| **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, 2005**                            |                                                                                                                                                                                                                                                                                                                                                        | **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.) |

****

| **2755 Campus Drive, Suite 155, San Mateo, California** |
|---------------------------------------------------------|
| (Address of principal executive offices)                |
|                                                    |
|                                                    |
| **94403**                                               |
| (Zip Code)                                              |
|                                                    |
|                                                    |
| **(650) 377-4381**                                      |
| (Registrant's telephone number, including area code)    |

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

Yes [X]  No [  ]

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

Yes [  ]  No [X]

                Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicabledate.

|                            |                                                                                                                | Outstanding at    |
|----------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------|
| Title of Each Class        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | November 14, 2005 |
| Common Stock, no par value |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 6,020,053         |

----

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

|                                                                                                                          |                                                                                      | **PAGE**     |
|--------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------|--------------|
|                                                                                                                     |                                                                                      |              |
| **PART I.**                                                                                                              | **FINANCIAL INFORMATION**                                                            |              |
|                                                                                                 | **     **                                                   |              |
| Item 1.                                                                                                                  | Financial Statements                                                                 |              |
|                                                                                                 | **     **                                                   |              |
|                                                                                                                     | Balance Sheet as of September 30, 2005                                          | 3            |
|                                                                                                 | **     **                                                   |              |
|                      | Statements of Operations for the Three Months Ended September 30, 2005 and 2004 | 4            |
|                                                                                                 | **     **                                                   |              |
|                                                                                                                          | Statements of Cash Flows for the Three Months Ended September 30, 2005 and 2004 | 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                                                                             | 13           |

2

----

**Part I. Financial Information**

| **Auto Underwriters of America, Inc.** |
|----------------------------------------|
| **Balance Sheet**                      |
| **September 30, 2005**                 |
| **(Unaudited)**                        |

| Assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |                           |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|     Cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | $      | 161,850                                                                                                                                                |        |
|     Finance receivables, net of allowance of $2,642,145                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |        | 10,595,436                                                                                                                                             |        |
|     Accounts receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |        | 1,849,062                                                                                                                                              |        |
|     Inventory                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |        | 1,249,921                                                                                                                                              |        |
|     Prepaid and other assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |        | 72,689                                                                                                                                                 |        |
|     Deferred financing costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |        | 226,525                                                                                                                                                |        |
|     Property and equipment, net of accumulated depreciation of $29,976                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |        | 167,822                                                                                                                                                |        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |        |                                                                                                                                                        |        |
| Total assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | $      | 14,323,305                                                                                                                                             |        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |        |                                                                                                                                                        |        |
|                                                                                                                                       |        |                                                                                                                                                        |        |
| Liabilities and stockholders’ equity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |        |                                                                                                                                                        |        |
| Liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |        |                                                                                                                                                        |        |
|     Accounts payable and accrued liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | $      | 805,387                                                                                                                                                |        |
|     Drafts payable and floor plan liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |        | 1,428,287                                                                                                                                              |        |
|     Income taxes payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |        | 121,676                                                                                                                                                |        |
|     Notes payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |        | 415,990                                                                                                                                                |        |
|     Advance from related parties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |        | 667,867                                                                                                                                                |        |
|     Deferred sales tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |        | 971,059                                                                                                                                                |        |
|     Revolving credit facilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |        | 8,631,674                                                                                                                                              |        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |        |                                                                                                                                                        |        |
| Total liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |        | 13,041,940                                                                                                                                             |        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |        |                                                                                                                                                        |        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |        |                                                                                                                                                        |        |
| Commitments and contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |        | -                                                                                                                                                      |        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |        |                                                                                                                                                        |        |
| Stockholders’ equity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |        |                                                                                                                                                        |        |
|     Preferred stock: no par value: 10,000,000 authorized                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |        |                                                                                                                                                        |        |
|         0 issued or outstanding                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |        | -                                                                                                                                                      |        |
|     Common stock: no par value: 100,000,000 authorized                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |        |                                                                                                                                                        |        |
|         6,020,053 issued and outstanding                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |        | 5,453,878                                                                                                                                              |        |
|     Deferred compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |        | (40,837                                                                                                                                                | )      |
|     Retained deficit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |        | (4,131,676                                                                                                                                             | )      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |        |                                                                                                                                                        |        |
| Total stockholders’ equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |        | 1,281,365                                                                                                                                              |        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |        |                                                                                                                                                        |        |
| Total liabilities and stockholder’s equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | $      | 14,323,305                                                                                                                                             |        |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |        |                                                                                                                                                        |        |

