---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-QSB

(Mark One)

[  X  ]  QUARTERLY REPORT UNDER SECTION 13 OR
  15(d) OF THESECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2006

OR

[     ] TRANSITION REPORT UNDER SECTION
13 OR 15(d) OF THEEXCHANGE ACT

For the transition period from ________________ to
_______________

Commission file Number: 000-52209

CARBIZ INC.(Exact name of small business issuer as specified in its charter)

|Ontario, Canada                 | Not Applicable                   
|------------------------------- | ---------------------------------
|(State or other jurisdiction of | (IRS Employer Identification No.)
|incorporation or organization)  |                                  

7405 North Tamiami TrailSarasota, Florida
34243(Address of principal executive offices)

(941) 952-9255
  (Issuer's telephone number)

Check whether the issuer: (1) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [   ] No [ x ]

Indicate by check mark whether the issuer is a shell company (as
defined in Rule 12b-2 of the Exchange Act): Yes [   ] No [ x
]

As of September 5, 2006, 46,618,878 common shares of the issuer
were issued and outstanding.

Transitional Small Business Disclosure Format (Check one):
Yes [   ] No [ x ]

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CARBIZ INC.FORM 10-QSBFor the Quarterly
Period Ended July 31, 2006INDEX

|PART I        | Financial Information                                             |   
|------------- | ----------------------------------------------------------------- | --
|Item
      1. | Financial
      Statements                                        | 1 
|Item
      2. | Managements
      Discussion and Analysis or Plan of Operation   | 18
|Item
      3. | Controls
      and Procedures                                     | 25
|              |                                                                   |   
|PART II       | Other Information                                                 |   
|Item
      1. | Legal
      Proceedings                                           | 26
|Item
      2. | Unregistered
      Sales of Equity Securities and Use of Proceeds | 26
|Item
      3. | Defaults
      Upon Senior Securities                             | 26
|Item
      4. | Submission
      of Matters to a Vote of Security Holders         | 26
|Item
      5. | Other
      Information                                           | 27
|Item
      6. | Exhibits                                                          | 27

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NOTE REGARDING FORWARD-LOOKING STATEMENTS

Except for statements of historical fact, certain information
contained herein constitutes forward-looking statements, within Section 21E of
the Securities Exchange Act of 1934, as amended (the Exchange Act). In some
cases, you can identify the forward-looking statements by our use of the words
such as may, will, should, could, expect, plan, estimate,
predict, potential, continue, believe, anticipate, intend, expect,
or the negative or other variations of these words, or other comparable words or
phrases.

Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause our actual results or
achievements to be materially different from any of our future results or
achievements expressed or implied by such forward-looking statements. Such
factors include, but are not limited to the following:

| | (i)    | whether we are successful in implementing our business strategy;                                                                                                                                                                                                              
| | ------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |        |                                                                                                                                                                                                                                                                               
| | (ii)   | our ability to increase revenues in the future and to continue as a
      going concern;                                                                                                                                                                                      
| |        |                                                                                                                                                                                                                                                                               
| | (iii)  | our ability to repay our 5% convertible debentures should we not be
      able to achieve quotation of our common shares on the Over-The-Counter
      Bulletin Board and delist our common shares for trading on the TSX Venture
      Exchange on or before October 6, 2006;
| |        |                                                                                                                                                                                                                                                                               
| | (iv)   | our ability to obtain additional financing if our operating revenues
      fail to increase;                                                                                                                                                                                  
| |        |                                                                                                                                                                                                                                                                               
| | (v)    | our ability to attract and retain key personnel;                                                                                                                                                                                                                              
| |        |                                                                                                                                                                                                                                                                               
| | (vi)   | the impact on the market price of our common shares of the
      concentration of common share ownership by our directors, officers and
      greater than 5% shareholders, which may delay, deter or prevent actions
      that would result in a change of control;         
| |        |                                                                                                                                                                                                                                                                               
| | (vii)  | the significant fluctuation of the market price of our common shares;                                                                                                                                                                                                         
| |        |                                                                                                                                                                                                                                                                               
| | (viii) | costly difficulties we may face in the assimilation of the operations,
      technologies and products of companies that we may acquire in the future;                                                                                                                        
| |        |                                                                                                                                                                                                                                                                               
| | (ix)   | the adequacy of our insurance coverage to cover all loses or
      liabilities that may be incurred in our operations;                                                                                                                                                        
| |        |                                                                                                                                                                                                                                                                               
| | (x)    | our dividend policy;                                                                                                                                                                                                                                                          
| |        |                                                                                                                                                                                                                                                                               
| | (xi)   | the impact on our financial position, liquidity and results of
      operations if we underestimate the default risk of sub-prime borrowers;                                                                                                                                  
| |        |                                                                                                                                                                                                                                                                               
| | (xii)  | general economic conditions;                                                                                                                                                                                                                                                  
| |        |                                                                                                                                                                                                                                                                               
| | (xiii) | general competition;                                                                                                                                                                                                                                                          
| |        |                                                                                                                                                                                                                                                                               
| | (xiv)  | our ability to comply with federal and state government regulations;                                                                                                                                                                                                          
| |        |                                                                                                                                                                                                                                                                               
| | (xv)   | our ability to obtain adequate remedies in the event that our
      intellectual property rights are violated; and                                                                                                                                                            
| |        |                                                                                                                                                                                                                                                                               
| | (xvi)  | our ability to develop and market on a timely and cost-effective basis
      new products that meet changing market conditions.                                                                                                                                               

