----

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| **UNITED                STATES****SECURITIES                AND EXCHANGE COMMISSION**Washington,                D.C. 20549 |
|----------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                       |
|                                                                                                                       |
| **FORM                10-QSB**                                                                                             |

| [**X**] |                        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES                EXCHANGE ACT OF 1934 |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| For the fiscal quarter ended: |                                                           | Commission                file number: |
|---------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------|
| **September                30, 2006**             |                                                                                                                                                                                                                                                                                                                                                   | **0-11582**                            |

| **Auto                Underwriters of America, Inc.**(Exact                name of registrant as specified in its                charter) |
|-------------------------------------------------------------------------------------------------------------------------------------------|

| **California**                                                                | **             ** | **94-2915849**                                      |
|-------------------------------------------------------------------------------|------------------------------------------------------------------------------------|-----------------------------------------------------|
| (State                or other jurisdiction of incorporation or organization) |                                                                               | (I.R.S.                Employer Identification No.) |

| **2670                South White Road, Suite 241, San Jose                California** |
|-----------------------------------------------------------------------------------------|
| (Address                of principal executive offices)                                 |
|                                                                                    |
|                                                                                    |
| **95148**                                                                               |
| (Zip                Code)                                                               |
|                                                                                    |
|                                                                                    |
| **(408)                270-3587**                                                       |
| (Registrant's                telephone number, including area                code)      |

|                                      |                                                                                                                | Outstanding                at    |
|-------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|
| Title                of Each Class        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | November                20, 2006 |
| Common                Stock, no par value |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 6,018,570                        |

----

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| **AUTO                UNDERWRITERS OF AMERICA, INC.** **TABLE                OF CONTENTS** |
|-------------------------------------------------------------------------------------------------|

|                                                                                                                     |                                                                                                               | **PAGE**              |
|--------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------|-----------------------|
|                                                                                                                     |                                                                                                               |                  |
| **PART                I.**                                                                                               | **FINANCIAL                INFORMATION**                                                                           |                  |
|                                                                                                 | **     **                                                                                 |                  |
| Item                1.                                                                                                   | Financial                Statements                                                                                |                  |
|                                                                                                 | **     **                                                                                 |                  |
|                                                                                                                     | Balance                Sheet as of September 30, 2006                                                         | 3                     |
|                                                                                                 | **     **                                                                                 |                  |
|                      | Statements                of Operations for the Three Months Ended                September 30, 2006 and 2005 | 4                     |
|                                                                                                 | **     **                                                                                 |                  |
|                                                                                                                     | Statements                of Cash Flows for the Three Months Ended                September 30, 2006 and 2005 | 5                     |
|                                                                                                 | **     **                                                                                 |                  |
|                                                                                                                     | Notes                to Financial Statements                                                                       | 6                - 7  |
|                                                                                                 | **     **                                                                                 |                  |
| Item                2.                                                                                                   | Management’s                Discussion and Analysis of Financial                Condition                    | 8                - 11 |
|                                                                                                 | **     **                                                                                 |                  |
| Item                3.                                                                                                   | Controls                and Procedures                                                                             | 12                    |
|                                                                                                 | **     **                                                                                 |                  |
| **PART                II.**                                                                                              | **OTHER                INFORMATION**                                                                               |                  |
|                                                                                                 | **     **                                                                                 |                  |
| Item                1.                                                                                                   | Legal                Proceedings                                                                                   | 13                    |
|                                                                                                 | **     **                                                                                 |                  |
| Item                2.                                                                                                   | Unregistered                Sales of Equity Securities and Use of                Proceeds                          | 13                    |
|                                                                                                 | **     **                                                                                 |                  |
| Item                3.                                                                                                   | Default                Upon Senior Securities                                                                      | 13                    |
|                                                                                                 | **     **                                                                                 |                  |
| Item                4.                                                                                                   | Submission                of Matters to a Vote of Security                Holders                                  | 13                    |
|                                                                                                 | **     **                                                                                 |                  |
| Item                5.                                                                                                   | Other                Information                                                                                   | 13                    |
|                                                                                                 | **     **                                                                                 |                  |
| Item                6.                                                                                                   | Exhibits                                                                                                           | 14                    |