See Notes to Financial Statements unaudited.3

----

| **Auto Underwriters of America, Inc.**                     |
|------------------------------------------------------------|
| **Statements of Operations**                               |
| **For the three months ended September 30, 2005 and 2004** |
| **(Unaudited)**                                            |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 2005 |                                                                                                                                                        |        | 2004                     |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------|---|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |      |                                                                                                                                                        |        |                          |   |
|                                                                                                                                       |      |                           |   |      |   |                           |   |
| Revenues:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |      |                                                                                                                                                        |        |                          |   |  |  |
|     Sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | $    | 5,490,278                                                                                                                                              |        |                          | $ | 1,843,263 |  |
|     Interest income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |      | 535,949                                                                                                                                                |        |                          |   | 458,622 |  |
|     Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |      | 185,097                                                                                                                                                |        |                          |   | - |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |      |                                                                                                                                                        |        |                          |   |  |  |
| Total revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |      | 6,211,324                                                                                                                                              |        |                          |   | 2,301,885 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |      |                                                                                                                                                        |        |                          |   |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |      |                                                                                                                                                        |        |                          |   |  |  |
| Costs and expenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |      |                                                                                                                                                        |        |                          |   |  |  |
|     Cost of sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |      | 3,526,713                                                                                                                                              |        |                          |   | 1,093,223 |  |
|     Selling, general and administrative                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |      | 1,220,188                                                                                                                                              |        |                          |   | 724,125 |  |
|     Provision for credit losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |      | 1,122,379                                                                                                                                              |        |                          |   | 370,172 |  |
|     Discount on sales of receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |      | 78,455                                                                                                                                                 |        |                          |   | - |  |
|     Depreciation and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |      | 15,804                                                                                                                                                 |        |                          |   | - |  |
|     Interest expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |      | 289,950                                                                                                                                                |        |                          |   | 220,231 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |      |                                                                                                                                                        |        |                          |   |  |  |
| Total costs and expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |      | 6,253,489                                                                                                                                              |        |                          |   | 2,407,751 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |      |                                                                                                                                                        |        |                          |   |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |      |                                                                                                                                                        |        |                          |   |  |  |
| Loss before income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |      | (42,165                                                                                                                                                | )      |                          |   | (105,866 | ) |
| Provision for income tax benefit (expense)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |      | -                                                                                                                                                      |        |                          |   | 36,000 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |      |                                                                                                                                                        |        |                          |   |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |      |                                                                                                                                                        |        |                          |   |  |  |
| Net loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | $    | (42,165                                                                                                                                                | )      |                          | $ | (69,866 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |      |                                                                                                                                                        |        |                          |   |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |      |                                                                                                                                                        |        |                          |   |  |  |
| Loss per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |      |                                                                                                                                                        |        |                          |   |  |  |
|     Basic and diluted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | $    | (0.01                                                                                                                                                  | )      |                          | $ | (0.03 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |      |                                                                                                                                                        |        |                          |   |  |  |
| Weighted average number of shares outstanding:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |      |                                                                                                                                                        |        |                          |   |  |  |
|     Basic and diluted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |      | 6,020,053                                                                                                                                              |        |                          |   | 2,200,053 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |      |                                                                                                                                                        |        |                          |   |  |  |

