,333 of expenses associated with
this agreement. For the three and nine months ended September 30, 2007 and
2008 the Company recorded $62,500 and $187,500 of expenses associated with this
agreement




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




In May
2008 the Company issued a total of 1,700,000 common stock options to the
Company’s officers and directors for director fees. The fair value of the
options  were estimated on the grant date using the Black-Scholes
option pricing model with the following weighted average assumptions: expected
dividend yield 0%, volatility 263%, risk-free interest rate of 2.05%, and
expected warrant life of one year. The value of the warrants on the date of
issuance was $522,224.  (See note 8(c).













NOTE
10           COMMITMENTS AND
CONTINGENCIES




(A)  Consulting
Agreements




During
December 2001, the Company entered into an agreement with a consultant to serve
as its interim President for a term of up to five years. The agreement called
for annual compensation of $250,000. The agreement expires the earlier of
December 2006 or on the effectiveness of an employment agreement and is
renewable annually after December 2006. During 2006, the Company approved a
one-year renewal of the agreement. The Company has accrued $427,493 under the
agreement to the consultant at December 31, 2007. For the Period November 6,
2001(Inception) to December 31, 2007 the Company recorded $1,520,833 of expenses
associated with this agreement. For the Period November 6, 2001(Inception) to
September 30, 2008 the Company recorded $1,708,333 of expenses associated with
this agreement. For the three and nine months ended September 30, 2007 and
2008 the Company recorded $62,500 and $187,500, respectively of expenses
associated with this agreement




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





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




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




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




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





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




In March
2007, the Company entered into a consulting agreement with a consultant to
provide management and public relations services. The agreement calls for the
consultant to provide services for a period of one year and the consultant to
receive compensation of $4,000 per month. In addition the Company sold the
consultant 300,000 shares of common stock for cash proceeds of $300 and recorded
the fair value of the common stock of $153,000. The fair value of the common
stock will be recognized over the term of the agreement. The Company has also
agreed to pay the public relation firm a 5% finder fee for any business or
capital raise derived from its relationship with the public relations firm. The
fair value of the common stock will be recognized over the term of the
agreement. For the three and nine months ended September 30, 2008 and
2007 the Company recorded an expense of  $0, $27,502, $38,175 and
$87,023, respectively under this agreement.













In
July 2007, the Company entered into a consulting agreement with a consultant to
provide public relations services. The agreement calls for the consultant to
provide services for a period of one month and the consultant to receive
compensation of 278,000 shares of common stock with the fair value of the common
stock of $83,400 ($0.30 per share). The fair value of the common stock will be
amortized over the term of the agreement. For the year ended December 31, 2007
the Company recorded an expense of $83,400 under this
agreement.




In
November 2007, the Company entered into a consulting agreement with a consultant
to provide public relations services. The agreement calls for the consultant to
provide services for a period of six months and the consultant to receive
compensation of 240,000 shares of common stock with the fair value of the common
stock of $36,000 ($.15 per share). The fair value of the common stock will be
amortized over the term of the agreement. For the year ended December 31, 2007
the Company recorded an expense of $9,600 under this agreement and deferred
compensation of $26,400.




In
December 2007, the Company entered into a consulting agreement with a consultant
to provide public relations services. The agreement calls for the consultant to
provide services for a period of six months and the consultant to receive
compensation of 500,000 shares of common stock with the fair value of the common
stock of $50,000 ($.10 per share) per month. In March 2008 the Company entered
into a settlement agreement whereby the consultant acknowledged that no services
had been performed on behalf of the Company and that all stock issued to them
was returned and cancelled by Company.





In May
2008, the Company entered into a consulting agreement with a consultant to
provide services. The agreement calls for the consultant to provide services for
a period of six months and the consultant to receive compensation of
1,000,000 shares of common stock with the fair value of the common stock of
$390,000 ($0.39 per share). The fair value of the common stock will be amortized
over the term of the agreement. For the three and nine month ended September 30,
2008 the Company recorded an expense of $195,000 and $261,950, respectively
under this agreement and deferred compensation of $128,050.




In May
2008 the Company issued a total of 1,700,000 common stock options to the
Company’s officers and directors for director fees. The fair value of the
options  were estimated on the grant date using the Black-Scholes
option pricing model with the following weighted average assumptions: expected
dividend yield 0%, volatility 263%, risk-free interest rate of 2.05%, and
expected warrant life of one year. The value of the warrants on the date of
issuance was $522,224.