----

**Part      I. Financial Information**

| **AutoUnderwriters                of America, Inc.** |
|------------------------------------------------------|
| **Balance                Sheet**                     |
| **September                30, 2006**                |
| **(Unaudited)**                                      |

| Assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                           |        |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|-------------|
| Cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | $                                                                                                                                                      | 34,001      |   |
| Finance                receivables, net of allowance of $2,642,145                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                                                                                                                                   | 7,405,146   |   |
| Accounts                receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                                                                                   | 29,280      |   |
| Inventory                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                   | 861,790     |   |
| Prepaid                and other assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                                                                                                                                   | 70,215      |   |
| Deferred                financing costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                                                                                                                                   | 226,758     |   |
| Property                and equipment, net of accumulated depreciation of $29,976                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                   | 128,262     |   |
| Total                assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | $                                                                                                                                                      | 8,755,452   |   |
|                                                                                                                                       |   |                                                                                                                                                   |        |   |
| Liabilities                and stockholders’ equity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                   |        |   |
| Liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                                                                                                                   |        |   |
| Accounts                payable and accrued liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | $                                                                                                                                                      | 767,851     |   |
| Drafts                payable and floor plan liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                                                                                                                                   | 216,505     |   |
| Income                taxes payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                                                                                   | -           |   |
| Notes                payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                                                                                                                   | 1,761,944   |   |
| Advance                from related parties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                                                                                                                                   | 674,995     |   |
| Deferred                sales tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                   | 681,440     |   |
| Revolving                credit facilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                   | 8,527,982   |   |
| Total                liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                                                                                                                   | 12,630,717  |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                                                                                                   |        |   |
| Commitments                and contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                                                                                                                   |        |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                                                                                                   |        |   |
| Stockholders’                equity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                   |        |   |
| Preferred                  stock: no par value: 10,000,000 authorized 423,020 issued or                  outstanding                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                   | 909,492     |   |
| Common                  stock: no par value: 100,000,000 authorized 6,418,570                  issued or outstanding                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                   | 6,468,364   |   |
| Retained                deficit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                                                                                                                                   | (11,253,121 | ) |
| Total                stockholders’ equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                                                                                                                                   | (3,875,265  | ) |
| Total                liabilities and stockholder’s equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | $                                                                                                                                                      | 8,755,452   |   |

----

| **Auto                Underwriters of America, Inc.**                                    |
|------------------------------------------------------------------------------------------|
| **Statements                of Operations**                                              |
| **For                the three months ended September 30, 2006 and                2005** |
| **(Unaudited)**                                                                          |

|                                                                                                                                       |   | **2006** |      | **  2005** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|-----------|----------------------|--------|
| Revenues:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |     |      |            |   |
| Sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   | $        | 862,990   |                 | $      | 5,490,278 |   |
| Interest                income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |     | 390,437   |                 |   | 535,949 |   |
| Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |     | 19,972    |                 |   | 185,097 |   |
| Total                revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |     | 1,273,398 |                 |   | 6,211,324 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |     |      |                 |   |   |   |
| Costs                and expenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |     |      |                 |   |   |   |
| Cost                of sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |     | 566,397   |                 |   | 3,526,713 |   |
| Selling,                general and administrative                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |     | 602,200   |                 |   | 1,220,188 |   |
| Provision                for credit losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |     | 213,267   |                 |   | 1,122,379 |   |
| Discount                on sales of receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |     | -         |                 |   | 78,455 |   |
| Depreciation                and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |     | 103,103   |                 |   | 15,804 |   |
| Interest                expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |     | 377,744   |                 |   | 289,950 |   |
| Total                costs and expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |     | 1,862,711 |                 |   | 6,253,489 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |     |      |                 |   |   |   |
| Loss                before income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |     | (589,313  | )                    |   | (42,165 | ) |
| Provision                for income tax benefit (expense)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |     | -         |                 |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |     |      |                 |   |   |   |
| Net                loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | $        | (589,313  | )                    | $      | (42,165 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |     |      |                 |   |   |   |
| Loss                per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |     |      |                 |   |   |   |
| Basic                and diluted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | $        | (.09      | )                    | $      | (0.01 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |     |      |                 |   |   |   |
| Weighted                average number of shares outstanding:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |     |      |                 |   |   |   |
| Basic                and diluted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |     | 6,418,570 |                 |   | 6,020,053 |   |