See Notes to Financial Statements unaudited.4

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| ****
**Auto Underwriters of America, Inc.**                |
|------------------------------------------------------------|
| **Statements of Cash Flows**                               |
| **For the three months ended September 30, 2005 and 2004** |
| **(Unaudited)**                                            |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | 2005 |                                                                                                                                                        |        | 2004                           |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|---|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |      |                                                                                                                                                        |        |                                |   |
| Operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |      |                           |   |       |   |                           |   |
|   Net loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | $    | (42,165                                                                                                                                                | )      |                                | $ | (69,866 | ) |
|   Adjustments to reconcile net loss to net cash used in operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |      |                                                                                                                                                        |        |                                |   |  |  |
|       Depreciation and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |      | 15,804                                                                                                                                                 |        |                                |   | - |  |
|       Discount on sale of finance receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |      | 78,455                                                                                                                                                 |        |                                |   | 8,556 |  |
|   Change in:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      |                                                                                                                                                        |        |                                |   |  |  |
|       Finance receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |      | (3,300,472                                                                                                                                             | )      |                                |   | 615,608 |  |
|       Provision for credit losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |      | 1,122,379                                                                                                                                              |        |                                |   | - |  |
|       Inventory acquired in repossession                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      | 917,865                                                                                                                                                |        |                                |   | - |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |      |                                                                                                                                                        |        |                                |   |  |  |
|                    Subtotal finance receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |      | (1,260,228                                                                                                                                             | )      |                                |   | 615,608 |  |
|       Deferred financing cost                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |      | (39,375                                                                                                                                                | )      |                                |   | - |  |
|       Accounts receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |      | (682,332                                                                                                                                               | )      |                                |   | 6,813 |  |
|       Inventory                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |      | (588,569                                                                                                                                               | )      |                                |   | (196,526 | ) |
|       Prepaid and other expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |      | (20,828                                                                                                                                                | )      |                                |   | (10,729 | ) |
|       Accounts payable and accrued liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |      | 619,994                                                                                                                                                |        |                                |   | (680,662 | ) |
|       Deferred sales taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |      | 201,554                                                                                                                                                |        |                                |   | 71,477 |  |
|       Income tax payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      | -                                                                                                                                                      |        |                                |   | (36,000 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |      |                                                                                                                                                        |        |                                |   |  |  |
|   Net cash used in operating activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |      | (1,717,690                                                                                                                                             | )      |                                |   | (291,329 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |      |                                                                                                                                                        |        |                                |   |  |  |
|                                                                                                                                                 |      |                                                                                                                                                        |        |                                |   |  |  |
| Investing activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |      |                                                                                                                                                        |        |                                |   |  |  |
|   Purchase of property and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |      | (3,564                                                                                                                                                 | )      |                                |   | - |  |
|   Sale (purchase) of finance receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |      | (170,576                                                                                                                                               | )      |                                |   | 77,002 |  |
|   Proceeds from sale of finance receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |      | 1,146,174                                                                                                                                              |        |                                |   | - |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |      |                                                                                                                                                        |        |                                |   |  |  |
|   Net cash provided by investing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |      | 972,034                                                                                                                                                |        |                                |   | 77,002 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |      |                                                                                                                                                        |        |                                |   |  |  |
|                                                                                                                                                                                                   |      |                                                                                                                                                        |        |                                |   |  |  |
| Financing activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |      |                                                                                                                                                        |        |                                |   |  |  |
|   Proceeds from (repayments to) related party                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |      | (1,000                                                                                                                                                 | )      |                                |   | 43,134 |  |
|   Proceeds from revolving credit facilities, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |      | 486,146                                                                                                                                                |        |                                |   | 153,241 |  |
|   Repayments on other notes payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |      | (28,252                                                                                                                                                | )      |                                |   | (65,142 | ) |
|   Proceeds from convertible debts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |      | 382,500                                                                                                                                                |        |                                |   | - |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |      |                                                                                                                                                        |        |                                |   |  |  |
|   Net cash provided by financing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |      | 839,394                                                                                                                                                |        |                                |   | 131,233 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |      |                                                                                                                                                        |        |                                |   |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |      |                                                                                                                                                        |        |                                |   |  |  |
| Increase (decrease) in cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |      | 93,738                                                                                                                                                 |        |                                |   | (83,094 | ) |
| Cash at beginning of period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |      | 68,112                                                                                                                                                 |        |                                |   | 101,019 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |      |                                                                                                                                                        |        |                                |   |  |  |
| Cash at end of period                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | $    | 161,850                                                                                                                                                |        |                                | $ | 17,925 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |      |                                                                                                                                                        |        |                                |   |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |      |                                                                                                                                                        |        |                                |   |  |  |
| Cash paid for:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |      |                                                                                                                                                        |        |                                |   |  |  |
|   Interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            | $    | 289,950                                                                                                                                                |        |                                | $ | 220,231 |  |
|   Income tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |      | -                                                                                                                                                      |        |                                |   | - |  |

See Notes to Financial Statements unaudited.5

----

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

```

```

**NOTE 1 – BASIS OF PRESENTATION**

The accompanying unaudited interim financial statements of Auto Underwriters of America, Inc. ("Auto Underwriters") have been prepared in accordance with accounting principles generally accepted in the United States of Americaand the rules of the Securities and Exchange Commission ("SEC"), and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in Auto Underwriters' Annual Report filed with the SEC on Form 10-KSB. In the opinion ofmanagement, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for the interimperiods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for fiscal 2005 as reported in the10-KSB have been omitted.