In June
2008, the Company entered into a consulting agreement with a consultant to
provide services. The agreement calls for the consultant to provide services for
a period of six months and the consultant to receive compensation of
1,000,000 shares of common stock with the fair value of the common stock of
$120,000 ($0.12 per share). The fair value of the common stock will be amortized
over the term of the agreement. For the three and nine month ended September 30,
2008 the Company recorded an expense of $60,000 and $63,340 under this agreement
and deferred compensation of $56,660.





In June
2008, the Company entered into a consulting agreement with a consultant to media
services. The agreement calls for the consultant to provide services and the
consultant to receive compensation of 314,000 shares of common stock with the
fair value of the common stock of $69,080 ($0.22 per share). During the
three months ended September 30, 2008, the consultant completed the services and
the Company expensed deferred compensation of $69,080.





In July
2008, the Company entered into a consulting agreement with a consultant to
provide public relations services. The agreement calls for the consultant to
provide services for a period of one months and the consultant to receive
compensation of 500,000 shares of common stock with the fair value of the common
stock of $50,000 ($.10 per share). For the three and nine months ended September
30, 2008 the Company record an expense of $50,000.




In July
2008, the Company entered into a consulting agreement with a consultant for
financial advisory services.  The agreement calls for the consultant
to provide services and the consultant to receive compensation of 1,000,000
shares of common stock with the fair value of the common stock of $125,000
($0.125 per share). During the three months ended September 30, 2008, for
the three and nine months ended September 30, 2008 the Company recorded an
expense of $54,861 and deferred compensation of $70,138.





In
September 2008, the Company entered into a consulting agreement with a
consultant for financial advisory services.  The agreement calls for
the consultant to provide services and the consultant to receive compensation of
500,000 shares of common stock with the fair value of the common stock of
$62,500 ($0.125 per share).  For the three and nine months ended
September 30, 2008 the Company recorded an expense of $26,389 and deferred
compensation of $36,111.





In
September 2008, the Company entered into a consulting agreement with a
consultant for financial advisory services.  The agreement calls for
the consultant to provide services and the consultant to receive compensation of
833,320 shares of common stock with the fair value of the common stock of
$33,333 ($0.04 per share).  For the three and nine months ended
September 30, 2008 the Company recorded an expense of $741 and deferred
compensation of $32,592.














In
September 2008, the Company issued a consultant 100,000 shares of common stock
with the fair value of the common stock of $8,000 ($.08 per share) to provide
accounting services. For the three and nine months ended September 30, 2008 the
Company record an expense of $8,000.




(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 onetime 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 8).




(C)  Employment
Agreement




During
2004, the Company entered into an employment agreement with a consultant to
assume the position of Chief Executive Officer and President for a term of five
years at an annual minimum salary of $250,000 with additional bonuses and fringe
benefits. The agreement is to become effective upon the approval by the
Securities and Exchange Commission on the SB-2 Registration Statement. During
March 2006, the Company and the President amended the start date to begin upon
the Company raises all or substantially all the project funding pertaining to
the first facility. As of the date of this report, the Company has not completed
the funding. (See Note 8).




(D)  Rescission
Offer




Common
stock sold prior to July 1, 2005 pursuant to the Company's private placement
offer may be in violation of the requirements of the Securities Act of 1933. In
October 2005, the Company became aware that the private placement offers made
prior to July 1, 2005 may have violated federal and state securities laws based
on the inadequacy of the Company's disclosures made in its offering documents
for the units concerning the lack of unauthorized shares. Under state securities
laws the investor can sue us to recover the consideration paid for the security
together with interest at the legal rate, less the amount of any income received
from the security, or for damages if he or she no longer owns the security or if
the consideration given for the security is not capable of being
returned.




Damages
generally are equal to the difference between the purchase price plus interest
at the legal rate and the value of the security at the time it was disposed of
by the investor plus the amount of any income, if any, received from the
security by the investor. Generally, certain state securities laws provide that
no suit can be maintained by an investor to enforce any liability created under
certain state securities statues if the seller makes a written offer to refund
the consideration paid together with interest at the legal rate less the amount
of any income, if any, received on the security or to pay damages and the
investor refuses or fails to accept the offer within a specified period of time,
generally not exceeding 30 days from the date the offer is received. In
addition, the various states in which the purchasers reside could bring
administrative actions against as a result of the rescission offer.