----

| **Auto                Underwriters of America, Inc.**                                    |
|------------------------------------------------------------------------------------------|
| **Statements                of Cash Flows**                                              |
| **For                the three months ended September 30, 2006 and                2005** |
| **(Unaudited)**                                                                          |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | **2006**                                                                                                                                               |       | ** 2005**                                                                                                                                               |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
| Operating                activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                           |       |                            |   |
| Net                loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | $                                                                                                                                                      | (589,313   | )                                                                                                                                                            | $      | (42,165 | ) |
| Adjustments                to reconcile net loss to net cash used in operating                activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                                                                                                                                   |       |                                                                                                                                                         |   |   |   |
| Depreciation                and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                                                                                                                   | 103,103    |                                                                                                                                                         |   | 15,804 |   |
| Discount                on sale of finance receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                   | -          |                                                                                                                                                         |   | 78,455 |   |
| Change                in finance receivables, net:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                                                                                                                                   |       |                                                                                                                                                         |   |   |   |
| Finance                receivables originations and purchased, net of payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                                                                                                                                   | (718,763   | )                                                                                                                                                            |   | (3,300,472 | ) |
| Provision                for credit losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                                                                                                                                   | 213,267    |                                                                                                                                                         |   | 1,122,379 |   |
| Inventory                acquired in repossession                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                                                                   | 474,198    |                                                                                                                                                         |   | 917,865 |   |
| Subtotal                finance receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                                                                                                                                   | (31,298    | )                                                                                                                                                            |   | (1,260,228 | ) |
| Changes                in operating assets and liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                                                                                                                                   |       |                                                                                                                                                         |   |   |   |
| Deferred                financing cost                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |                                                                                                                                                   | 34,837     |                                                                                                                                                         |   | (39,375 | ) |
| Accounts                receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                                                                                                                                   | 17,742     |                                                                                                                                                         |   | (682,332 | ) |
| Inventory                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                                                                                                                                   | (576,655   | )                                                                                                                                                            |   | (588,569 | ) |
| Prepaid                and other expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                                                                                                                   | (6,713     | )                                                                                                                                                            |   | (20,828 | ) |
| Accounts                payable and accrued liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                                                                                                                                   | (64,312    | )                                                                                                                                                            |   | 619,994 |   |
| Deferred                sales taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                                                                                                                                   | (113,550   | )                                                                                                                                                            |   | 201,554 |   |
| Income                tax payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                                                                   | -          |                                                                                                                                                         |   | - |   |
| Net                cash used in operating activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                                                                                                                                   | (1,226,159 | )                                                                                                                                                            |   | (1,717,690 | ) |
|                                                                                                                                                 |   |                                                                                                                                                   |       |                                                                                                                                                         |   |   |   |
| Investing                activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                                                                                                                                   |       |                                                                                                                                                         |   |   |   |
| Purchase                of property and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                                                                   | -          |                                                                                                                                                         |   | (3,564 | ) |
| Sale                (purchase) of finance receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                   | -          |                                                                                                                                                         |   | (170,576 | ) |
| Proceeds                from sale of finance receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                                                                                                                   | -          |                                                                                                                                                         |   | 1,146,174 |   |
| Net                cash provided by investing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                                                                                                                   | -          |                                                                                                                                                         |   | 972,034 |   |
|                                                                                                                                                                                                   |   |                                                                                                                                                   |       |                                                                                                                                                         |   |   |   |
| Financing                activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                                                                                                                                   |       |                                                                                                                                                         |   |   |   |
| Proceeds                from (repayments to) related party                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                                                                                                                                   | 2,799      |                                                                                                                                                         |   | (1,000 | ) |
| Proceeds                from revolving credit facilities, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                   | (485,043   | )                                                                                                                                                            |   | 486,146 |   |
| Repayments                on other notes payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                                                                                                   | 828,751    |                                                                                                                                                         |   | (28,252 | ) |
| Proceeds                from Series A Preferred Stock                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |                                                                                                                                                   | 909,492    |                                                                                                                                                         |   | 382,500 |   |
| Net                cash provided by financing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                                                                                                                   | 1,255,999  |                                                                                                                                                         |   | 839,394 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                                                                                                                                   |       |                                                                                                                                                         |   |   |   |
| Increase                (decrease) in cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                                                                                                                                   | 29,840     |                                                                                                                                                         |   | (93,738 | ) |
| Cash                at beginning of period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                                                                                                                                   | 4,161      |                                                                                                                                                         |   | 68,112 |   |
| Cash                at end of period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | $                                                                                                                                                      | 34,001     |                                                                                                                                                         | $      | 161,850 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                                                                                                                                   |       |                                                                                                                                                         |   |   |   |
| Cash                paid for:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                   |       |                                                                                                                                                         |   |   |   |
| Interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | $                                                                                                                                                      | 377,744    |                                                                                                                                                         | $      | 289,950 |   |
| Income                tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                                                                                                                                   | -          |                                                                                                                                                         |   | - |   |