**NOTE 2 – FINANCE RECEIVABLES**

Auto Underwriters originates installment sale contracts from the sale of used vehicles at its dealerships. These installment sale contracts typically include interest rates ranging from approximately 12% to 27% per annum andprovide for payments over periods ranging from 18 to 60 months. The components of finance receivables as of September 30, 2005 are as follows:

|                                                                                                                                                                                                                                                                                                                                                                    | 2005 |                                                                                                                                                        |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                    |      |                                                                                                                                                        |
|                                                             |      |                           |  |
| Finance receivables                                                                                                                                                                                                                                                                                                                                                | $    | 13,237,581                                                                                                                                             |  |
| Allowance for credit losses                                                                                                                                                                                                                                                                                                                                        |      | (2,642,145                                                                                                                                             | ) |
|                                                                                                                                                                                                                                                                                                                                                               |      |                                                                                                                                                        |  |
|                                                                                                                                                                                                                                                                                                                                                                    |      |                                                                                                                                                        |  |
| Finance receivables, net                                                                                                                                                                                                                                                                                                                                           | $    | 10,595,436                                                                                                                                             |  |
|                                                                                                                                                                                                                                                                                                                                                                    |      |                                                                                                                                                        |  |

Changes in the finance receivables allowance for credit losses for the three months ended September 30, 2005 are as follows:

|                                                                                                                                                                                                                                                                                                                                                                    | 2005 |                                                                                                                                                        |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                    |      |                                                                                                                                                        |
|                                                             |      |                           |  |
| Balance at beginning of period                                                                                                                                                                                                                                                                                                                                     | $    | 2,323,089                                                                                                                                              |  |
| Provision for credit losses                                                                                                                                                                                                                                                                                                                                        |      | 1,122,379                                                                                                                                              |  |
| Net charge offs                                                                                                                                                                                                                                                                                                                                                    |      | (1,721,188                                                                                                                                             | ) |
| Net recoveries                                                                                                                                                                                                                                                                                                                                                     |      | 917,865                                                                                                                                                |  |
|                                                                                                                                                                                                                                                                                                                                                                    |      |                                                                                                                                                        |  |
|                                                                                                                                                                                                                                                                                                                                                               |      |                                                                                                                                                        |  |
| Balance at end of period                                                                                                                                                                                                                                                                                                                                           | $    | 2,642,145                                                                                                                                              |  |
|                                                                                                                                                                                                                                                                                                                                                                    |      |                                                                                                                                                        |  |

**NOTE 3 – REVOLVING CREDIT FACILITIES**

Auto Underwriters has a $8,500,000 revolving line of credit (“LOC”) with Oak Rock Financial, LLC, bearing interest at the greater of prime+7% or 13.75% and expires on March 31, 2006.  The LOC is secured by allof Auto Underwriters’ assets and a personal validity guarantee by our President.  At September 30, 2005, the LOC balance outstanding was $8,631,674.

6

----

**NOTE 4 – CONVERTIBLE DEBTS**

During first quarter of fiscal 2006, Auto Underwriters obtained several loans from investors in the amount of $382,500. These loans are unsecured, bear interest at 9.25%, and are due February 28, 2007. These loans areconvertible into 255,000 shares of common stock at conversion price of $1.50 per share. Because the conversion prices exceeded the market trading price of Auto Underwriters’ common stock when the loans were issued, a Beneficial Conversion Feature was notcreated.

7

----

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

   The following discussion should be read in conjunction with our financial statements and notes thereto appearing elsewhere in this report.

**Cautionary Statement Regarding Forward-looking Information**

    This Form 10-QSB for the quarter ended September 30, 2005 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of1934, including statements regarding, among other items, our growth strategies, anticipated trends in our business and our future results of operation, market conditions in the automobile finance industry and the impact of governmental regulation. Theseforward-looking statements are based largely on our expectations and are subject to a number of risks and uncertainties, many of which are beyond our control. Actual results could differ materially from these forward-looking statements as a result of, among otherthings:
|         | •       | 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.                   |

  In addition, the words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,”“expect,” and similar expressions, as they relate to us, our business or our management, are intended to identify forward-looking statements.