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




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




As
reflected in the accompanying financial statements, the Company is in the
development stage with no operations, a stockholders' deficiency of $ 2,000,845
 a working capital deficiency of $863,491 and used cash in operations from
inception of $2,344,870. This raises substantial doubt about its ability to
continue as a going concern. The ability of the Company to continue as a going
concern is dependent on the Company's ability to raise additional capital and
implement its business plan. The financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.




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




NOTE
12           SUBSEQUENT
EVENTS




On
October 1, 2008 the Company issued 600,000 shares of common stock for Financial
Consulting services. The term of the agreement is 3 months.





On
October 6, 2008 the Company issued 750,000 shares of common stock for net
proceeds of $15,000 ($.02 per share).





On
October 20, 2008 the Company issued 400,000 shares of common stock for net
proceeds of $10,000 ($.025 per share).





On  November
12, 2008 a Director loaned the Company $40,000. The loan is due in 24 months and
bears interest at a rate of 10% per annum.












ITEM
2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
 The
information contained in Item 2 contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. Actual results may
materially differ from those projected in the forward-looking statements as a
result of certain risks and uncertainties set forth in this report. Although
management believes that the assumptions made and expectations reflected in the
forward-looking statements are reasonable, there is no assurance that the
underlying assumptions will, in fact, prove to be correct or that actual results
will not be different from expectations expressed in this report.
  Overview
  We are a
developmental stage company that is in the process of implementing our business
plan to develop a showcase waste to energy facility at a site to be determined.
The first showcase installation will be the cornerstone for both United States
and European expansion. It will thermally convert rubber waste to oil and
subsequently use the oil as fuel for large reciprocating engines driving
alternators making electricity. In addition to the sale of electricity, several
additional valuable bi-products produced in the thermal conversion process will
also be sold into either domestic or international markets.
  Our
business plan is focused on providing large urban centers with community based
processing facilities to address the needs of rubber waste disposal where the
waste is generated. This rubber waste is largely scrap tires. Similarly, large
urban centers also have an increasing requirement for electrical energy for both
domestic and industrial use. Our processing facilities can be located,
constructed and operated to meet the specific needs of the community in an
environmentally friendly manner.
  We
believe that the effective implementation of our business plan will result in
our position as a provider of community based waste to energy installations
dealing with rubber waste at source while providing reliable electrical energy
to meet base load and/or on peak energy demands.
  The
successful implementation of the business plan will also be dependent on our
ability to meet the challenges of developing a management team capable of not
only the construction and operation of the first installation but also marketing
management and the implementation of specific marketing strategies.
 
 These
strategies will include the utilization of specific existing distributors
currently in the business of marketing carbon black. As well, we will be going
to regional disposal operators and collectors to offer our services as a point
of final disposition for their collection and disposal
requirements.
  Additionally,
it will be necessary to educate targeted jurisdictions about the environmental
and commercial benefits of an Alliance installation in their
community.
  During
the fiscal quarter September 30, 2008, no revenues were generated and we do not
anticipate revenues until such time as the first facility has been constructed
and commercially operated. The construction of the first showcase facility will
require $20 million. However, currently there are no commitments for capital and
furthermore, the successful implementation of all aspects of the business plan
is subject to our ability to complete the $20 million capitalization. It is
expected the required funds will be raised as a result of private offerings of
securities or debt, or other sources.
 
 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 $2,000,845 and cash used in operations from inception through September 30,
2008 of $2,344,870.  As of September 30, 2008, we had a working
capital deficiency of $863,491.
  Our
ability to continue as a going concern is dependent on our ability to further
implement our business plan, raise additional capital and generate revenues.
These conditions raise substantial doubt about our ability to continue as a
going concern.
 
  
   Plan of
Operations
  Management
has forged relations with several corporate finance entities that have expressed
an interest in participating in our overall expansion in the United States and
Europe.
  The
efforts of our management team, our consultants and advisors will be to complete
appropriate financing arrangements. The completion of the $20,000,000 financing
will be our exclusive effort prior to the construction and development of the
first installation.
  Upon
completion of the $20,000,000 capitalization, our next priority will be the
construction of the first installation. For this construction, it will be
necessary for management to initially focus on two specific activities. First,
project management consultants will be engaged to assist us in all matters
associated with identifying and preparing the site. This activity includes
regulatory approvals as well as final design and layout based upon commercial
equipment available for procurement and/or fabrication
  In the
event we are not able to raise $20,000,000 to complete construction of our first
showcase facility, we will be forced to seek additional financing in order to
maintain operations over the next 12 months.
 