----

| **Auto                Underwriters of America,                Inc.** |
|----------------------------------------------------------------------|
| **Notes                to Financial Statements**                     |
| **(Unaudited)**                                                      |

**NOTE      1 - BASIS OF PRESENTATION**

**NOTE      2 - GOING CONCERN**

**NOTE      3 - FINANCE RECEIVABLES**

|                                                                                                                                                                                                                                                                                                                                                               |   | **2006**                                                                                                                                               |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                                             |   |                           |       |
| Finance                receivables                                                                                                                                                                                                                                                                                                                                 |   | $                                                                                                                                                      | 9,655,177  |   |
| Allowance                for credit losses                                                                                                                                                                                                                                                                                                                         |   |                                                                                                                                                   | (2,250,031 | ) |
|                                                                                                                                                                                                                                                                                                                                                               |   |                                                                                                                                                   |       |   |
| Finance                receivables, net                                                                                                                                                                                                                                                                                                                            |   | $                                                                                                                                                      | 7,405,146  |   |

|                                                                                                                                                                                                                                                                                                                                                               |   | **2006 **                                                                                                                                         |      |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|-----------|
|                                                             |   |                           |      |
| Balance                  at beginning of period                                                                                                                                                                                                                                                                                                                    |   | $                                                                                                                                                      | 2,417,301 |   |
| Provision                  for credit losses                                                                                                                                                                                                                                                                                                                       |   |                                                                                                                                                   | 213,267   |   |
| Net                  charge offs                                                                                                                                                                                                                                                                                                                                   |   |                                                                                                                                                   | (854,735  | ) |
| Net                  recoveries                                                                                                                                                                                                                                                                                                                                    |   |                                                                                                                                                   | 474,198   |   |
|                                                                                                                                                                                                                                                                                                                                                               |   |                                                                                                                                                   |      |   |
| Balance                  at end of period                                                                                                                                                                                                                                                                                                                          |   | $                                                                                                                                                      | 2,250,031 |   |

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**NOTE      4 - REVOLVING CREDIT FACILITIES**

**NOTE      5 - SHORT TERM DEBTS**

** **

**NOTE      6 - EQUITY**

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**Item      2. Management's Discussion and Analysis of Financial Condition      and Results of Operations**

**Cautionary      Statement Regarding Forward-looking Information**

|         | •       | The                creditworthiness of contract obligors;                                                |
|--------------------------------------------|---------------------------------------------|----------------------------------------------------------------------------------------------------------|
|         | •       | Economic                factors affecting delinquencies;                                                 |
|         | •       | Our                ability to retain and attract experienced and knowledgeable                personnel; |
|         | •       | Our                ability to purchase installment contracts; and                                        |
|         | •       | Our                ability to compete in the consumer finance                industry.                   |

**Business      Overview**

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|         | •       | Our                ability to procure suitable real estate at reasonable costs. Real                estate                acquisition will be an increasing challenge as we enter large, multi-store                markets. |
|--------------------------------------------|---------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         | •       | Our                ability to build our management team to support the store                growth.                                                                                                                          |
|         | •       | Our                ability to maintain a competitive indirect finance program for franchise                and independent dealers.                                                                                          |

