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**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      D.C. 20549**

**FORM      10-KSB**

**June      30, 2006**

**      0-11582**

**AUTO      UNDERWRITERS OF AMERICA, INC.**

| **California**(State                or Other Jurisdiction ofIncorporation                or Organization) |        | **94-2915849**(I.R.S.                Employer Identification Number) |
|-----------------------------------------------------------------------------------------------------------|--------------------------------------|----------------------------------------------------------------------|

**2670      South White Road, Suite 241**

**San      Jose, CA 95148**

**(408) 270-3587**

**None**

**Common      Stock, no par value**

| **Documents                Incorporated By Reference:****None** |
|-----------------------------------------------------------------|

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

| **PART                I**                                                                                    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | **Page No.** |
|--------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------|
|                                                                           | **       **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |              |
| Item                1.                                                                                       | Description                of Business                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 3                 |
|                                                                                                         | **       **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |              |
| Item                2.                                                                                       | Description                of Property                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 14                |
|                                                                           | **       **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |              |
| Item                3.                                                                                       | Legal                Proceedings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 14                |
|                                                                           | **       **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |              |
| Item                4.                                                                                       | Submission                of Matters to a Vote of Security                Holders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 14                |
|                    | **                                                                                                                                      ** |              |
| **PART II**                                                                                             |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |              |
|                                                                           | **       **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |              |
| Item                5.                                                                                       | Market                for Common Equity, Related Stockholder Matters and                Small Business Issuer Purchases of Equity Securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 14                |
|                                                                           | **       **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |              |
| Item                6.                                                                                       | Management’s                Discussion and Analysis of Financial Condition                And Results of Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | 15                |
|                                                                           | **       **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |              |
| Item                7.                                                                                       | Financial                Statements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      | 18                |
|                                                                           | **       **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |              |
| Item                8.                                                                                       | Change                in and Disagreements with Accountants on Accounting                and Financial Disclosure                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | 18                |
|                                                                           | **       **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |              |
| Item                8A.                                                                                      | Controls                and Procedures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   | 18                |
|                                                                           | **       **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |              |
| Item                8B.                                                                                      | Other                Information                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 18                |
|                                                                           | **       **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |              |
| **PART                III**                                                                                  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |              |
|                                                                           | **       **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |              |
| Item                9.                                                                                       | Directors                and Executive Officers of the                Registrant                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | 19                |
|                                                                           | **       **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |              |
| Item                10.                                                                                      | Executive                Compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 21                |
|                                                                           | **       **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |              |
| Item                11.                                                                                      | Security                Ownership of Certain Beneficial Owners and                Management and Related Stockholder Matters                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 23                |
|                                                                           | **       **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |              |
| Item                12.                                                                                      | Certain                Relationships and Related                Transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | 23                |
|                                                                           | **       **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |              |
| Item                13.                                                                                      | Exhibits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | 24                |
|                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |              |
| Item                14.                                                                                      | Principal                Accountant Fees and Services                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | 25                |
|                                                                                                         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |              |
|                                                                                                         | Signatures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               | 26                |

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**Special      Note Regarding Forward Looking Statements**

| **Part                I** |
|---------------------------|

**Item      1.  Description of Business**

*Business      Summary*

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*Operational      Focus and Acquisition Strategy*

*The      Automotive Finance Industry*

*The      Non-Prime Market*

*Specialty      Retailing and Direct Lending*

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*Indirect      Lending *

|         | •      | A                tangible net worth of $100,000 (exclusive of goodwill or other intangible                assets), or a parent or affiliate which meets the net worth criteria                and                guarantees the performance of the obligation of the automobile dealer                under the purchase agreements, replacement guarantees or other forms                of                dealer recourse. |
|--------------------------------------------|---------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         | •      | Possess                acceptable accounts payable history.                                                                                                                                                                                                                                                                                                                                                                  |
|         | •      | Possess                acceptable personal credit history.                                                                                                                                                                                                                                                                                                                                                                   |
|         | •      | Verifiable                banking references.                                                                                                                                                                                                                                                                                                                                                                                |
|         | •      | Possess                acceptable mortgage or landlord references.                                                                                                                                                                                                                                                                                                                                                           |
|         | •      | Possess                a current Department of Motor Vehicle automobile dealer                license.                                                                                                                                                                                                                                                                                                                       |

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|         | •      | The                purchase discount from the face amount of the loan will generally                range                between 5% and 12% depending on the creditworthiness of each individual                borrower;                            |
|--------------------------------------------|---------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         | •      | Contracts                must have an original term of 60 months or less;                                                                                                                                                                            |
|         | •      | The                age of the financed vehicle may not exceed eight years;                                                                                                                                                                           |
|         | •      | The                borrowers on the contracts are required to make a down payment in                cash                plus a net trade-in allowance of a minimum 10% of the purchase price                of                the financed vehicles; |
|         | •      | The                interest rate on the contract will not violate any applicable usury                laws;                                                                                                                                          |
|         | •      | No                contract may be in arrears at the time of purchase; and                                                                                                                                                                            |
|         | •      | We                maintain first payment recourse on all non-franchise                dealers.                                                                                                                                                       |

|         | •      | A                dealer path allows automobile dealers to enter consumer credit                applications online and obtain instant credit decisions and deal                structures for our purchase of contracts.  This path also enables                dealers to enter existing deal structures and obtain instant pricing                for                our purchase of existing contracts.  As described above,                participating dealers must first register to use the website and                enter                into a dealer agreement before we will receive any applications from                the                dealer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------------------------------------------|---------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         | •      | A                consumer path allows a consumer to complete an online credit application                and receive an instant credit decision, print loan documentation                and a                list of automobile dealers in the area that we have pre-approved.                 The printed loan documentation is intended to be used as evidence                of a                pre-approved lending arrangement between the consumer and us, thereby                making it easier for the consumer to purchase and finance a vehicle.                 When the consumer presents the certificate to a participating dealer,                the                dealer must enter the certificate number into the specified field                through                the dealer path on the website, as well as enter the required information                concerning the vehicle to be purchased and the contract structure.                 We then verify that the vehicle information and contract structure                are                acceptable and gives final approval to the                transaction. |

|         | •      | *Instant                Credit Decisions*.                The website provides dealers and consumers with online credit decisions                within thirty seconds after an online application is submitted.  Upon                receipt of a loan package from a pre-approved dealer, we verify the                loan                documentation sent by the dealer to ensure the loan and the borrower                satisfy our internal criteria for financing.  Our verification                process normally is completed within three days of the receipt of                the loan                documentation.  We believe the speed at which dealers and consumers                can receive a credit decision for the financing will encourage dealers                and                consumers to use our website.                                                              |
|--------------------------------------------|---------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         | •      | *Automatic                Deal Structures*.                Dealers have the option of (i) entering financing deals they have                already                structured and we will give the dealer a decision on whether we will                finance the deal, or (ii) we will process the application and provide                the                dealer a conditional approval with the maximum contract limits that                will                enable us to purchase the contract.                                                                                                                                                                                                                                                                                                                                                                                                                     |
|         | •      | *Decisions                24 hours a day/7days a week/365 days a year*.                The website allows for applications to be submitted 24 hours a day,                7 days                a week.  Many automobile sales take place in the evenings and on the                weekends when financial institutions are closed.  Many finance                companies are only open Monday through Friday from 9am to 5pm.  The                website provides instant decisions during these peak evening and                weekend                hours. This instant decision process helps increase dealer sales                and helps                reduce dealer “roll-backs” which occur when a dealer finances a vehicle                and is later forced to reclaim the vehicle because the dealer is                unable to                sell the financing structure. |

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*Monitoring      and Enforcement of Contracts*