 In
addition, we will continue to develop our industry contacts, develop our
business plan, refine our technology, search for suitable sites, and devote
efforts to secure the capital required to implement our business
plan.
  Second,
our management and consulting engineers will commence activities to enlarge our
management team by adding key employees as well as consultants that will be
responsible for specific tasks & operations associated with the first
installation.
  During
the permitting period, estimated by management and their consulting engineers,
to be 90 to 120 days, our engineering and fabrication team will finalize design
and layouts for the first site as well as prepare and circulate site building
bid documents. Similarly, turnkey contracts will be negotiated for specific
pieces of the thermal processing equipment utilized in the rubber to oil
conversion process.
 
 The
supply and operation of the electrical generation equipment will also be
contracted out during this period of the development. We have already identified
and pre-qualified several suppliers of the type of electrical generation
equipment. However, as a result of the preliminary stage of these discussions,
we are unable to provide greater detail as to the exact nature of the
relationship or participation of these suppliers.
 
 Also at
this time, some preliminary site work will be completed to facilitate the
installation of the design/build structures required. The site will also be
prepared to accept the modularized electrical generation equipment that will be
installed on the site subsequent to the installation and start-up of the thermal
conversion process. The contracted operator of the electrical generation
equipment will also be responsible for the sale of electricity. During initial
discussions with these supplier/operators, an interest has been expressed in
participating in our overall business. Some discussions pertaining to the
exchange of our shares for all, or part, of the value of the turnkey have
transpired. However, it is unlikely that meaningful discussions will commence
until such time as our capitalization set forth above has been completed. Even
if the capitalization has been completed, there can be no certainty that the
contract operators will participate in the first installation other than on a
fee for services basis. In any event, until such time as the $20 Million
capitalization has been completed, specific details pertaining to the
participation of supplier/operators will not be available and we are unable to
provide the details of any possible forthcoming agreements.
  Management
and their consulting engineers believe that, the overall fabrication and
installation timeframe is approximately 18 to 24 months from execution of
contracts. As all the components utilized in our installation are currently in
use in manufacturing operations in the United States and around the world, lead
times for delivery and installation are generally short.
 
 Several
components are stock items and available for almost immediate delivery. However,
the engineering firm responsible for the overall project management of the first
installation will monitor all fabricator/suppliers to ensure that the various
components and required ancillary equipment and structures have been readied
onsite for installation. Additionally, engineering verification will be required
for all progress draws prior to our making payments to the various
supplier/fabricators. As is customary with the supply of this type of equipment,
established payment holdbacks upon completion of installation and start-up will
be released only upon engineering verification of performance. Additionally, it
may be necessary for selected fabricator/suppliers to provide delivery and
performance bonds specific to their components.
 
 The
entire project could be delayed as a direct result of several factors. Should we
not be able to a lease or purchase a suitable property within a timely manner,
the project could be delayed indefinitely until such time as an appropriate site
is secured. Although we have located several suitable sites that could be
appropriately permitted, unforeseen regulatory changes could make it difficult
to obtain the required permits causing further delays thereby causing us to take
additional time to identify other suitable sites. Should there be delays in the
delivery of thermal processing or electrical generation equipment as a result of
material shortages, labor problems, transportation difficulties etc., our
commercial operation would be delayed thereby not allowing us to generate
revenues as anticipated. Should the delay be lengthy, management could be
required to seek additional financing or seek other remedies in law pertaining
to delivery and performance failures of the fabricator suppliers. Regulatory
changes causing delays in the construction, processing equipment installation
and start-up of the showcase facility will lengthen the period of time for us to
start to generate revenues from operations. We will only be in the position to
commence a US expansion of processing facilities upon the successful completion,
start-up and operation of the showcase facility.
   