Although we believe that expectations reflected in these
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance, achievements or other future events. Moreover,
neither we nor anyone else assumes responsibility for the accuracy and
completeness of these forward-looking statements. We are under no duty to update
any of these forward-looking statements after the date of this report. You
should not place undue reliance on these forward-looking statements.

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|PART 1  FINANCIAL INFORMATION                                                 |   |                     |   |   |                  |  
|------------------------------------------------------------------------------ | - | ------------------- | - | - | ---------------- | -
|                                                                               |   |                     |   |   |                  |  
|Item 1. Financial Statements                                                   |   |                     |   |   |                  |  
|                                                                               |   |                     |   |   |                  |  
|CARBIZ INC.                                                                    |   |                     |   |   |                  |  
|Consolidated Balance Sheets                                                    |   |                     |   |   |                  |  
|Unaudited                                                                      |   |                     |   |   |                  |  
|(expressed in
      U.S. dollars)                                              |   |                     |   |   |                  |  
|                                                                               |   | As at               |   |   | As at            |  
|                                                                               |   | July
      31, 2006 |   |   | January 31, 2006 |  
|ASSETS                                                                         |   |                     |   |   |                  |  
|CURRENT                                                                        |   |                     |   |   |                  |  
|Cash and cash
      equivalents                                                | $ | 29,858              |   | $ | 119,735          |  
|Accounts receivable (Note 4)                                                   |   | 67,893              |   |   | 96,627           |  
|Current portion
      of notes receivable (Note 4)                             |   | 359,785             |   |   | 523,101          |  
|Inventory                                                                      |   | 81,515              |   |   | 47,554           |  
|Prepaids and
      other assets                                                |   | 73,239              |   |   | 58,681           |  
|Deferred costs                                                                 |   | 17,368              |   |   | 35,722           |  
|                                                                               |   | 629,658             |   |   | 881,420          |  
|NOTES RECEIVABLE                                                               |   | 51,753              |   |   | 103,818          |  
|DEFERRED COSTS                                                                 |   | 9,261               |   |   | 17,015           |  
|PROPERTY AND
      EQUIPMENT                                                   |   | 208,484             |   |   | 340,063          |  
|                                                                               | $ | 899,156             |   | $ | 1,342,316        |  
|LIABILITIES                                                                    |   |                     |   |   |                  |  
|CURRENT                                                                        |   |                     |   |   |                  |  
|Accounts payable and accrued
      liabilities                                 | $ | 1,183,670           |   | $ | 1,285,202        |  
|Loan payable
      (Note7)                                                     |   | 132,718             |   |   | 131,210          |  
|Current portion of capital
      leases                                        |   | 7,664               |   |   | 8,033            |  
|Current portion
      of long-term debt                                        |   | 138,402             |   |   | 154,608          |  
|Convertible debenture (Note 5)                                                 |   | 1,394,311           |   |   | 1,378,484        |  
|Deferred revenue                                                               |   | 168,887             |   |   | 240,624          |  
|                                                                               |   | 3,025,652           |   |   | 3,198,161        |  
|DEFERRED REVENUE                                                               |   | 61,740              |   |   | 113,434          |  
|CAPITAL LEASES                                                                 |   | 14,645              |   |   | 18,387           |  
|LONG-TERM DEBT                                                                 |   | 116,470             |   |   | 174,163          |  
|                                                                               |   | 3,218,507           |   |   | 3,504,145        |  
|MINORITY INTEREST (Note 7)                                                     |   | 217,893             |   |   | 241,333          |  
|STOCKHOLDERS' DEFICIENCY                                                       |   |                     |   |   |                  |  
|COMMON SHARES                                                                  |   | 14,202,928          |   |   | 14,197,260       |  
|Unlimited shares
      authorized, 41,153,414 and 41,090,514 common shares     |   |                     |   |  
|issued and
      outstanding as at July 31 and January 31, 2006 , respectively |   |                     |   |   |                  |  
|WARRANTS                                                                       |   | -                   |   |   | 20,499           |  
|ADDITIONAL PAID-IN CAPITAL                                                     |   | 5,864,208           |   |   | 5,843,709        |  
|OTHER COMPREHENSIVE LOSS                                                       |   | (385,197            | ) |   | (385,197         | )
|ACCUMULATED DEFICIT                                                            |   | (22,219,183         | ) |   | (22,079,433      | )
|                                                                               |   | (2,537,244          | ) |   | (2,403,162       | )
|                                                                               | $ | 899,156             |   | $ | 1,342,316        |  