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*Consumer      Credit Characteristics*

|         | •      | “A”                credit consumer is a prime consumer who has a long credit history                with no                defaults, has been employed in the same job for a period of at least                18                months, and can easily finance a new car purchase through a bank,                a                captive finance subsidiary of an automobile manufacturer or an independent                finance company that focuses on prime consumer credit.                                                                                            |
|--------------------------------------------|---------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         | •      | “B”                credit consumer is a non-prime consumer who may have had some slight                credit problems in his or her past or may not have been employed                at his or                her current job for 18 months.  To finance a new or late-model used                car, the “B” credit borrower may not qualify for a loan from a captive                finance subsidiary, but may have success borrowing from a bank and                can                access credit through an independent finance company.           |
|         | •      | “C”                credit consumer is a non-prime consumer who may have had an inconsistent                employment record or a non-recurring event that has caused problems                with                credit in the past.  To finance a late-model or older used car                purchase, this borrower will generally not be able to obtain a loan                from a                captive finance subsidiary or a bank, and will have to access an                independent finance company that lends into this market                category. |
|         | •      | “D”                credit consumer is a non-prime consumer who has an unfavorable employment                history and serious credit problems, such as a personal bankruptcy.                 This borrower’s only choice is to finance his or her used car purchase                through an independent finance company that is active in this market                segment.                                                                                                                                                                                  |

*Competition*

*Regulation*

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|         | •      | *State                Licensing Requirements*.                We maintain a Sales Finance Company License as well as consumer loan                licenses in states that require them.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|--------------------------------------------|---------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         | •      | *Fair                Debt Collection Act*.                The Fair Debt Collection Act and applicable state law counterparts                prohibits us from contacting customers during certain times and at                certain                places, from using certain threatening practices and from making                false                implications when attempting to collect a debt.                                                                                                                                                                                                                                                                                                                                                                                     |
|         | •      | *Truth                in Lending Act*.                The Truth in Lending Act requires us and the dealers we do business                with                to make certain disclosures to customers, including the terms of                repayment, the total finance charge and the annual percentage rate                charged                on each contract or direct loan.                                                                                                                                                                                                                                                                                                                                                                                                        |
|         | •      | *Equal                Credit Opportunity Act*.                The Equal Credit Opportunity Act prohibits creditors from discriminating                against loan applicants on the basis of race, color, sex, age or                marital                status. Pursuant to Regulation B promulgated under the Equal Credit                Opportunity Act, creditors are required to make certain disclosures                regarding consumer rights and advise consumers whose credit applications                are not approved of the reason for the rejection.                                                                                                                                                                                                                  |
|         | •      | *Fair                Credit Reporting Act*.                The Fair Credit Reporting Act requires us to provide certain information                to consumers whose credit applications are not approved on the basis                of a                report obtained from a consumer-reporting agency;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|         | •      | *Gramm-Leach-Bliley                Act*.                The Gramm-Leach-Blailey Act requires us to maintain privacy with                respect                to certain consumer data in our possession and to periodically communicate                with consumers on privacy matters.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|         | •      | *Soldiers’                and Sailors’ Civil Relief Act*.                The Soldiers’ and Sailors’ Civil Relief Act requires us to reduce the                interest rate charged on each loan to customers who have subsequently                joined, enlisted, been inducted or called to active military                duty.                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|         | •      | *Electronic                Funds Transfer Act*.                The Electronic Funds Transfer Act prohibits us from requiring our                customers to repay a loan or other credit by electronic funds transfer                (“EFT”). We are also required to provide certain documentation to our                customers when an EFT is initiated and to provide certain notifications                to                our customers with regard to preauthorized payments.                                                                                                                                                                                                                                                                                          |
|         | •      | *Telephone                Consumer Protection Act*.                The Telephone Consumer Protection Act prohibits telephone solicitation                calls to a customer’s home before 8 a.m. or after 9 p.m. In addition, if                we make a telephone solicitation call to a customer’s home, the                representative making the call must provide his or her name, our                name, and                telephone number or address at which our representative may be contacted.                The Telephone Consumer Protection Act also requires that we maintain                a                record of any requests by customers not to receive future telephone                solicitations, which must be maintained for five years. |
|         | •      | *Bankruptcy*.                Federal bankruptcy and related state laws may interfere with or affect                our                ability to recover collateral or enforce a deficiency                judgment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |

*Employees*

*Risk      Factors*

*Limited      Assets and Operating History. *

*Ability      to Manage Growth; Risks Associated with Expansion and Changes in      Business. *

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*Unseasoned      Loan Portfolio.*

*High      Leverage. *

*Substantial      Need for Additional Capital. *

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*Sensitivity      to Interest Rates. *

*Fluctuations      in Operating Results. *

*Business      Cycle. *

*Potential      Adverse Effect of Economic Slowdown.  *

*Geographic      Concentration*

*Sourcing      Used Cars. *

*Environmental      Risks.  *

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*Creditworthiness      of Contract Obligors. *

*Network      Infrastructure and Computer Systems May Fail*

*We      Must Maintain Confidentiality*

*Competition      and Market Conditions. *

*Performance      Dependent on Executive Officers*

*Acquisitions      Could Be Difficult to Integrate, Disrupt Business, Dilute Shareholder Value,      and      Adversely Affect Our Operations. *

*Dilution      of Shareholder Ownership Interest. *

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*Extensive      Regulatory Requirements. *

*Failure      to maintain effective internal controls in accordance with Section 404 of the      Sarbanes-Oxley Act of 2002 could have a material adverse effect on the market’s      perception of our business and our ability to raise capital.*

*OTC      Bulletin Board. *

*Financial      Reporting Experience.*

*Limited      Access to the OTC Bulletin Board Service.*

*Penny      Stock Rules.*

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*No      Dividends.*

**Item      2.  Description of Properties**

|         | •      | 5715                N Freeway, Houston, Texas 77076, lease expires October 31, 2009,                payments $9,293      |
|--------------------------------------------|---------------------------------------|-------------------------------------------------------------------------------------------------------------------------------|
|         | •      | 9175                Gulf Freeway, Houston, Texas 77017, lease expires September 30, 2008,                payments $5,500 |
|         | •      | 8555                Beechnut, Houston, Texas 77036, lease expires June 30, 2010, payments                $6,000          |

**Item      3.  Legal Proceedings**

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

| **Part                II** |
|----------------------------|

**Item      5.  Market for Common Equity, Dividends, Related      Stockholder Matters and Small Business Issuer Purchases of Equity      Securities**

*Market      Information*

*Holders*

*Dividends*

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*Securities      Authorized for Issuance Under Equity Compensation Plans*

|                                                                                                               |   | **Number of securities****to                be issued upon****exercise                of options,****warrants and rights** |   | **Weighted-average****exercise                price****of options, warrants,****and rights** |   | **Number of securities****remaining                for future issuance** |
|--------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------|
| Equity                compensation plans  approved                by security holders                    |   | 50,000                                                                                                                                         |   | $0.50                                                                                                       |   | 400,000                                                                            |
| Equity                compensation plans not                approved  by security holders |   | --                                                                                                                                             |   | --                                                                                                          |   | --                                                                                 |
| Totals                                                                                                             |   | 50,000                                                                                                                                         |   | $0.50                                                                                                       |   | 400,000                                                                            |

*Recent      Sale of Unregistered Securities*

**Item      6.  Management’s Discussion and Analysis of      Financial Condition and Results of Operations**

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

**Business      Overview**

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|         | •      | Our                ability to procure suitable lot locations at reasonable                costs.               |
|--------------------------------------------|---------------------------------------|----------------------------------------------------------------------------------------------------------------|
|         | •      | Our                ability to build our management strength to support the store                growth.        |
|         | •      | Our                ability to maintain competitive direct retail and direct lending                operations. |

**Critical      Accounting Policies**

*Revenue      Recognition*

*Allowance      for Losses on Loans*

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**Results        of Operation**

| **2006                  vs 2005**       |
|-----------------------------------------|
| (amounts                  in thousands) |