  
 The
supplier/fabricators will also be responsible for the training of key employees
and/or contractors and will work with the engineering project managers to
include established operating protocols in the systems operations manual. In
conjunction with this effort, during the start-up of the first installation,
fabricator/suppliers and the project management will establish operating set
points incorporating them into the system software thereby ensuring continued
reliable system performance and measurable quality standards.
  It is
management’s and their consulting engineers opinion that overall, the entire
installation through construction completion, training, start-up and commercial
acceptance based upon engineering performance verification is approximately 18
to 24 months. The overall development schedule could be delayed as a result of
unforeseen regulatory delays, labor disputes and seasonal delays due to weather
conditions.
  Pursuant
to preliminary discussions with corporate finance professionals, items #16
through #18 set forth below are anticipated fees and expenses pertaining to the
$20,000,000 financing that we will be seeking. The following schedule outlines
the categories associated with the financing, completion, start-up and
commercial operation of the first installation. It is expected that many of the
following development categories outlined in the following schedule will be
completed concurrently.
  1)
      Consulting Fees & Out-of -Pocket Reimbursement
              
              $
              480,0002)
      Site Lease Matters & Development Fees
              
              $
              260,0003)
      Site Engineering, Regulatory & Compliance
              
              $
              211,5004)
      Site Work
              
              $
              1,125,6005)
      Buildings
              
              $
              798,5006)
      Rubber to Oil Thermal Conversion Process Equipment
              
              $
              7,736,5007)
      Warehouse & Conveyance Equipment
Leases/Purchases
              
              $
              74,0838)
      Government Relations
              
              $
              41,0009)
      Administrative Construction Expenses
              
              $
              153,00010)Legal,
      Accounting, Travel & Misc. Fees & Expenses
              
              $
              322,00011)Media,
      Promotion & Government Relations
              
              $
              313,00013)Salaries,
      Wages & Fees
              
              $
              846,43414)Consulting
      Engineers
              
              $
              33,00015)Turn-key
      Energy System & Installation
              
              $
              5,000,00016)Financing
      Fees
              
              $
              2,000,00017)Financing
      Legal & Accounting
              
              $
              300,00018)Administrative
      Contingency
              
              $
              305,383Total
              
              $
              20,000,000
  During
the construction and installation of the first facility, our future Vice
President of Marketing with assistance from our future Vice President of
Technology will commence a specific and targeted marketing campaign directed at
the current rubber waste disposal infrastructure, regulatory agencies, retail
associations and the public. Promotional activities will include media, public
awareness, trade journals, seminars and meetings and discussions with waste
hauler and disposal companies. These activities will also include meetings and
discussions with state regulatory and enforcement officials.
  Based
upon discussions with state regulators, it is our belief that all communities in
the United States and Canada are being encouraged by state, provincial and
federal authorities to be more environmentally responsible. An example of
amplified environmental concern occurring in 2004 was the State of Michigan’s
position pertaining to the continued dumping of waste from out-of-state
communities that included Toronto, Ontario, Canada. State regulations were
implemented in an attempt to curtail the amount and sources of waste being
disposed at Michigan dump sites. It is our belief, that since the early 1990s
the federal EPA has been concerned with the interstate transportation of waste.
The federal position seems to be that communities that generate should be
responsible for the ultimate disposition of the waste within their municipality.
An attempt to limit interstate transportation of waste was contained in the
Interstate Modal Transportation Act which was never approved as originally
proposed.
  Community
based environmental initiatives are being encouraged. Dealing with waste at the
source is considered much more environmentally friendly than trucking the waste
hundreds of miles away. The first installation is perceived as a convenient and
environmentally friendly solution to rubber waste. The targeted marketing
campaign will exploit the current thinking pertaining to community based waste
reduction and processing and waste to energy initiatives.
   