  We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise after the date of this Form 10-QSB.In light of these risks and uncertainties, the forward-looking events and circumstances discussed in this Form 10-QSB may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.

**Business Overview**

  Auto Underwriters of America, Inc. began operations in August 1983 under the name Advanced Cellular Technology, Inc. and developed and marketed cellular mobile telephone control units andresold used PBX telecommunications equipment. On December 31, 1990, we suspended operations and remained inactive until December 2002, when we adopted our current name and began our principal operations as a specialty finance company and specialty retailer ofused cars and light trucks.

  We began our specialty finance company operations in December 2002 to engage in the purchasing and servicing of non-prime installment contracts (“Contracts”) generated by automobile dealers in the sale ofnew and used automobiles and light trucks.  We provide financing programs to automobile dealers through our website Autounderwriters.com which allows the dealer to input various fields of information into an online financing application and obtain an automaticcredit decision within 30 seconds.  Generally our target customers do not meet the credit standards of traditional lenders, such as banks and credit unions, because of the age of the vehicle being financed or the customer’s credit history. Unliketraditional lenders, which look primarily to the credit history of the borrower in making lending decisions and typically finance new automobiles, we are willing to provide financing for purchases made by our customers who have short or impaired credit histories andfor used automobiles. In making decisions regarding the financing of a particular contract, we consider several factors related to the borrower: place and length of residence, current and prior job status, history in making installment payments for automobiles,current income and credit history. In addition, we examine the value of the automobile in relation to the purchase price and the term of the contract. 

  We began our specialty automotive retailing operations which focuses on the “Buy Here/Pay Here” segment of the used car market in January 2004. We purchase, recondition, sell and finance used vehicles fromthree dealerships in Houston, Texas that operate under the name Affordable Cars & Trucks.  We advertise extensively on television and in

8

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auto sales magazines emphasizing our multiple locations, wide selection of vehicles, and ability to provide financing to a wide array of customers.

   We are still at an early stage in the rollout of our financing programs and retail concept. The primary drivers for future earnings growth will be vehicle unit sales growth from geographic expansion, comparablestore sales increases, and interest income from growth in our finance receivable portfolio.  During the next two years, we plan to focus our growth primarily on adding stores to new markets in the state of Texas. In addition, in fiscal 2006 we plan to expand ournetwork of automobile dealers that utilize our financing programs in the states we currently service.  Over the three-year period, we plan to open new used car stores.  We also expect used unit comparable store sales increases, reflecting the multi-yearramp up in sales of newly opened stores as they mature and continued market share gains at stores that have reached mature sales levels. On a combinedbasis,we expect that new store openings and comparable store used unitincreases will drive total used unit growth.

  The principal challenges we face in expanding our store and dealer base and meeting our growth targets include:
|         | •       | 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.                                                            |

   We staff each newly opened store with an experienced management team, including the general manager, purchasing manager, and business office manager, as well as a number of experienced sales managers and accountservicing personnel. We must therefore be continually recruiting, training, and developing managers to support future store openings. If at any time we believe that the rate of store growth is causing our performance to falter, we will slow the growthrate.

**Results of Operations**

   The following table summarizes our results of operations for the three months ended September 30, 2005 and 2004. 

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

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Three Months Ended September 30, |                                                                                                                                                        |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 2005                             |                                                                                                                                                        | 2004 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                  |                                                                                                                                                        |  |  |
| Revenues:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |                                  |                           |         |   |                           |   |
|   Sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | $                                | 5,490,278                                                                                                                                              |  | $ | $1,843,263 |  |
|   Interest income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                  | 535,949                                                                                                                                                |  |  | 458,622 |  |
|   Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                  | 185,097                                                                                                                                                |  |  | - |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                  |                                                                                                                                                        |  |  |  |  |
|       Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                  | 6,211,324                                                                                                                                              |  |  | 2,301,885 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                  |                                                                                                                                                        |  |  |  |  |
|                                                                                             |                                  |                                                                                                                                                        |  |  |  |  |
| Costs and expenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                  |                                                                                                                                                        |  |  |  |  |
|   Cost of sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                  | 3,526,713                                                                                                                                              |  |  | 1,093,223 |  |
|   Selling, general and admin                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |                                  | 1,220,188                                                                                                                                              |  |  | 724,125 |  |
|   Provision for credit losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |                                  | 1,122,379                                                                                                                                              |  |  | 370,172 |  |
|   Discount on sale of loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |                                  | 78,455                                                                                                                                                 |  |  | - |  |
|   Depreciation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                  | 15,804                                                                                                                                                 |  |  | - |  |
|   Interest expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |                                  | 289,950                                                                                                                                                |  |  | 220,231 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                  |                                                                                                                                                        |  |  |  |  |
|       Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                  | 6,253,489                                                                                                                                              |  |  | 2,407,751 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                  |                                                                                                                                                        |  |  |  |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                  |                                                                                                                                                        |  |  |  |  |
|       Pretax loss                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | $                                | (42,165                                                                                                                                                | ) | $ | (105,866 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                  |                                                                                                                                                        |  |  |  |  |