**Liquidity      and Capital Resources**

| **Auto                Underwriters of America, Inc.**                                                   |   |
|--------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                         |   | **June 30,** |   |
|                                                                                                         |   | **2006** |   | **2005** |   |
| Operating                activities:                                                                         |   |   |   |   |   |  |   |
|   Net                income (loss)                                                                 |   | $ | (6,574,353 | ) | $ | (1,528,355 | ) |
|  Non-cash                adjustments                                                                    |   |   | 439,782  |   |   | 1,854,191  |   |
|      Changes                in finance receivables, net:                            |   |   | 825,688 |   |   | (3,763,852 | ) |
|      Changes                in operating assets and liabilities:                    |   |   | 1,554,651 |   |   | (784,389 | )  |
|           Cash                used in operating activities |   |   | (3,754,232 | ) |   | (4,222,405 | ) |
|                                                                                                         |   |   |   |   |   |   |   |
| Investing                activities:                                                                         |   |   | 1,142,610 |   |   | 2,507,491 |   |
| Financing                activities:                                                                         |   |   | 2,547,671 |   |   | 1,682,007 |   |
|                                                                                                         |   |   |   |   |   |   |   |
| Decrease                in cash and cash equivalents                                                         |   |   | (63,951 | ) |   | (32,907 | ) |

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**Item      7.  Financial Statements**

**Item      8.  Changes in and Disagreements with Accountants      on Accounting and Financial Disclosure**

**Item      8A.  Controls and Procedures**

**Item      8B.  Other Information**

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| **PART                III** |
|-----------------------------|

**Item      9.  Directors and Executive Officers of the      Registrant**

| **Name**                                                                                                                                                                                                                                                                                                           | **     ** | **Age**                                                                                    | **     ** | **Position                with the Company**                                                                                                                                                                                                                                                                                                                                               |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------|--------------------------------------------------------------------------------------------|------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                     |                               |                 |                               |                                                                 |
| Dean                Antonis                                                                                                                                                                                                                                                                                        |                               | 44                                                                                         |                               | President,                Treasurer and Director                                                                                                                                                                                                                                                                                                                                           |
| William                J. Kellagher                                                                                                                                                                                                                                                                                |                               | 48                                                                                         |                               | Executive                Vice President and Director                                                                                                                                                                                                                                                                                                                                       |
| Divina                Viray                                                                                                                                                                                                                                                                                        |                               | 45                                                                                         |                               | Secretary                and Director                                                                                                                                                                                                                                                                                                                                                      |
| Robert                Vaughan                                                                                                                                                                                                                                                                                      |                               | 72                                                                                         |                               | Director                                                                                                                                                                                                                                                                                                                                                                                   |

**Dean      Antonis**

**William      J. Kellagher **

**Divina      Viray **

**Robert      Vaughan **

**Family      Relationships**

**Board      of Directors**

**Committees**

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**Section      16(a) Beneficial Ownership Reporting Compliance**

**Code      of Ethics**

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**Item      10.  Executive Compensation**

| SUMMARY                COMPENSATION TABLE                                                            |
|------------------------------------------------------------------------------------------------------|
|    Annual                Compensation                                                 |  Long                Term Compensation |         |
|  Awards                                                                                         |  Pay-outs |        |
|  (a)  NameAndPrincipalPosition                                                        |  (b)    YearJune 30, |  (c)    Salary(1)($) |  (d)    Bonus($) |  (e) OtherAnnualCompen-sation($) |  (f)  RestrictedStockAward(s)($)(1) |  (g)   Options/SARs(#)(1) |  (h)  LTIPPay-outs($) |  (i) AllOtherCompen-sation($) |
|                                                                             |       |       |       |       |       |       |       |       |
| Dean                AntonisPresident,                Treasurer and                Director           | 200620052004 | $63,500$67,000$42,886 | --- | --- | -$375,000- | --- | --- | --- |
|                                                                             |       |       |       |       |       |       |       |       |
| William                J. KellagherExecutive                VicePresident                andDirector | 200620052004 | $145,600-- | --- | --- | -$375,000- | --- | --- | --- |
|                                                                             |       |       |       |       |       |       |       |       |
| Divina                ViraySecretary                andDirector                                      | 200620052004 | $55,000$55,000$25,208 | --- | --- | --- | -50,000- | --- | --- |
|                                                                                                 |   |   |   |   |   |   |   |   |

| (1)      | On                June 29, 2005, we issued a total of 2,155,000 shares of common stock                and 50,000 options to our officers, directors and certain other employees                as compensation for their efforts in developing our business operations.                Our board of directors valued the shares at $.50 per share. The options                to                purchase our common stock were granted pursuant to our 2004 Stock                Option                Plan and are exercisable for a period of 10 years at an exercise                price of                $.50 per share. The securities were offered and sold pursuant to                an                exemption from the registration requirements provided by Section                4(2) of                the Securities Act of 1933, as                amended. |
|-----------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Stock      Options**

**2004      Stock Option Plan**

**Description      of the 2004 Plan**

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**Stock      Options Granted to Executive Officers during Last Fiscal      Year**

|     **Name****(a)** | **Number                of Secu-****rities                Underlying****Options/SARs****Granted****(#)****(b)** | **Percent                Of Total****Options/SARs****Granted                To****Employees                In****Fiscal                Year****(c)** |   **Exercise                Of****Base                Price****($/Sh)****(d)** |    **Expiration****Date****(e)** |
|-----------------------------------------|-----------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------------------------------------------------------|-------------------------------------------------|
|                                    |
| Dean                Antonis             | 0                                                                                                               | 0%                                                                                                                                                   | $0                                                                                       | 0                                               |
| William                J. Kellagher     | 0                                                                                                               | 0%                                                                                                                                                   | $0                                                                                       | 0                                               |
| Divina                Viray             | 0                                                                                                               | 0%                                                                                                                                                   | $0                                                                                       | 0                                               |

**Aggregated      Option Exercises in Last Fiscal Year and Fiscal Year End Option      Values**

| **Name**                            | **Shares****Acquired****On                Exercise** | **Value                Realized** | **Exercisable/****Unexercisable****(A)** | **Exercisable/****Unexercisable****(B)** |
|-------------------------------------|------------------------------------------------------|-----------------------------------|------------------------------------------|------------------------------------------|
|                                |
| Dean                Antonis         | 0                                                    | $                0                | 0                                        | $0                                       |
| William                J. Kellagher | 0                                                    | $                0                | 0                                        | $0                                       |
| Divina                Viray         | 0                                                    | $                0                | 50,000/0                                 | $0                                       |

----

**Item      11.  Security Ownership of Certain Beneficial      Owners and Management and Related Stockholder Matters**

| **Name                of Beneficial Owner** | **     ** | **Number                of Shares****Beneficially                Owned****(1)** | **     ** | **Percentage                of Common****Stock                Outstanding** |
|---------------------------------------------|------------------------------------|---------------------------------------------------------------------------------|------------------------------------|-----------------------------------------------------------------------------|
| Lawrence                E. Gunnels          |                               | 650,000                                                                         |                               | 10.8%                                                                       |
| Timothy                Hassell              |                               | 663,480                                                                         |                               | 11.0%                                                                       |

| **Name                of Beneficial Owner**                                          | **     ** | **Number                of Shares****Beneficially                Owned****(1)** | **     ** | **Percentage                of Common****Stock                Outstanding** |
|--------------------------------------------------------------------------------------|------------------------------------|---------------------------------------------------------------------------------|------------------------------------|-----------------------------------------------------------------------------|
| Dean                Antonis                                                          |                               | 787,936                                                                         |                               | 13.1%                                                                       |
| William                J. Kellagher                                                  |                               | 750,000                                                                         |                               | 12.5%                                                                       |
| Divina                Viray                                                          |                               | 50,000(2)                                                                       |                               | *                                                                           |
| Robert                Vaughan                                                        |                               | 250,000                                                                         |                               | 4.2%                                                                        |
| All                officers and directors as                a group (4) persons |                               | 1,837,936                                                                       |                               | 30.54%                                                                      |

| *                     | Indicates                less than 1%                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|-----------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (1)    | Calculated                pursuant to Rule 13d-3(d) of the Securities Exchange Act of 1934.                Unless                otherwise stated below, each such person has sole voting and investment                power with respect to all such shares. Under Rule 13d-3(d), shares                not                outstanding that are subject to options, warrants, rights or conversion                privileges exercisable within 60 days are deemed outstanding for                the                purpose of calculating the number and percentage owned by such person,                but                are not deemed outstanding for the purpose of calculating the number                and                percentage owned by each other person listed. |
| (2)                   | Includes                50,000 shares granted to Ms. Viray, our secretary and one of our                directors, pursuant to the 2004 Stock Option Plan. The options are                exercisable at $0.50 per share and expire June 29,                2015.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