  
 However,
there may be difficulties associated with encouraging the existing disposal and
transportation infrastructure to utilize the Alliance installation as an
alternative to their current method of disposal. Historic relationships between
the existing infrastructure serving retailers and dumps or processors often
hundreds of miles away and the financial commitment to the trucking the waste
may be difficult to overcome. However, management’s discussion with several
haulers has been encouraging as a cost effective alternative to the existing
transportation of waste to often out-of-state locations is a welcomed
alternative.
  A
targeted marketing campaign pertaining to the sale of carbon black and scrap
steel will also commence prior to completion of construction. However, we may
not be positioned to enter into carbon black supply contracts until such time as
samples are made available from the operation of the showcase facility. It is
likely that these samples would be made available as a result of operation the
processing equipment during the performance testing phase of the installation
and immediately prior to commercial certification. The commercial
certification will occur after the equipment has operated for a period of
approximately 90 days and all contract performance specifications have been
achieved.
  There may
be delays associated with the correction of deficiencies in order that the
processing equipment meet certain performance standards prior to commercial
certification. However, the Company has included the 90 day start-up phase
within the overall timeline to allow for the correction of deficiencies by
fabricator suppliers. Although the vast majority of the rubber to oil system is
based upon off-the-shelf components, if further delays occur as a result of
fabricator suppliers correction of deficiencies, we could be delayed in our
ability to generate revenue.
  Although,
we have identified several experts currently responsible for the sale of carbon
products currently with other companies and they have expressed an interest in
the position of VP Marketing, there is no guarantee that their previous
experience will allow them to successfully initiate a campaign that will lead to
the sale of our carbon black. However, the successful operation of the thermal
system will generate commercial grades of carbon black that could be utilized by
rubber formulation companies for specific products. Additionally, our carbon
black could be blended with other sources of carbon black thereby allowing
rubber formulators to meet customer requirements for recycled content. We
believe our carbon black will be advantageous to other forms of recycled content
as it will be is a virgin product made from oil that is a waste rubber
derivative.
 
 Furthermore,
the heat recovery system utilized throughout the entire electrical generation
system will be available to deliver steam for additional industrial uses. Heat
recovery boilers utilized in the system can make steam available for use in a
steam turbine to make additional electricity for sale by ARC. The recovered heat
could also be utilized in several industrial applications.
 
 The ARC
installation is designed to operate continuously. As a result, the installation
has the ability to produce heat constantly to service the steam requirements of
a turbine generating electricity or other commercial uses. The heat produced can
be considered a bi-product from the operation of the thermal conversion and
electrical generation equipment. Rather than utilizing the heat source for any
particular use, we could also 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 to generate
additional electricity is a common sense alternative to exhausting heat into the
atmosphere.
 
 If the
Company was to move forward with a hydroponics initiative as an alternative to a
steam turbine or industrial uses, the type of relationship previously discussed
is based upon the notion that the hydroponics greenhouse operator would lease a
site immediately adjacent to the showcase facility. Based upon our final
equipment selection, pertaining to both the thermal conversion of rubber to oil
and the generation of electricity, we will be positioned to provide details as
to the amount of steam and/or hot water that be generated for conveyance to the
greenhouse via an insulated pipeline. A heat exchanger could transfer the heat
from the ARC steam and/or hot water to the hot water in the hydroponics
operator’s underground reservoir.
 
 Regardless
of the ultimate use of the recovered steam, the ARC cooled condensate and/or
water will be returned to the ARC heat recovery boilers heated again for reuse
in a closed loop system.  As US energy prices continue to escalate,
there is a wide range of industrial and commercial applications
requiring energy.  The industrial or commercial use of the
recovered hot water and/or steam could be used to meet these
requirements.
 
 Should
ARC utilize the steam in a turbine, further electrical energy will be available
to sell into the grid.  However, if the recovered steam and/or heat is
utilized in industrial or other applications a discounted avoided cost, defined
as the operators cost of natural gas or fuel oil less a negotiated discount,
will be used to determine the recovered heat's selling price. We will not be
positioned to make a final decision in connection to the use of the recovered
heat until a development site has been agreed upon and the $20,000,000 financing
has been completed.
  Going Concern
Consideration
  As
reflected in the accompanying September 30, 2008 financial statements we are in
the development stage with no operations, a stockholders’ deficiency of
$2,000,845 and cash used in operations from inception through September 30, 2008
of $2,344,870.  As of September 30, 2008, we had a working capital
deficiency of $863,491. This raises substantial doubt about our ability to
continue as a going concern. Our ability to continue as a going concern is
dependent on our ability to raise additional capital and implement our business
plan. The financial statements do not include any adjustments that might be
necessary if we are unable to continue as a going concern.
   
   We
believe that actions presently being taken to obtain additional funding and
implement our strategic plans provide the opportunity for us to continue as a
going concern.
  Liquidity and Capital
Resources
 
 Our
balance sheet as of September 30, 2008 reflects assets of $5,927 consisting of
cash of $90, prepaid expenses of $5,000, and property and equipment of $837,
compared to assets of $27,541 as of December 31, 2007. As of September 30, 2008,
we had current liabilities of $868,581 consisting of accounts payable and
accrued interest of $152,968, an amount of $425,863 due to a related party and a
note payable - convertible related party, (net of discount of $250) of $289,750.
In comparison to December 31, 2007, we had current liabilities of $737,643 which
consisted of accounts payable and accrued interest of $85,150, an amount of
$427,493 due to a related party, a note payable of $25,000 with a net discount
of $0 and a note payable due to a related party of $200,000.
 