**Results      of Operations**

**Three      months ended September 30, 2006 compared to the three months ended September      30,      2005**

----

**Liquidity      and Capital Resources**

| **Auto                Underwriters of America, Inc** |
|------------------------------------------------------|
| (unaudited)                                          |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | **Three                Months ended****September                30,**                                                                                  |       |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | **2006**                                                                                                                                               | ** ** | **2005** |   |
| Operating                activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                           |       |                            |   |
| Net                income (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | $                                                                                                                                                      | (589,313   | ) | $ | (42,165 | ) |
|                                                                                             |   |                                                                                                                                                   |       |   |   |   |   |
| Depreciation                and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                                                                                                                                   | 103,103    |   |   | 15,804 |   |
| Discount                on sale of loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                                                                                                   | -          |   |   | 78,455 |   |
| Changes                in finance receivables, net:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                                                                                                                                   | (31,298    | ) |   | (1,260,228 | ) |
| Changes                in operating assets and liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                                                                                                                                   | (708,651   | ) |   | (509,556 | ) |
| Net                cash used in operating activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                                                                                                                   | (1,226,159 | ) |   | (1,717,690 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                                                                                                                   |       |   |   |   |   |
| Cash                provided by investing activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                   | -          |   |   | 972,034 |   |
| Cash                provided by financing activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                                                                                                   | 1,255,999  |   |   | 839,394 |   |
| Increase                (decrease) in cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |  $                                                                                                                                                | 29,840     |   | $ | 93,738 |   |

**Critical      Accounting Policies**

**Seasonality**

----

----

**Item      3. Controls and Procedures**

----

**PART      II.**
**OTHER      INFORMATION**

| **ITEM 1.    ** | **LEGAL                PROCEEDINGS**                                                                                                                                                                                                                                                                                                                                                                       |
|------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                     |                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                     | Not                Applicable                                                                                                                                                                                                                                                                                                                                                                              |
|                                     |                                                                                                                                                                                                                                                                                                                                                                                   |
| **ITEM 2.    ** | **UNREGISTERED                SALES OF EQUITY SECURITIES AND USE OF                PROCEEDS.**                                                                                                                                                                                                                                                                                                             |
|                                     |                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                     | During                the quarter ended September 30, 2006, we issued the following                securities in private transactions pursuant to an exemption from                the                registration requirements provided by Section 4(2) of the Securities                Act                of 1933, as amended, and Rule 506 of Regulation D promulgated                thereunder: |

| Purchaser                andRecipient                ofSecurities |   | Date                         |   | Terms                ofExercise                ifConvertible |   | TitleofSecurity |   | Number                Sold                orGranted |   | ConsiderationReceived |
|-------------------------------------------------------------------|--------|------------------------------|--------|--------------------------------------------------------------|--------|-----------------|--------|-----------------------------------------------------|--------|-----------------------|
| Group                of Accredited Investors                      |   | Various                Dates |   | $2.50                                                        |   | Units(1)        |   | 211,510                                             |   | $1,057,549            |
| Group                of Accredited Investors                      |   | 8/23/2006                    |   | (2)                                                          |   | (2)             |   | (2)                                                 |   | (2)                   |