**Changes      in Control**

**Securities      Authorized for Issuance Under Equity Compensation Plans**

**Item      12.  C**
**ertain      Relationships and Related Transactions**

----

**Item      13.  Exhibits**

| (a)                                                     | Exhibits:                                      |                                                                                                                         |
|--------------------------------------------------------------------------------------------|------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |                                           |                                                                                                                                                  |
|                 | 3.1                                            | Amended                and Restated Articles of Incorporation(1)                                                                                      |
|                                                                                       | 3.2                                            | Certification              of Determination of Preferences of Series A Convertible Preferred              Stock(5)                                    |
|                 | 10.1                                           | Asset                Purchase Agreement with Advantage Autoplex, Inc. and TAB Enterprises,                Inc.                dated March 10, 2004(1) |
|                 | 10.2                                           | Asset                Purchase Agreement with Advantage Autoplex, Inc. and TAB Enterprises,                Inc.                dated March 12, 2004(1) |
|                 | 10.3                                           | Loan,                Security and Service Agreement with Oak Rock Financial, LLC dated                March 31, 2003 and amendments thereto(4)   |
|                 | 10.4                                           | Standard                Industrial Lease of Caldwell LaHaye Real Estate Associates dated                November 1, 2004(4)                      |
|                 | 10.5                                           | The                Commercial Lease with Transworld Corporation dated July 1,                2005(4)                                             |
|                 | 10.6                                           | Asset                Purchase Agreement with Gateway Credit Holdings, Inc. dated June 30,                2005(4)                                 |
|                 | 10.7                                           | Asset                Purchase Agreement with EPIC Financial Services, Inc. dated June 30,                2005(4)                                 |
|                 | 14                                             | Code                of Ethics(3)                                                                                                                      |
|                 | 16.1                                           | Letter                from Clancy and Co., P.L.L.C(2)                                                                                                 |
|                 | 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*                          |

| (1)    | Document                previously filed with the U.S Securities and Exchange Commission                on                August 13, 2004 as an exhibit to our Form 10-QSB and incorporated                herein by reference.             |
|-----------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)    | Document                previously filed with the U.S Securities and Exchange Commission                on                October 22, 2004 as an exhibit to our Form 8-K and incorporated                herein by reference.               |
| (3)         | Document                previously filed with the U.S Securities and Exchange Commission                on                May 12, 2005 as an exhibit to our Form 10-KSB and incorporated herein                by reference.                |
| (4)                   | Document                previously filed with the U.S. Securities and Exchange Commission                on                October 12, 2005 as an exhibit to our Form 10-KSB and incorporated                herein                by reference. |
| (5)                   | Document              previously filed with the U.S. Securities and Exchange Commission on              September 7, 2006 as an exhibit to our Form 8-K and incorporated herein              by              reference.                          |

----

**Item      14.  Principal Accountant Fees and      Services**

|                                                                                                                                                              |   |   | **Fiscal                  2006**  |   |   | **Fiscal                  2005**  |   |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------------------------------------|--------|--------|----------------------------------------|--------|
| Audit                  fees                                                                                                                                       |   | $      | 84,520                                 |   | $      | 48,391                                 |   |
| Audit-related                  fees                      |   |   | 0                                      |   |   | 0                                      |   |
| Tax                  fees                                                                                                                                         |   |   | 0                                      |   |   | 0                                      |   |
| All                  other fees                                                                                                                                   |   |   | 0                                      |   |   | 0                                      |   |
| Total                  Fees                                                                                                                                       |   | $      | 84,520                                 |   | $      | 48,391                                 |   |

*Audit      Fees.*

*Audit-Related      Fees.*

*Tax      Fees.*

*All      Other Fees.*

----

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

|                                                                                                                                                                                           | **AUTO                UNDERWRITERS OF AMERICA, INC.**                                                                      |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                            |                                                                                                        |
| Date:  November                15,                2006                      | By: /s/                DEAN ANTONIS                                                                                   |
|                                                                                                                                                                                           |                       Dean Antonis                                                           |
|                                                                                                                                                                                           |                       President, Treasurer and Director                                      |
|                                                                                                                                                                                           |                       (Principal Executive, Financial and Accounting                Officer) |

| **Signature**                                                                                                                                                                                                                                                                                                                                                      | **Title**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    | **Date**                             |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                 |
| /s/                DEAN ANTONIS                                                                                                                                                                                                                                                                                                                                    | President,                Treasurer and Director                                                                                                                                                                                                                                                                                                                                                                                                                                                             | November                15, 2006     |
| Dean                Antonis                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                 |
|                                                                                                                                                                                                                                                                                                                                                |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |        |
| /s/                WILLIAM KELLAGHER                                                                                                                                                                                                                                                                                                                               | Executive                Vice President and Director                                                                                                                                                                                                                                                                                                                                                                                                                                                         | November                15, 2006     |
| William                Kellagher                                                                                                                                                                                                                                                                                                                                   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |        |
|                                                             |                                                                                    |        |
| /s/                DIVINA VIRAY                                                                                                                                                                                                                                                                                                                                    | Secretary                and Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                        | November                15, 2006     |
| Divina                Viray                                                                                                                                                                                                                                                                                                                                        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |        |
|                                                                                                                                                                                                                                                                                                                                                               |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |                                 |
| /s/                ROBERT VAUGHAN                                                                                                                                                                                                                                                                                                                                  | Director                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     | November                15, 2006     |
| Robert                Vaughan                                                                                                                                                                                                                                                                                                                                      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |        |

----

| **Auto                Underwriters of America, Inc.****Index                to Financial Statements**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                   | Page   |
| Report                of Independent Registered Public Accounting Firm - June 30, 2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 | F-1    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
| Balance                Sheets as of June 30, 2006 and 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             | F-2    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| Statements                of Operations for the years ended June 30, 2006 and 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | F-3    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| Statements                of Stockholders’ Equity (Deficit) for the years ended June 30, 2006                and 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | F-4    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |
| Statements                of Cash Flows for the years ended June 30, 2006 and 2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                | F-5    |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |
| Notes                to the Financial Statements for the year ended June 30,                2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       | F-6    |

----

----

| **Report                of Independent Registered Public Accounting                Firm** |
|-------------------------------------------------------------------------------------------|

| To                the Board of Directors and Stockholders of |
|--------------------------------------------------------------|
| Auto                Underwriters of America, Inc.            |
| San                Jose, California                          |