9

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## **Three months ended September 30, 2005 compared to the three months ended September 30, 2004**

**

Revenues

  Total revenues increased to $6,211,324 for the three month period ending September 30, 2005 compared to the corresponding period ended September 30, 2004 principally as a result ofincreased unit sales from our automotive specialty retailing operations ($5,490,278) and an increase in interest income due to an increase in the outstanding loan portfolio ($535,949).

Cost of Sales

   Cost of sales as a percentage of automobile and light truck sales was 64.2% or $3,526,713 for the three month period ending September 30, 2005. During the corresponding period ended September 30, 2004, costof sales as a percentage of automobile and light truck sales was 59.3% or $1,093,223.

Selling, General and Administrative Expenses

   Selling, general and administrative expenses increased by $496,063 for thethree month period ending September 30, 2005 compared to the corresponding period ended September 30, 2004. This increase wasprimarily attributable to additional staffing, increased general operating expenses and the opening of automotive retailing facilities.

Interest Expense

    Interest expense increased to $289,950 for the three month period ending September 30, 2005 as compared to $220,231 for the corresponding period ended September 30, 2004.  The increase ininterest expense was primarily due to the increase in borrowings from a line of credit as we financed our increase in the receivable base through the purchase of loan portfolios and loan originations from our direct and indirect lending operations.

**Liquidity and Capital Resources**

   The following table summarizes our liquidity and capital resources for the three months ended September 30, 2005 and 2004. 

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

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | Three Months Ended September 30, |                                                                                                                                                        |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 2005                             |                                                                                                                                                        |  | 2004 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                  |                                                                                                                                                        |  |  |  |
| Operating activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |                                  |                           |  |       |  |                           |  |
|   Net income (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | $                                | (42,165                                                                                                                                                | ) |  | $ | (69,866 | ) |
|                                                                                             |                                  |                                                                                                                                                        |  |  |  |  |  |
|       Depreciation and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                  | 15,804                                                                                                                                                 |  |  |  | - |  |
|       Discount on sale of loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |                                  | 78,455                                                                                                                                                 |  |  |  | 8,556 |  |
|       Changes in finance receivables, net:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |                                  | (1,260,228                                                                                                                                             | ) |  |  | 615,608 |  |
|       Changes in operating assets and liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |                                  | (509,556                                                                                                                                               | ) |  |  | (845,627 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                  |                                                                                                                                                        |  |  |  |  |  |
|           Net cash used in operating activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |                                  | (1,717,690                                                                                                                                             | ) |  |  | (291,329 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |                                  |                                                                                                                                                        |  |  |  |  |  |
| Cash provided by investing activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                  | 972,034                                                                                                                                                |  |  |  | 77,002 |  |
| Cash provided by financing activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                  | 839,394                                                                                                                                                |  |  |  | 131,233 |  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                  |                                                                                                                                                        |  |  |  |  |  |
| Increase (decrease) in cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | $                                | 93,738                                                                                                                                                 |  |  | $ | (83,094 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |                                  |                                                                                                                                                        |  |  |  |  |  |

10

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   Our primary use of working capital was the funding of the origination and purchase of contracts and inventory. The contracts were financed substantially through borrowings on the revolving line of credit. The lineof credit is secured primarily by contracts, and available borrowings are based on a percentage of qualifying contracts. We have also funded a portion of our working capital needs through the issuance of subordinated notes.

   We believe that borrowings available under the line of credit as well as cash flow from operations and, if necessary, the issuance of additional subordinated debt, or the sale of additional securities, will besufficient to meet our short-term funding needs.