|   | (1) | During                  the three months ended September 30, 2006, the Company sold 211,510                  units                  of the Company’s securities at a price of $5.00 per unit. Each unit                  consists of two shares of the Company’s Series A Convertible Preferred                  Stock and one warrant to purchase one share of the Company’s common stock                  exercisable for a period of five years at an exercise price of                  $5.00 (the                  “Investor Warrants”). The offer and sale was conducted on behalf of the                  Company by a NASD-licensed broker-dealer who served as managing                  dealer                  (the “Managing Dealer”) and received a sales commission of 7%, an                  investment banking and marketing fee of 4% and a nonaccountable                  expense                  allowance of 3% of the gross proceeds of $1,057,549. The Managing                  Dealer                  also received a warrant to purchase 1,000,000 shares of the Company’s                  Common Stock, exercisable for a period of 5 years at $1.00 per                  share. The                  Managing Dealer will also receive (i) a cash commission of 7% of                  the total                  funds received by the Company upon exercise of the Investor Warrants,                  and                  (ii) warrants, exercisable for a period of 5 years at an exercise                  price of                  $2.50 per share, to purchase the number of shares of Common Stock                  of the                  Company equal to 7% of the total number of shares of Common Stock                  issued                  by the Company upon exercise of the Investor Warrants. The terms                  of the                  Series A Convertible Preferred Stock, including but not limited                  to its                  rights and preferences, are set forth in the Certificate of Determination                  of Preferences of Series A Convertible Preferred Stock attached                  as Exhibit                  3.2 to the Company’s Form 8-K filed under Item 5.03 on September 7,                  2006. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | (2) | During                    fiscal 2006, Auto Underwriters borrowed $1,000,000 from several                    investors.                    These loans were secured by the Company’s inventory, bearing interest at                    10%, and were due September 1, 2006. In August 2006, certain                    investors elected to convert $700,000 of these loans into 400,000                    shares                    of common stock and five-year stock purchase warrants exercisable                    for a                    total of 140,000 shares of the Company’s Common Stock at an exercise price                    of $1.75 per share. In August 2006, certain investors elected                    to receive a                    replacement note with a total balance of $50,000. These replacement                    notes                    bear interest at 10%, have a new maturity date of August 31,                    2007, and                    include a five-year stock purchase warrant exercisable for a                    total of                    10,000 shares of the company’s Common Stock at an exercise price of                    $1.75.  The Company paid $250,000 in cash plus accrued interest                    to the remaining investors that elected to not convert or extend                    the term                    of their loans.  The Company has agreed to pay a NASD-licensed broker                    dealer a fee of $32,000 for their assistance in completing this                    transaction.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

| **ITEM 3.    ** | **DEFAULT                UPON SENIOR SECURITIES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                     | Not                Applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **ITEM 4.    ** | **SUBMISSION                OF MATTERS TO A VOTE OF SECURITY HOLDERS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                     | Not                Applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| **ITEM 5.    ** | **OTHER                INFORMATION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|                                     | During                  the fiscal years ended June 30,2005 and 2006, we sold certain non-prime                  installment contracts to an unaffiliated finance company, We are                  currently                  engaged in a dispute with the finance company concerning these                  installment                  contracts and money owed. We do not believe that the finance company                  has                  been properly crediting the residual payments due to us on the                  installment                  contracts, while the finance company believes that we have not                  met our                  obligations to repurchase certain defaulted installment contracts.                  We are                  currently in discussions with the finance company to resolve this                  dispute                  without the need for litigation. As a result of this dispute, the                  Company                  has charged-off its receivable balance due from this finance company                  of                  approximately $1,100,000 on June 30, 2006 and have maintained a                  payable of                  approximately $152,000 for future                  repurchases. |

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| **ITEM 6.    ** | **EXHIBITS**                                                                                                                |
|------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------|
|                                     |                                                                                                                        |
| 31.1                                     | Principal                Executive Officer Certification under Section 302 of the Sarbanes-Oxley                Act of 2002 |
| 31.2                                     | Principal                Financial Officer Certification under Section 302 of the Sarbanes-Oxley                Act of 2002 |
| 32.1                                     | Principal                Executive Officer Certification under Section 906 of the Sarbanes-Oxley                Act of 2002 |
| 32.2                                     | Principal                Financial Officer Certification under Section 906 of the Sarbanes-Oxley                Act of 2002 |

----

| **SIGNATURES** |
|----------------|

| **                                       ** | **Auto                Underwriters of America, Inc.**                                                            |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                           |                                                                                                             |
|                                                                                                                                                                                                                                           |                                                                                                             |
|                                                                                                                                                                                                                                           |                                                                                                             |
|                                                                                                                                                                                                                                           | By:   /s/                Dean Antonis                                                             |
|                                                                                                                                                                                                                                           | Dean                Antonis                                                                                      |
|                                                                                                                                                                                                                                           | *President                and Treasurer (Principal Executive,**Financial                and Accounting Officer)* |