----

| **Auto                Underwriters of America, Inc.** |
|-------------------------------------------------------|
| Balance                Sheets                         |
| June                30, 2006 and 2005                 |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | **June                  30, 2006**                                                                                                         |        | **June                30, 2005 **                                                                                                           |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------|-------------|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                     |   |                         |        |                          |   |
| Assets:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                                                                       |        |                                                                                                                                             |   |   |   |
| Cash                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   | $                                                                                                                                          | 4,161       |                                                                                                                                             | $      | 68,112 |   |
| Finance                receivables, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                                                                       | 8,430,105   |                                                                                                                                             |   | 10,322,936 |   |
| Accounts                receivable, other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                                                       | 47,022      |                                                                                                                                             |   | 1,166,730 |   |
| Inventory                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                                                       | 285,135     |                                                                                                                                             |   | 661,352 |   |
| Deferred                financing cost                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |                                                                                                                                       | 261,595     |                                                                                                                                             |   | - |   |
| Prepaid                and other assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                                                                       | 63,502      |                                                                                                                                             |   | 51,861 |   |
| Property                and equipment,                net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                                                       | 138,152     |                                                                                                                                             |   | 177,874 |   |
| Total                assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   | $                                                                                                                                          | 9,229,672   |                                                                                                                                             | $      | 12,448,865 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                                                                                                       |        |                                                                                                                                             |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                                                                                                       |        |                                                                                                                                             |   |   |   |
| Liabilities                and stockholders’ equity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                                                                                                                       |        |                                                                                                                                             |   |   |   |
| Accounts                payable and accrued liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   | $                                                                                                                                          | 1,048,670   |                                                                                                                                             | $      | 777,469 |   |
| Drafts                payable and floor plan liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |                                                                                                                                       | -           |                                                                                                                                             |   | 769,886 |   |
| Income                taxes payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |                                                                                                                                       | -           |                                                                                                                                             |   | 121,676 |   |
| Revolving                credit facilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |                                                                                                                                       | 9,013,025   |                                                                                                                                             |   | 8,145,528 |   |
| Other                notes payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |                                                                                                                                       | 2,590,695   |                                                                                                                                             |   | 61,742 |   |
| Advances                from related parties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                                                                                                                       | 677,794     |                                                                                                                                             |   | 668,867 |   |
| Deferred                sales tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |                                                                                                                                       | 794,990     |                                                                                                                                             |   | 732,420 |   |
| Total                liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |                                                                                                                                       | 14,125,174  |                                                                                                                                             |   | 11,277,588 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                                                                                                       |        |                                                                                                                                             |   |   |   |
| Commitments                and contingencies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |                                                                                                                                       | -           |                                                                                                                                             |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                                                                                                       |        |                                                                                                                                             |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                                                                                                       |        |                                                                                                                                             |   |   |   |
| Stockholders'                equity:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                                                                                                       |        |                                                                                                                                             |   |   |   |
| Preferred                stock: no par, 10,000,000 shares authorized, none                issued and outstanding                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |                                                                                                                                       | -           |                                                                                                                                             |   | - |   |
| Common                stock: no par,100,000,000 shares authorized, 6,018,570                issued and outstanding (6,020,053 at June 30, 2005)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                                                       | 5,768,364   |                                                                                                                                             |   | 5,453,878 |   |
| Deferred                compensation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                                                                                                       | -           |                                                                                                                                             |   | (230,175 | ) |
| Retained                deficit                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |                                                                                                                                       | (10,663,866 | )                                                                                                                                                |   | (4,052,426 | ) |
| Total                stockholders' equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |                                                                                                                                       | (4,895,502  | )                                                                                                                                                |   | 1,171,277 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |                                                                                                                                       |        |                                                                                                                                             |   |   |   |
| Total                liabilities and stockholders’ equity                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   | $                                                                                                                                          | 9,229,672   |                                                                                                                                             | $      | 12,448,865 |   |

|      See                accompanying summary of accounting policies and notes to financial                statements. |
|------------------------------------------------------------------------------------------------------------------------------------------------|

----

| **Auto                Underwriters of America, Inc.**                    |
|--------------------------------------------------------------------------|
| Statements                of Operations                                  |
| For                the Years Ended June 30, 2006 and                2005 |

|                                                                                                                |   | **2006** |       | **2005** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|------------|----------|--------|
| Revenues:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |     |       |     |   |   |   |
| Sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | $        | 11,694,268 |     | $      | 12,998,882 |   |
| Interest                income                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   |     | 1,967,492  |     |   | 1,774,914 |   |
| Other                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |     | 329,805    |     |   | 447,362 |   |
| Total                revenues                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |     | 13,991,565 |     |   | 15,221,158 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |     |       |     |   |   |   |
| Cost                and expenses:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |     |       |     |   |   |   |
| Cost                of sales                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |     | 9,999,673  |     |   | 8,120,771 |   |
| Selling,                general and administrative                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |     | 3,870,683  |     |   | 5,063,736 |   |
| Provisions                for credit losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |     | 5,056,597  |     |   | 2,360,374 |   |
| Discount                on sale of loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |     | 83,744     |     |   | 178,256 |   |
| Depreciation                and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |     | 295,638    |     |   | 16,360 |   |
| Interest                expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |     | 1,381,259  |     |   | 977,046 |   |
| Total                cost and expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |     | 20,687,594 |     |   | 16,716,543 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |     |       |     |   |   |   |
| Loss                before income tax                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |     | (6,696,029 | )        |   | (1,495,385 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |     |       |     |   |   |   |
| Income                tax benefit (expense)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |     | 121,676    |     |   | (32,970 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |     |       |     |   |   |   |
| Net                income / (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   | $        | (6,574,353 | )        | $      | (1,528,355 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |     |       |     |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |     |       |     |   |   |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |     |       |     |   |   |   |
| Earnings                (loss) per share:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |     |       |     |   |   |   |
| Basic                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   | $        | (1.09      | )        | $      | (0.67 | ) |
| Diluted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   | $        | (1.09      | )        | $      | (0.67 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |     |       |     |   |   |   |
| Weighted                average number of shares outstanding                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |     |       |     |   |   |   |
| Basic                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |     | 6,018,570  |     |   | 2,288,341 |   |
| Diluted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |     | 6,018,570  |     |   | 2,288,341 |   |

|      See                accompanying summary of accounting policies and notes to financial                statements. |
|------------------------------------------------------------------------------------------------------------------------------------------------|

----

| **Auto                Underwriters of America, Inc.**                    |
|--------------------------------------------------------------------------|
| Statement                of Stockholders’ Equity (Deficit)         |
| For                the Years Ended June 30, 2006 and                2005 |

|                                                       |   | **Common                  Stocks** |      | **Deferred** |   | **Retained**     |   |        |     |
|------------------------------------------------------------|--------|------------------------------------|-----------|--------------|--------|------------------|--------|-------------|----------|
|                                                       |   | **Shares**                         |      | **Amount**   |   | **Compensation** |   | **Deficit** |     | **Total** |   |
| Balances                  at June 30, 2004                 |   |                               | 2,200,053 |         | $      | 3,451,378        |   | $           | (230,175 | ) | $ | (2,524,071 | ) | $ | 697,132 |   |
|                                                       |   |                               |      |         |   |             |   |        |     |   |   |   |   |   |   |   |
| Common                  stock issued for:                  |   |                               |      |         |   |             |   |        |     |   |   |   |   |   |   |   |
| Consulting                  services                       |   |                               | 3,155,000 |         |   | 1,577,500        |   |        |     |   |   |   |   |   | 1,577,500 |   |
| Conversion                  of convertible debts           |   |                               | 185,000   |         |   | 185,000          |   |        |     |   |   |   |   |   | 185,000 |   |
| Settlement                  of convertible debts           |   |                               | 185,000   |         |   | 92,500           |   |        |     |   |   |   |   |   | 92,500 |   |
| Conversion                  of accounts payable            |   |                               | 240,000   |         |   | 120,000          |   |        |     |   |   |   |   |   | 120,000 |   |
| Purchase                  of assets                        |   |                               | 55,000    |         |   | 27,500           |   |        |     |   |   |   |   |   | 27,500 |   |
|                                                       |   |                               |      |         |   |             |   |        |     |   |   |   |   |   |   |   |
| Net                  loss                                  |   |                               |      |         |   |             |   |        |     |   |   | (1,528,355 | ) |   | (1,528,355 | ) |
|                                                       |   |                               |      |         |   |             |   |        |     |   |   |   |   |   |   |   |
| Balances                  at June 30, 2005                 |   |                               | 6,020,053 |         |   | 5,453,878        |   |        | (230,175 | ) | $ | (4,052,426 | ) |   | 1,171,277 |   |
|                                                       |   |                               |      |         |   |             |   |        |     |   |   |   |   |   |   |   |
| Common                  stock issued for:                  |   |                               |      |         |   |             |   |        |     |   |   |   |   |   |   |   |
| Consulting                  services                       |   |                               | 40,000    |         |   | 170,000          |   |        |     |   |   |   |   |   | 170,000 |   |
| Conversion                  of accounts payable            |   |                               | 150,000   |         |   | 75,000           |   |        |     |   |   |   |   |   | 75,000 |   |
| Purchase                  of assets                        |   |                               | 108,517   |         |   | 162,776          |   |        |     |   |   |   |   |   | 162,776 |   |
| Cancellation                  of shares                    |   |                               | (300,000  | )            |   | (150,000         | )      |        |     |   |   |   |   |   | (150,000 | ) |
| Imputed                  interest                          |   |                               |      |         |   | 40,400           |   |        |     |   |   |   |   |   | 40,400 |   |
| Discount                  on unsecured promissory notes    |   |                               |      |         |   | 16,310           |   |        |     |   |   |   |   |   | 16,310 |   |
| Reclassification                  of deferred compensation |   |                               |      |         |   |             |   |        | 230,175  |   |   |   |   |   | 230,175 |   |
| Prior                  year adjustment                     |   |                               |      |         |   |             |   |        |     |   |   | (37,087 | ) |   | (37,087 | ) |
|                                                       |   |                               |      |         |   |             |   |        |     |   |   |   |   |   |   |   |
| Net                  loss                                  |   |                               |      |         |   |             |   |        |     |   |   | (6,574,353 | ) |   | (6,574,353 | ) |
|                                                       |   |                               |      |         |   |             |   |        |     |   |   |   |   |   |   |   |
| Balances                  at June 30, 2006                 |   |                               | 6,018,570 |         | $      | 5,768,364        |   | $           | -        |   | $ | (10,663,866 | ) | $ | (4,895,502 | ) |