The accompanying notes are an integral part of these financial statements

1

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|CARBIZ INC.                            |   |                            |   |   |                          |   |   |            |   |   |                |  
|-------------------------------------- | - | -------------------------- | - | - | ------------------------ | - | - | ---------- | - | - | -------------- | -
|Consolidated Statements of Operations  |   |                            |   |   |                          |   |   |            |   |   |                |  
|(expressed
      in U.S. dollars)      |   |                            |   |   |                          |   |   |            |   |   |                |  
|                                       |   | For the three months ended |   |   | For the six months ended |  
|                                       |   | July 31                    |   |   | July 31                  |  
|                                       |   | 2006                       |   |   | 2005                     |   |   | 2006       |   |   | 2005           |  
|                                       |   |                            |   |   | (As restated -           |   |   |            |   |   | (As restated - |  
|                                       |   |                            |   |   | see Note 1(a))           |   |   |            |   |   | see Note 1(a)) |  
|SALES                                  |   |                            |   |   |                          |   |   |            |   |   |                |  
|Software
      and Consulting Services | $ | 639,434                    |   | $ | 596,878                  |   | $ | 1,197,026  |   | $ | 1,200,865      |  
|Used Car Sales and Financing           |   | 250,825                    |   |   | 419,646                  |   |   | 450,991    |   |   | 718,820        |  
|                                       |   | 890,259                    |   |   | 1,016,524                |   |   | 1,648,017  |   |   | 1,919,685      |  
|COST OF SALES                          |   |                            |   |   |                          |   |   |            |   |   |                |  
|Software
      and Consulting Services |   | 237,806                    |   |   | 188,288                  |   |   | 463,014    |   |   | 430,673        |  
|Used Car Sales and Financing           |   | 251,531                    |   |   | 333,378                  |   |   | 463,548    |   |   | 522,075        |  
|                                       |   | 489,337                    |   |   | 521,666                  |   |   | 926,562    |   |   | 952,748        |  
|GROSS PROFIT                           |   | 400,922                    |   |   | 494,858                  |   |   | 721,455    |   |   | 966,937        |  
|                                       |   |                            |   |   |                          |   |   |            |   |   |                |  
|Personnel Expenses                     |   | 251,831                    |   |   | 252,633                  |   |   | 499,900    |   |   | 466,591        |  
|Selling Expenses                       |   | 87,851                     |   |   | 109,392                  |   |   | 181,824    |   |   | 262,417        |  
|Other Operating Expenses               |   | 294,386                    |   |   | 276,880                  |   |   | 627,657    |   |   | 393,799        |  
|                                       |   | 634,068                    |   |   | 638,905                  |   |   | 1,309,381  |   |   | 1,122,807      |  
|OPERATING INCOME (LOSS)                |   | (233,146                   | ) |   | (144,047                 | ) |   | (587,926   | ) |   | (155,870       | )
|                                       |   |                            |   |   |                          |   |   |            |   |   |                |  
|INTEREST AND OTHER EXPENSES            |   | (96,609                    | ) |   | (45,223                  | ) |   | (132,047   | ) |   | (86,488        | )
|                                       |   |                            |   |   |                          |   |   |            |   |   |                |  
|MINORITY INTEREST
      (Note 7)       |   | 13,243                     |   |   | 10,470                   |   |   | 23,440     |   |   | 13,005         |  
|NET INCOME (LOSS) FROM                 |   |                            |   |   |                          |   |   |            |   |   |                |  
|CONTINUING OPERATIONS                  |   | (316,512                   | ) |   | (178,800                 | ) |   | (696,533   | ) |   | (229,353       | )
|NET INCOME (LOSS) FROM                 |   |                            |   |   |                          |   |   |            |   |   |                |  
|DISCONTINUED OPERATIONS OF TAXMAX      |   |                            |   |   |                          |   |   |            |   |   |                |  
|INCLUDING GAIN ON DISPOSAL OF $421,425 |   | 411,591                    |   |   | (9,478                   | ) |   | 556,783    |   |   | 107,026        |  
|                                       |   |                            |   |   |                          |   |   |            |   |   |                |  
|NET INCOME (LOSS)                      |   | 95,079                     |   |   | (188,278                 | ) |   | (139,750   | ) |   | (122,327       | )
|NET INCOME (LOSS) PER SHARE FROM       |   |                            |   |   |                          |   |   |            |   |   |                |  
|CONTINUING OPERATIONS                  |   |                            |   |   |                          |   | $ | (0.02      | ) | $ | (0.01          | )
|NET INCOME (LOSS) PER SHARE FROM       |   |                            |   |   |                          |   |   |            |   |   |                |  
|DISCONTINUED OPERATIONS                |   |                            |   |   |                          |   | $ | 0.01       |   | $ | 0.00           |  
|                                       |   |                            |   |   |                          |   |   |            |   |   |                |  
|NET INCOME (LOSS) PER SHARE            |   |                            |   |   |                          |   | $ | (0.00      | ) | $ | (0.00          | )
|                                       |   |                            |   |   |                          |   |   |            |   |   |                |  
|                                       |   |                            |   |   |                          |   |   |            |   |   |                |  
|WEIGHTED AVERAGE NUMBER OF COMMON      |   |                            |   |   |                          |   |   |            |   |  
|SHARES OUTSTANDING                     |   |                            |   |   |                          |   |   | 41,136,186 |   |   | 41,082,691     |  

The accompanying notes are an integral part of these financial
statements.