**Critical Accounting Policies**

   The preparation of financial statements in conformity with generally accepted accounting principles in the United States of America requires us to make estimates and assumptions in determining the reported amountsof assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period.  Actual results could differ from our estimates.  We believethe most significant estimate made in the preparation of the accompanying consolidated financial statements relates to the determination of our allowance for credit losses.  Below is a discussion of our accounting policy concerning such allowance.  Otheraccounting policies are disclosed in the footnotes of our consolidated financial statements which are included in our annual report on Form 10-KSB for the year ended June 30, 2005.

   We maintain an allowance for credit losses at a level we consider sufficient to cover anticipated losses in the collection of our finance receivables.  The allowance for credit losses is determined based upona review of historical, recent credit losses, and the finance receivable portfolio.  The allowance for credit losses is periodically reviewed by management with any changes reflected in current operations.  It is at least reasonably possible that actualcredit losses may be materially different from the recorded allowance for credit losses.

**Seasonality**

   Our automobile sales and finance business is seasonal in nature.  In such business, the second fiscal quarter (October through December) is historically the slowest period for vehicle sales.  The thirdfiscal quarter (January through March) is historically the busiest time for vehicle sales as many of our customers use income tax refunds as a down payment on the purchase of a vehicle.

11

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**Item 3.  Controls and Procedures**

   Based on their evaluation of our disclosure controls and procedures (as defined in Rule 13a-15e under the Securities Exchange Act of 1934 (the “Exchange Act”)), our principal executive officer andprincipal financial officer have concluded that as of the end of the period covered by this quarterly report on Form 10-QSB such disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in reports that we file orsubmit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, because of several adjustments required by our auditors predominantly in the areas of inventory,debt and equity.  Specifically, our independent auditors identified deficiencies in our internal controls and disclosure controls related to the capitalization of the financing costs for convertible debt and adjustment on the value of vehicle inventory at lowerof cost or market.  Appropriate adjustments and footnote disclosures have been recorded and disclosed in our Interim Report on Form 10-QSB.  We are in the process of improving our internal controls in an effort to remediate these deficiencies through thefollowing efforts: 1) employing a new CFO who is a CPA with public company and operational experience, 2) implementing better controls and procedures over debt valuation, expense recognition and stock and stock option issuances, and 3) improving supervision andtraining of our accounting staff.  We are continuing our efforts to improve and strengthen our control processes and procedures to fully remedy these deficiencies.  Our management and directors will continue to work with our auditors and other outsideadvisors to ensure that our controls and procedures are adequate and effective.

12

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**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, 2005, 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 and Recipient of Securities                                                      |                    | Date                                                                                                                     |                    | Terms of Exercise if Convertible                                                                                         |                    | Title of Security                                                                                                        |                    | Number Sold or Granted                                                                                                   |                    | Consideration Received                                                                                                   |
|--------------------------------------------------------------------------------------------|--------------------|--------------------------------------------------------------------------------------------------------------------------|--------------------|--------------------------------------------------------------------------------------------------------------------------|--------------------|--------------------------------------------------------------------------------------------------------------------------|--------------------|--------------------------------------------------------------------------------------------------------------------------|--------------------|--------------------------------------------------------------------------------------------------------------------------|
|                                                                                            |                    |                                                                                                                          |                    |                                                                                                                          |                    |                                                                                                                          |                    |                                                                                                                          |                    |                                                                                                                          |
|                 |     |                      |     |                      |     |                      |     |                      |     |                      |
| Group of Accredited Investors                                                              |                    | 9/13/05(1)                                                                                                               |                    | $1.50                                                                                                                    |                    | Convertible Notes                                                                                                        |                    | 382,500(1)                                                                                                               |                    | 382,500(1)                                                                                                               |

|                                          | (1)  On September 13, 2005, we sold $162,500 in unsecured convertible promissory notes to a limited number of accredited investors.  The notes bear interest at 9.25% per annum, mature on February 28, 2007and are convertible into our common stock at $1.50 per share.  Brookstreet Securities Corporation, a NASD-licensed broker-dealer served as placement agent and received sales commissions and expense allowances aggregating 15% of the gross proceeds received byus.  In addition, as disclosed in Note 4 to our unaudited interim financial statements, as of September 30, 2005, we had received an additional $220,000 in escrow for the purchase of additional promissory notes.  Therefore, as of September 30,2005, we had sold a total of $382,500 in unsecured convertible promissory notes. |
|------------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                          | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **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**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                          |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|                                          | Not Applicable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| ** **                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

13

----

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

****

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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

Dated:   November 21, 2005

14