|     See                accompanying summary of accounting policies and notes to financial                statements. |
|------------------------------------------------------------------------------------------------------------------------------------------|

----

| **Auto                Underwriters of America, Inc.**                    |
|--------------------------------------------------------------------------|
| Statements                of Cash Flows                                  |
| For                the Years Ended June 30, 2006 and                2005 |

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   | **2006**     |    |   | **2005**   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------|---------|--------|------------|--------|
| Operating                Activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |         |    |   |       |   |
|   Net                income / (loss)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | $      | (6,574,353   | )       | $      | (1,528,355 | )      |
|   Adjustments                to reconcile net loss to net cash provided by operating                activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |         |    |   |       |   |
|     Stock                compensation expense                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   | 20,000       |    |   | 1,577,500  |   |
|     Additional                stock issued to settle convertible debts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   | -            |    |   | 92,500     |   |
|     Depreciation                and amortization                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   | 295,638      |    |   | 16,360     |   |
|     Interest                forgiveness                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   | -            |    |   | (10,425    | )      |
| Imputed                interest                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   |   | 40,400  |    |   | -          |   |
|     Discount                on sale of loans                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   | 83,744       |    |   | 178,256    |   |
|     Changes                in finance receivables, net:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |   |   |         |    |   |       |   |
|         Finance                receivable originations and purchased, net of payments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   | (7,422,152   | )  |   | (9,312,715 | )      |
|         Provision                for credit losses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   | 4,904,157    |    |   | 2,360,374  |   |
|         Inventory                acquired in repossession                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   | 3,343,683    |    |   | 3,188,489  |   |
|                Subtotal                finance receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   | 825,688      |    |   | (3,763,852 | )      |
|     Changes                in operating assets and liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |         |    |   |       |   |
|         Accounts                receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   | 1,119,708    |    |   | (837,806   | )      |
|         Inventory                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |   | 376,217      |    |   | (335,941   | )      |
| Deferred                financing cost                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |   |   | (261,595     | )  |   | -     |   |
|         Prepaid                and other assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   | (11,641      | )  |   | (12,165    | )      |
|         Accounts                payable and accrued liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   | 166,560      |    |   | (10,473    | )      |
|         Deferred                sales taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   | 25,483       |    |   | 379,026    |   |
|         Income                taxes payable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   | (121,676     | )  |   | 32,970     |   |
|               Net                cash used in operating activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   | (3,754,232   | )  |   | (4,222,405 | )      |
|                                                                                                                |   |   |              |    |   |            |   |
| Investing                activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |         |    |   |       |   |
|         Purchase                of property and equipment                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |   |   | (3,564       | )  |   | (20,734    | )      |
|         Proceeds                from the sale of finance receivables                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   | 1,146,174    |    |   | 2,528,225  |   |
|                Net                cash provided by investing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |   |   | 1,142,610    |    |   | 2,507,491  |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |         |    |   |       |   |
| Financing                activities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |         |    |   |       |   |
|         Net                advances from related parties                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   | 8,927        |    |   | 90,994     |   |
|         Proceeds                from revolving credit facilities, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   | 867,497      |    |   | 1,660,271  |   |
|         Proceeds                from (repayments of) other debt, net                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |   | 1,671,247    |    |   | (69,258    | )      |
|                Net                cash provided by financing activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |   |   | 2,547,671    |    |   | 1,682,007  |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |         |    |   |       |   |
|   Decrease                in cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   | (63,951      | )  |   | (32,907    | )      |
|   Cash                and cash equivalents at:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |   |         |    |   |       |   |
|                                                         Beginning                of year                                                                                                                                                                                                                                                                                                     |   |   | 68,112       |    |   | 101,019    |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |   |   |         |    |   |       |   |
|                                                         End                of year                                                                                                                                                                                                                                                                                                           |   | $      | 4,161        |    | $      | 68,112     |   |

|  See                accompanying summary of accounting policies and notes to financial                statements. |
|------------------------------------------------------------------------------------------------------------------------|

----

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

**A - Description      of Business and Summary of Significant Accounting Policies**

| *Use                  of Estimates*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| The                  preparation of financial statements in conformity with generally                  accepted                  accounting principles requires management to make estimates and                  assumptions that affect the reported amount of 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 period. Actual results could differ from those estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| *Concentration                  of Risk*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Auto                  Underwriters provides financing in connection with the sale of                  substantially all of its used vehicles. These sales are made primarily                  to                  customers residing in Texas. As a result, Auto Underwriters’ portfolio                  performance is directly tied to the economic prosperity of the                  local                  economies surrounding the Houston, Texas metropolitan area.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| *Cash                  and Cash Equivalents*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Auto                  Underwriters considers all highly liquid debt instruments purchased                  with                  maturities of three months or less to be cash equivalents. Cash                  equivalents generally consist of interest-bearing money market                  accounts.                  Periodically, Auto Underwriters maintains cash in financial institutions                  in excess of the amounts insured by the federal government.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| *Finance                  Receivables and Allowance for Credit Losses*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Auto                  Underwriters originates installment contracts from the sale of                  used                  vehicles at its dealerships. Finance receivables consist of contractually                  scheduled payments from installment contracts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Auto                  Underwriters maintains an allowance for credit losses at a level                  it                  considers sufficient to cover anticipated losses in the collection                  of its                  finance receivables. The allowance for credit losses is based upon                  a                  periodic analysis of the portfolio, economic conditions and trends,                  historical credit loss experience, and collateral values. Since                  the loss                  reserve is based upon a number of factors, most of which are subject                  to                  change over time (i.e. economic conditions), it is reasonably possible                  that a change in such factors may cause the allowance for credit                  losses to                  increase or decrease by a material amount in the near term. The                  allowance                  for credit losses is periodically reviewed by management with any                  changes                  reflected in current operations. |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| *Inventory*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| Inventory                  is valued at the lower of cost or market on a specific identification                  basis. Inventory includes used vehicles and related parts. Repossessed                  vehicles are recorded at the lower of cost or market, which approximates                  wholesale value. Vehicle reconditioning costs are capitalized as                  a                  component of inventory. The cost of used vehicles sold is determined                  using                  the specific identification                  method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