2

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|CARBIZ INC.                                                    |   |                          |   |   |                 |  
|-------------------------------------------------------------- | - | ------------------------ | - | - | --------------- | -
|Consolidated Statements of Cash Flows(1)                       |   |                          |   |   |                 |  
|(expressed
      in U.S. dollars)                              |   |                          |   |   |                 |  
|                                                               |   | For the six months ended |  
|                                                               |   | July 31                  |  
|                                                               |   | 2006                     |   |   | 2005            |  
|NET INFLOW (OUTFLOW) OF CASH RELATED                           |   |                          |   |   | (As restated -  |  
|TO THE FOLLOWING ACTIVITIES                                    |   |                          |   |   | see Note 1 (a)) |  
|                                                               |   |                          |   |   |                 |  
|OPERATING                                                      |   |                          |   |   |                 |  
|Net income
      (loss) for the year                           | $ | (139,750                 | ) | $ | (122,327        | )
|Items not affecting cash                                       |   |                          |   |   |                 |  
|Depreciation of property and equipment                         |   | 43,300                   |   |   | 71,099          |  
|Minority
      interest                                        |   | 23,440                   |   |   | 13,005          |  
|Loss on disposal of assets                                     |   | 71,662                   |   |   | 19,181          |  
|Amortization
      of debt financing costs (Note 5)            |   | -                        |   |   | 44,050          |  
|Net changes
      in non-cash operating assets and liabilities |   |                          |   |   |                 |  
|Accounts
      receivable                                      |   | 244,115                  |   |   | (140,716        | )
|Prepaids and other assets                                      |   | (14,558                  | ) |   | (10,544         | )
|Inventory                                                      |   | (33,961                  | ) |   | (43,867         | )
|Deferred costs                                                 |   | 26,108                   |   |   | 155,305         |  
|Accounts
      payable and accrued liabilities                 |   | (101,532                 | ) |   | (113,037        | )
|Deferred
      revenue                                         |   | (123,431                 | ) |   | (205,420        | )
|                                                               |   | (4,607                   | ) |   | (333,271        | )
|                                                               |   |                          |   |   |                 |  
|INVESTING                                                      |   |                          |   |   |                 |  
|Acquisition of property
      and equipment                    |   | (7,524                   | ) |   | (13,165         | )
|FINANCING                                                      |   |                          |   |   |                 |  
|Repayment
      of capital leases                              |   | (4,111                   | ) |   | (13,797         | )
|Proceeds from borrowing                                        |   | -                        |   |   | 50,000          |  
|Repayment
      of long-term debt                              |   | (73,899                  | ) |   | (56,766         | )
|Investment from Joint Venture                                  |   | -                        |   |   | 305,000         |  
|Issuance
      of share capital                                |   | 5,668                    |   |   | 11,398          |  
|                                                               |   |                          |   |   |                 |  
|                                                               |   |                          |   |   |                 |  
|                                                               |   | (72,342                  | ) |   | 295,835         |  
|EFFECT OF EXCHANGE RATE CHANGES ON
      CASH                  |   |                          |   |   |                 |  
|AND CASH EQUIVALENTS                                           |   | (5,404                   | ) |   | (23,610         | )
|                                                               |   |                          |   |   |                 |  
|INCREASE (DECREASE) IN CASH AND                                |   |                          |   |   |                 |  
|CASH EQUIVALENTS                                               |   | (89,877                  | ) |   | (74,211         | )
|CASH AND CASH EQUIVALENTS,                                     |   |                          |   |   |                 |  
|BEGINNING OF PERIOD                                            |   | 119,735                  |   |   | 130,520         |  
|CASH AND CASH EQUIVALENTS,                                     |   |                          |   |   |                 |  
|END OF PERIOD                                                  | $ | 29,858                   |   | $ | 56,309          |  

(1) See Note 6The accompanying notes are an integral part
of these financial statements.