 Cash and
cash equivalents from inception to date have been sufficient to cover expenses
involved in starting our business. We will require additional funds to continue
to implement and expand our business plan during the next twelve
months.
  Critical Accounting
Policies
  Our
financial statements and related public financial information are based on the
application of accounting principles generally accepted in the United States
(“GAAP”). GAAP requires the use of estimates; assumptions, judgments and
subjective interpretations of accounting principles that have an impact on the
assets, liabilities, revenue and expense amounts reported. These estimates can
also affect supplemental information contained in our external disclosures
including information regarding contingencies, risk and financial condition. We
believe our use if estimates and underlying accounting assumptions adhere to
GAAP and are consistently and conservatively applied. We base our estimates on
historical experience and on various other assumptions that we believe to be
reasonable under the circumstances. Actual results may differ materially from
these estimates under different assumptions or conditions. We continue to
monitor significant estimates made during the preparation of our financial
statements.
  Our
significant accounting policies are summarized in Note 1 of our financial
statements. While all these significant accounting policies impact our financial
condition and results of operations, we view certain of these policies as
critical. Policies determined to be critical are those policies that have the
most significant impact on our financial statements and require management to
use a greater degree of judgment and estimates. Actual results may differ from
those estimates. Our management believes that given current facts and
circumstances, it is unlikely that applying any other reasonable judgments or
estimate methodologies would cause effect on our consolidated results of
operations, financial position or liquidity for the periods presented in this
report.
  Off Balance Sheet
Arrangements
  We have
no off-balance sheet arrangements.
  Recent Accounting
Pronouncements
  In
December 2007, the Financial Accounting Standards Board (FASB) issued SFAS No.
160, “Noncontrolling Interests
in Consolidated Financial Statements – an amendment of ARB No. 51
”.  This statement improves the relevance, comparability, and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting
standards that require; the ownership interests in subsidiaries held by parties
other than the parent and the amount of consolidated net income attributable to
the parent and to the noncontrolling interest be clearly identified and
presented on the face of the consolidated statement of income, changes in a
parent’s ownership interest while the parent retains its controlling
financial interest in its subsidiary be accounted for consistently, when a
subsidiary is deconsolidated, any retained noncontrolling equity investment in
the former subsidiary be initially measured at fair value, entities provide
sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling
owners.  SFAS No. 160 affects those entities that have an outstanding
noncontrolling interest in one or more subsidiaries or that deconsolidate a
subsidiary.  SFAS No. 160 is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008.
Early adoption is prohibited. The adoption of this statement is not expected to
have a material effect on the Company's financial statements.
  In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133”
(SFAS 161). This statement is intended to improve transparency in financial
reporting by requiring enhanced disclosures of an entity’s derivative
instruments and hedging activities and their effects on the entity’s financial
position, financial performance, and cash flows. SFAS 161 applies to all
derivative instruments within the scope of SFAS 133, “Accounting for Derivative
Instruments and Hedging Activities” (SFAS 133) as well as related hedged items,
bifurcated derivatives, and nonderivative instruments that are designated and
qualify as hedging instruments. Entities with instruments subject to SFAS 161
must provide more robust qualitative disclosures and expanded quantitative
disclosures. SFAS 161 is effective prospectively for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008,
with early application permitted. We are currently evaluating the disclosure
implications of this statement.
   