----

| *Property                  and Equipment*                                                                                                                                                                                                                                                                                                                                                                                           |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Property                  and equipment are stated at cost. Expenditures for additions, renewals                  and                  improvements are capitalized. Costs of repairs and maintenance                  are                  expensed as incurred. Depreciation is computed principally using                  the                  straight-line method over the following estimated useful                  lives: |

| Furniture,                fixtures and equipment | *5                years* |
|--------------------------------------------------|--------------------------|
| Software                                         | *5                years* |

| *Income                Taxes*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Income                tax expense is based on reported earnings before income taxes. Deferred                income taxes reflect the impact of temporary differences between                assets                and liabilities recognized for financial reporting purposes and such                amounts recognized for tax purposes, and are measured by applying                enacted                tax rates in effect in years in which the differences are expected                to                reverse.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| *Revenue                Recognition*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Interest                income on finance receivables is recognized using the interest method.                Revenue from the sale of used vehicles is recognized when the sales                contract is signed and the customer has taken possession of the vehicle.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| *Advertising                Costs*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Advertising                costs are expensed as incurred by Auto Underwriters and include radio,                television, and print media marketing costs. Advertising costs amounted                to                $157,761 and $202,663 for the years ended June 30, 2006 and 2005,                respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| *Stock                Based Compensation*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| In                  December 2004, the FASB issued SFAS No. 123R, “Share-Based Payments” (“FAS                  123R”). Auto Underwriters adopted the provisions of FAS 123R as of January                  1, 2006 using the modified prospective transition method approach                  as                  allowed under FAS 123R. FAS 123R establishes standards for the                  accounting                  for transactions in which an entity exchanges its equity instruments                  for                  goods or services. FAS 123R focuses primarily on accounting for                  transactions in which an entity obtains employee services in share-based                  payment transactions. FAS 123R requires that the fair value of                  such equity                  instruments be recognized as expense in the historical financial                  statements as services are performed. Prior to FAS 123R, only certain                  pro                  forma disclosures of fair value were required. Prior                  to January 1, 2006 we accounted for stock based compensation under                  Statement of Financial Accounting Standards No. 123 Accounting                  for                  Stock-Based Compensation (“FAS 123”). As permitted under this standard,                  compensation cost was recognized using the intrinsic value method                  described in Accounting Principles Board Opinion No. 25, Accounting                  for                  Stock Issued to Employees (“APB 25”). Effective January 1, 2006, the                  Company has adopted Statement of Financial Accounting Standards                  No. 123                  (Revised 2004), Share-Based Payment (“FAS 123R”) and applied the                  provisions of the Securities and Exchange Commission Staff Accounting                  Bulletin No. 107 using the modified-prospective transition method.                  Prior                  periods were not restated to reflect the impact of adopting the                  new                  standard. As a result of the adoption of FAS 123R, stock-based                  compensation expense recognized during the six months ended June                  30, 2006                  includes compensation expense for all share-based payments granted                  on or                  prior to, but not yet vested as of January 1, 2006, based on the                  grant                  date fair value estimated in accordance with the original provisions                  of                  FAS 123, and compensation cost for all share-based payments granted                  on or                  subsequent to January 1, 2006, based on the grant date fair value                  estimated in accordance with the provisions of FAS 123R. APB                  25 did not require any compensation expense to be recorded in the                  financial statements if the exercise price of the award was not                  less than                  the market price on the date of grant. Since all options granted                  by Auto                  Underwriters had exercise prices equal or greater than the market                  price on                  the date of grant, no compensation expense was recognized for stock                  option                  grants prior to January 1, 2006. During                  the year ended June 30, 2006, Auto Underwriters did not make any                  option                  grants and therefore did not recognize any stock-based compensation                  expense. Prior                  to the adoption of FAS 123R and for the six months ended December                  31,                  2005, no tax benefits from the exercise of stock options has been                  recognized. Any future excess tax benefits derived from the exercise                  of                  stock options will be recorded prospectively and reported as cash                  flows                  from financing activities in accordance with FAS                  123R. |

----

|                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   | **Year                ended****June                30, 2005** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------|--------|
| Net                income / (loss) as reported                                                                                                                                                                                                                                                                                                                                                                           |   | $      | (1,528,355                                                    | )      |
| Add:                stock based compensation determined                under intrinsic value-based                method                                                                                                                                                                                                                                                                                                 |   |   | -                                                             |   |
|                                                                      |   |   |                                                               |   |
| Less:                stock based compensation determined                under fair value - based                method                                                                                                                                                                                                                                                                                                   |   |   | (17,631                                                       | )      |
| Pro                forma net loss                                                                                                                                                                                                                                                                                                                                                                                        |   | $      | (1,545,986                                                    | )      |
|                                                                                                                                                                                                                                                                                                                                                                                                                     |   |   |                                                          |   |
| Basic                and diluted net loss per common share:                                                                                                                                                                                                                                                                                                                                                              |   |   |                                                          |   |
| As                reported                                                                                                                                                                                                                                                                                                                                                                                               |   | $      | (0.67                                                         | )      |
| Pro                forma                                                                                                                                                                                                                                                                                                                                                                                                 |   |   | (0.67                                                         | )      |

| The                weighted average fair value of the stock options granted during fiscal                2005 was $0.50. Variables used in the Black-Scholes option-pricing                model                include (1) 3.5% risk-free interest rate, (2) expected option life                10                years end, (3) expected volatility is 58.66% and (4) zero expected                dividends.  No options were granted in fiscal                2006.                                                                                                                                                                                                                                                                                                           |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| *Earnings                Per Share*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| The                basic earnings per common share is computed by dividing the net income                /                (loss) by the weighted average number of common shares outstanding.                Diluted net income / (loss) per common share is computed by dividing                the                net income / (loss) adjusted on an "as if converted" basis, by the                weighted average number of common shares outstanding plus potential                dilutive securities. For the years ended June 30, 2006 and 2005,                potential                dilutive securities had an anti-dilutive effect and were not included                in                the calculation of diluted net income / (loss) per common                share |

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| *Reclassifications*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Certain                amounts in the fiscal 2005 financial statements have been reclassified                to                conform to the fiscal 2006 financial statement                presentation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| *Recently                Issued Accounting Pronouncements*                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| In                May 2005, the Financial Accounting Standards Board (“FASB”) issued SFAS                Statement No. 154 (“SFAS 154”), Accounting Changes and Error Corrections.                SFAS 154 requires that, when a company changes its accounting policies,                the change must be applied retrospectively to all prior periods presented                instead of a cumulative effect adjustment in the period of the change.                SFAS 154 may also apply when the FASB issues new rules requiring                changes                in accounting. If the new rule allows cumulative effect treatment,                it will                take precedence over SFAS 154. This statement is effective for fiscal                years beginning after December 15, 2005. The adoption of SFAS 154                is not                expected to have a significant impact on the Company's financial                position                or its results of operations.In                June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB                Interpretation No. 48, Accounting for Uncertainty in Income taxes                (“FIN                48”). FIN 48, which is an interpretation of SFAS No. 109, “Accounting for                Income Taxes,” provides guidance on the manner in which tax positions                taken or to be taken on tax returns should be reflected in an entity's                financial statements prior to their resolution with taxing authorities.                The Company is required to adopt FIN 48 during the first quarter                of fiscal                2008. The Company is currently evaluating the requirements of FIN                48 and                has not yet determined the impact, if any; this interpretation may                have on                its consolidated financial                statements. |

**B        - Going Concern**

| **·  ** | Auto                Underwriters currently has a convertible preferred stock offering                underway                which may result in gross proceeds of up to $10 million. Through                November                2006, Auto Underwriters has raised approximately $2 million in gross                proceeds under this offering. Auto Underwriters expects to continue                to                raise between $200,000 to $400,000 per week until the maximum amount                is                achieved. However, Auto Underwriters cannot predict with any certainty                whether or not it will be successful in raising additional proceeds                beyond                that which has been raised to date. |
|------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Auto                Underwriters expects to be able to borrow up to $486,975 under its                LOC                with Oak Rock. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Auto                Underwriters is in the documentation phase of a $700,000 floor plan                facility with a financial institution. |
|--------------------|-----------------------------------------------------------------------------------------------------------------------------------------------|