3

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|1. | ORGANIZATION AND BUSINESS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Carbiz Inc. (the Company) is a publicly traded company on
      the TSX Venture Exchange (TSXV), formerly the Canadian Venture Exchange
      (CDNX). The Company was incorporated pursuant to the provisions of the
      Business Corporations Act of Ontario (OBCA) under the name Data
      Gathering Capital Corp. on March 31, 1998. On September 1, 1999, the
      Company changed its name by articles of amendment under the OBCA to
      Carbiz.com Inc., and then changed its name again on July 15, 2003 to
      Carbiz Inc. The Company is in the process of having its shares quoted on
      the United States Over the Counter Bulletin Board.                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | In the opinion of management, all adjustments, consisting of
      normal recurring adjustments, have been made in the July 31, 2006 and 2005
      financial statements, which are necessary for a fair financial statement
      presentation. The results for the six months ended July 31, 2006 and 2005
      are not necessarily indicative of financial operations for the full year.
      These financial statements are combined and condensed. For further
      information, refer to the financial statements and footnotes in the
      Companys audited financial statements for the year ended January 31, 2006
      which are included in the Companys Amendment No. 4 to Form SB-2 filed
      with the U.S. Securities and Exchange Commission (the SEC) on September
      1, 2006..
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | References to the Company typically include the Companys
      consolidated subsidiaries and joint venture. The Companys operations are
      principally conducted through its two operating subsidiaries, Carbiz USA
      Inc., a Delaware corporation, and Carbiz Auto Credit, Inc. (CAC), and a
      joint venture, Carbiz Auto Credit JV1, LLC (JV1). Collectively, Carbiz
      Inc., Carbiz USA Inc., CAC , and JV1 are referred to herein as Carbiz or
      the Company.                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | All dollar figures presented in this report are denominated
      in U.S. dollars unless otherwise indicated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The Company is in the business of developing, marketing,
      distributing and supporting software and Internet products for the
      automotive sales finance industry. The Company also supplied a seasonal
      lead generation product that facilitates tax-refund loans which are
      primarily used for down payments on car loans. This business segment was
      sold on May 16, 2006. During the year ended January 31, 2006, the Company
      operated two CAC dealerships and started operations in a third location
      under JV1, all of which sell and finance used automobiles.                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | On October 12, 2004, the Company completed a Convertible
      Debenture financing (the 2004 Debentures) which is described in Note 5
      to these financial statements. The Company determined that the 2004
      Debentures were financial instruments that contained both a debt and
      equity component. In measuring and accounting for the allocation between
      debt and equity, the Company incorrectly allocated a portion of the
      proceeds to equity and recorded accretion expense during the year relating
      to a contingent event, which resulted in a required restatement for the
      year ended January 31, 2005.                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | As a result of this restatement, for the six months ended
      July 31, 2005 interest and other expenses has decreased from $117,675 to
      $86,488 and net loss decreased from $177,957 to $122,327.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | On May 16, 2006 the Company completed the sale of its TaxMax
      business to Tax Refund Services, Inc. located in Tampa, FL. The Company
      has adopted discontinued operations accounting for all periods presented.
      See Note 10.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | While these financial statements have been prepared on the
      basis of accounting principles applicable to a going concern, several
      adverse conditions and events cast substantial doubt upon the validity of
      this assumption.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The Company has incurred significant losses in the current
      year and in each of the past several years. In addition, the Company has a
      working capital deficiency of $2,395,994 as at July 31, 2006. The
      Companys continued existence is dependent upon its ability to achieve
      profitable operations and to obtain additional financing. The Company
      believes that the new CAC dealerships, combined with its existing software