  
 In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles.” SFAS No. 162 identifies the sources of accounting
principles and provides entities with a framework for selecting the principles
used in preparation of financial statements that are presented in conformity
with GAAP. The current GAAP hierarchy has been criticized because it is directed
to the auditor rather than the entity, it is complex, and it ranks FASB
Statements of Financial Accounting Concepts, which are subject to the same level
of due process as FASB Statements of Financial Accounting Standards, below
industry practices that are widely recognized as generally accepted but that are
not subject to due process. The Board believes the GAAP hierarchy should be
directed to entities because it is the entity (not its auditors) that is
responsible for selecting accounting principles for financial statements that
are presented in conformity with GAAP. SFAS 162 is effective 60 days following
the SEC’s approval of PCAOB Auditing Standard No. 6, Evaluating Consistency
of Financial Statements (AS/6). The adoption of FASB 162 is not expected to have
a material impact on the Company’s financial position.
  In May
2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee
Insurance Contracts-an interpretation of FASB Statement No. 60.” Diversity
exists in practice in accounting for financial guarantee insurance contracts by
insurance enterprises under FASB Statement No. 60, Accounting and Reporting by
Insurance Enterprises. This results in inconsistencies in the recognition and
measurement of claim liabilities. This Statement requires that an insurance
enterprise recognize a claim liability prior to an event of default (insured
event) when there is evidence that credit deterioration has occurred in an
insured financial obligation. This Statement requires expanded disclosures about
financial guarantee insurance contracts. The accounting and disclosure
requirements of the Statement will improve the quality of information provided
to users of financial statements.  SFAS 163 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. The adoption of FASB 163 is not
expected to have a material impact on the Company’s financial
position.
  Item
3. Quantitative and Qualitative Disclosures About Market Risk
 
 The
Company is subject to certain market risks, including changes in interest rates.
 The Company does not undertake any specific actions to limit those
exposures.
  Item
4T.  Controls and Procedures
 
 Pursuant
to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”),
the Company carried out an evaluation, with the participation of the Company’s
management, including the Company’s Chief Executive Officer (“CEO”) and Chief
Accounting Officer (“CAO”) (the Company’s principal financial and accounting
officer), of the effectiveness of the Company’s disclosure controls and
procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the
end of the period covered by this report. Based upon that evaluation, the
Company’s CEO and CAO concluded that the Company’s disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in the reports that the Company files or submits under the Exchange
Act, is recorded, processed, summarized and reported, within the time periods
specified in the SEC’s rules and forms, and that such information is accumulated
and communicated to the Company’s management, including the Company’s CEO and
CAO, as appropriate, to allow timely decisions regarding required
disclosure.
  There
have been no significant changes in the Company’s internal controls or in other
factors that could significantly affect internal controls subsequent to the date
the Chief Executive Officer and the Chief Financial Officer carried out this
evaluation.
  Management’s Report on
Internal Controls over Financial Reporting
 
 a)  
Evaluation of Disclosure
Controls. Peter Vaisler, our Chief Executive Officer, Principal Financial
Officer and Principal Accounting Officer, evaluated the effectiveness of our
disclosure controls and procedures as of the end of our third fiscal quarter
2008 pursuant to Rule 13a-15(b) of the Securities and Exchange Act. Disclosure
controls and procedures are controls and other procedures that 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 recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by us in
the reports that we file under the Exchange Act is accumulated and communicated
to our management, as appropriate to allow timely decisions regarding required
disclosure. Based on his evaluation, Mr. Vaisler concluded that our disclosure
controls and procedures were effective as of September 30, 2008.
 
 It should
be noted that any system of controls, however well designed and operated, can
provide only reasonable, and not absolute, assurance that the objectives of the
system are met. In addition, the design of any control system is based in part
upon certain assumptions about the likelihood of future events. Because of these
and other inherent limitations of control systems, there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions
 
 (b)
  Changes in internal
control over financial reporting. There have been no changes in our
internal control over financial reporting that occurred during the last fiscal
quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting. Our management team will
continue to evaluate our internal control over financial reporting in 2008 as we
implement our Sarbanes Oxley Act testing.
   
   PART
II - OTHER INFORMATION
  Item
1. Legal Proceedings.
  Currently
we are not aware of any litigation pending or threatened by or against the
Company.
  Item
1A. Risk Factors.
  None.
 
 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.
  None.
  Item
5. Other Information.
  None
  Item
6. Exhibits and Reports of Form 8-K.
  (a)           Exhibits
  31.1
Certifications pursuant to Section 302 of Sarbanes Oxley Act of
2002
  32.1
Certifications pursuant to section 906 of Sarbanes Oxley Act of
2002
  (b)           Reports
of form 8-k
  On June
2, 2008, the company filed a form 8-k with the sec regarding non-reliance on
previously issued financial statements or a related audit report or completed
interim review.
 
  
   SIGNATURES
  Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
  ALLIANCE
      RECOVERY CORPORATIONDate:
      November 19, 2008
              By:
              /s/
      Peter VaislerPeter
      VaislerChief
      Executive Officer
                Principal
      Financial Officer,
                Principal
      Accounting Officer