**C - Finance      Receivables**

|                                                                                                                                                                                                                                                                                                                                                                                                   |   |   | **2006**   |   |   | **2005**   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|------------|--------|
| Finance                receivables                                                                                                                                                                                                                                                                                                                                                                     |   | $      | 10,847,405 |   | $      | 12,646,025 |   |
| Less:                allowance for credit losses                                                                                                                                                                                                                                                                                                                                                       |   |   | (2,417,300 | )      |   | (2,323,089 | )      |
|                                                                   |   |   |            |   |   |       |   |
| Total                                                                                                                                                                                                                                                                                                                                                                                                  |   | $      | 8,430,105  |   | $      | 10,322,936 |   |

----

|                                                                                                                                                                                                                                                                                                                                                                                                   |   |   | **2006**   |   |   | **2005**   |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|------------|--------|
| Balance                  at beginning of the period                                                                                                                                                                                                                                                                                                                                                    |   | $      | 2,323,089  |   | $      | 2,007,982  |   |
| Provision                  for asset purchases                                                                                                                                                                                                                                                                                                                                                         |   |   | -          |   |   | 64,701     |   |
| Provision                  for credit losses                                                                                                                                                                                                                                                                                                                                                           |   |   | 5,056,597  |   |   | 2,360,374  |   |
| Recoveries                                                                                                                                                                                                                                                                                                                                                                                             |   |   | 3,343,683  |   |   | 3,188,489  |   |
| Net                  charge offs                                                                                                                                                                                                                                                                                                                                                                       |   |   | (8,306,069 | )      |   | (5,298,457 | )      |
|                                                                   |   |   |       |   |   |       |   |
| Balance                  at end of year                                                                                                                                                                                                                                                                                                                                                                |   | $      | 2,417,300  |   | $      | 2,323,089  |   |

**D - Accrued        Liabilities**

|                                                                                                                                                                                                                                                                                                                                                                                                   |   |   | **2006**  |   |   | **2005** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|----------|--------|
| Accounts                  payable                                                                                                                                                                                                                                                                                                                                                                      |   | $      | 289,081   |   | $      | 468,295  |   |
| Payroll                  and related taxes                                                                                                                                                                                                                                                                                                                                                             |   |   | 372,641   |   |   | 250,038  |   |
| Other                                                                                                                                                                                                                                                                                                                                                                                                  |   |   | 386,948   |   |   | 59,136   |   |
|                                                                   |   |   |           |   |   |     |   |
| Total                  liabilities                                                                                                                                                                                                                                                                                                                                                                     |   | $      | 1,048,670 |   | $      | 777,469  |   |

**E - Debt**

| **Lender**                                                                                                                     |                           | **Facility****Amount**                                                                                                   |                           | **Interest****Rate**                                                                                                     |                           | **Maturity**                                                                                                             |                           | **June 30,                2006****Balance**                                                                         |                           | **June 30,                2005****Balance**                                                                         |
|--------------------------------------------------------------------------------------------------------------------------------|--------------------------------|--------------------------------------------------------------------------------------------------------------------------|--------------------------------|--------------------------------------------------------------------------------------------------------------------------|--------------------------------|--------------------------------------------------------------------------------------------------------------------------|--------------------------------|--------------------------------------------------------------------------------------------------------------------------|--------------------------------|--------------------------------------------------------------------------------------------------------------------------|
|                       |                           |                      |                           |                      |                           |                      |                           |                      |                           |                      |
| Oak                Rock Financial LLC                                                                                          |       | $ 9,500,000                                                                                                         |       | Prime                + 7%                                                                                                |       | March                31, 2007                                                                                            |       | $                 9,013,025                                                                                         |       | $ 8,145,528                                                                                                         |

| **Lender**                                                                                                               |                           | **Facility****Amount**                                                                                                   |                           | **Interest****Rate**                                                                                                     |                           | **Maturity**                                                                                                             |                           | **June 30,                  2006****Balance**                                                                       |                           | **June 30,                  2005****Balance**                                                                       |
|--------------------------------------------------------------------------------------------------------------------------|--------------------------------|--------------------------------------------------------------------------------------------------------------------------|--------------------------------|--------------------------------------------------------------------------------------------------------------------------|--------------------------------|--------------------------------------------------------------------------------------------------------------------------|--------------------------------|--------------------------------------------------------------------------------------------------------------------------|--------------------------------|--------------------------------------------------------------------------------------------------------------------------|
|                      |                           |                      |                           |                      |                           |                      |                           |                      |                           |                      |
| Private                  Placement                                                                                       |       | $                  990,000                                                                                               |       |  9.25%                                                                                                              |       | February                  2007                                                                                           |       | $                  990,000                                                                                               |       | -                                                                                                                        |
| Private                  Placement                                                                                       |                           | 1,000,000                                                                                                                |                           | 10.00%                                                                                                                   |                           | August                  2006                                                                                             |                           | 1,000,000                                                                                                                |                           | -                                                                                                                        |

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**F - Income        Taxes**

|                                                                                                                                                                                                                                                                                                                                                                                                   |   |   | **2006** |    |   | **2005** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------|---------|--------|----------|--------|
| Income                    tax provision                                                                                                                                                                                                                                                                                                                                                                |   |   |     |    |   |     |   |
|                        Current                                                                                                                                                                                                                                                                                                                                                          |   | $      | (121,676 | )  | $      | 32,970   |   |
|                        Deferred                                                                                                                                                                                                                                                                                                                                                         |   |   | -        |    |   | -        |   |
|                                                                   |   |   |          |    |   |     |   |
|                                                                                                                                                                                                                                                                                                                                                                                                   |   | $      | (121,676 | )  | $      | 32,970   |   |

**G - Capital        Stock**

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**H - Stock      Options**

|                                               |   |   | **Options** |   |   | **Weighted****Average****Exercise****Price** |   |
|----------------------------------------------------|--------|--------|-------------|--------|--------|----------------------------------------------|--------|
| Outstanding                  at June 30, 2005 |   |   | 50,000      |   | $      | 0.50                                         |   |
|      Granted              |   |   | -           |   |   | -                                            |   |
| Outstanding                  at June 30, 2006 |   |   | 50,000      |   | $      | 0.50                                         |   |

**I - Leases**

| **Years                  ending June 30,** |   |  **Amount** |    |
|--------------------------------------------|--------|------------------|---------|
|  2007                                 |   |             | 301,152 |   |
|  2008                                 |   |             | 291,852 |   |
|  2009                                 |   |             | 210,600 |   |
|  Thereafter                           |   |             | 109,172 |   |
|                                       |   | $                | 912,776 |   |

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**J - Related      Party Transactions**

**K - Commitments      and Contingencies**

**L - Supplemental      Cash Flow Information**

|                                                                                                                                                                                                                                                                                                                                                                                                                                                |   |   | **2006**  |   |   | **2005** |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|----------|--------|
| Interest                paid                                                                                                                                                                                                                                                                                                                                                                                                                        |   | $      | 1,381,259 |   | $      | 884,546  |   |
| Income                tax                paid                                                                  |   |   | -         |   |   | -   |   |
| Common                stock issued to purchase fixed assets                                                                                                                                                                                                                                                                                                                                                                                         |   |   | -         |   |   | 27,500   |   |
| Notes                issued to purchase fixed assets                                                                                                                                                                                                                                                                                                                                                                                                |   |   | -         |   |   | 106,000  |   |
| Common                stock issued to repay accounts payable                                                                                                                                                                                                                                                                                                                                                                                        |   |   | 75,000    |   |   | 120,000  |   |
| Common                stock issued to purchase assets                                                                                                                                                                                                                                                                                                                                                                                               |   |   | 162,776   |   |   | 185,000  |   |