      and consulting businesses will improve its operating cash flows going
      forward. However, there can be no assurance that the Company will achieve
      profitable operations or that financing efforts will be successful.                                                                                                         

4

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|1. | ORGANIZATION AND BUSINESS (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | If the going concern assumption were not appropriate to
      these financial statements, then adjustments would be necessary in the
      carrying values of assets and liabilities, the reported net loss and the
      balance sheet classifications used.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|2. | SUMMARY OF ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | These consolidated financial statements have been prepared
      in accordance with accounting principles generally accepted in the United
      States of America (GAAP) and reflect the following significant
      accounting policies:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Principles of consolidation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The consolidated financial statements include the accounts
      of the Company and its subsidiary companies, which are located in Canada
      and the United States of America (U.S.). All intercompany transactions
      and balances have been eliminated. The operations of JV1 have been
      consolidated into the financial statements as well. Substantially all of
      the Companys revenue and operations are carried out in the United States.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Cash and cash equivalents consist of cash balances with
      banks and investments in term deposits and money market instruments that
      are readily convertible into cash. This includes investments that have an
      original term to maturity of 90 days or less.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Accounts receivable                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Accounts receivable shown is net of bad debt provisions. The
      amount includes short term notes received through the sale of used
      automobiles. The notes are for terms no greater than 80 weeks and require
      weekly payments. Interest is calculated weekly based on the balance
      outstanding at the time. The allowance for doubtful accounts reflects the
      Companys best estimate of probable losses inherent in the accounts
      receivable balance. The Company determines the allowance based on known
      troubled accounts, historical experience, and other currently available
      evidence.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The Company takes steps to repossess an automobile when the
      customer becomes severely delinquent in his or her payments, and
      management determines that timely collection of future payments is not
      probable. Accounts are charged off after the expiration of a statutory
      notice period for repossessed accounts, or when management determines that
      the timely collection of future payments is not probable for accounts
      where the Company has been unable to repossess the automobile.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | For accounts where the automobile was repossessed, the fair
      value of the repossessed automobile is charged as a reduction of the gross
      finance receivable balance written-off. On average, accounts are
      approximately 90 days past due at the time of write-off. For previously
      written-off accounts that are subsequently recovered, the amount of such
      recovery is credited to the allowance for credit losses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | The Company maintains an allowance for credit losses on an
      aggregate basis at a level it considers sufficient to cover estimated
      losses in the collection of its finance receivables. The allowance for
      credit losses is based primarily upon historical credit loss experience,
      with consideration given to recent credit loss trends and changes in loan
      characteristics (i.e., average amount financed and term), delinquency
      levels, collateral values, economic conditions and underwriting and
      collection practices. The allowance for credit losses is periodically
      reviewed by management with any changes reflected in current operations.
      Although it is at least reasonably possible that events or circumstances
      could occur in the future that are not presently foreseen which could
      cause actual credit losses to be materially different from the recorded
      allowance for credit losses, the Company believes that is has given
      appropriate consideration to all relevant factors and has made reasonable
      assumptions in determining the allowance for credit losses.

5

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|2. | SUMMARY OF ACCOUNTING POLICIES (continued)
|-- | ------------------------------------------

Accounts receivable
(continued)

A comparison of the following
classifications of notes receivable related to auto sales at July 31, 2006 and
January 31, 2006 is presented below:

July 31, 2006
      
      
      January 31, 2006Amount
      
      
      Number
      
      
      Amount
      
      
      NumberActive accounts
    $
      447,170
    
    
      188
    
    $
      681,116
    
    
      245Accounts held in repossession
    $
      30,425
    
    
      10
    
    $
      40,922
    
    
      14July 31, 2006
    
    
    July 31, 2005Amount
    
    
      Number
    
    
      Amount
    
    
      NumberAccounts charged off during period
    $
      139,684
    
    
      136
    
    $
      73,515
    
    
      28


Inventory

Inventory consists of used
automobilesand is related to the CAC operations. Inventory is stated at the
lower of cost or net realizable value. Cost is determined on a specific item
basis.

Deferred costs

Deferred costs represent costs incurred
on sales where payments are received in advance of revenue recognition. Where
revenue is deferred, all direct and incremental costs incurred to earn the
revenue are also deferred.

Property and equipment

Property and equipment are stated at
cost, net of accumulated depreciation and amortization. Expenditures for
maintenance and repairs have been charged to the statement of operations as
incurred. Depreciation is provided over the estimated useful life of the assets
as follows:

Furniture and equipment
      -
      20% declining-balanceComputer equipment
      -
      30% declining-balanceLeasehold improvements
      -
      straight-line over the lesser
        of the useful life of the assets or term of the leases


The Company regularly reviews the
carrying values of its property and equipment by comparing the carrying amount
of the asset to the expected undiscounted future cash flows to be generated by
the asset. If the carrying value exceeds the amount recoverable, a write-down is
charged to the statement of operations based on the difference between the
carrying value and the future discounted cash flows. Upon retirement or sale of
an asset, its cost and related accumulated depreciation or amortization are
removed from the accounts and any gain or loss is recorded in income or
expense.

Product development
costs

The Company expenses research costs
when they are incurred. Software development costs are expensed as incurred
unless they meet the criteria for deferral and amortization required by GAAP.
Development costs incurred prior to the establishment of technological
feasibility are expensed, as they do not meet the criteria. Capitalized costs
are amortized on a straight-line basis over the remaining economic life of the
related product, which is three years. The Company reassesses the relevant
criteria for deferral and amortization at each reporting date. There have been
no costs capitalized and amortized for the periods presented.

6

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|2. | SUMMARY OF ACCOUNTING POLICIES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Company follows the liability method of accounting for
      income taxes. Under this method, deferred income tax assets and
      liabilities are determined based on differences between the financial
      reporting and tax basis of assets and liabilities, and measured using the
      enacted tax rates and laws that will be in effect when the differences are
      expected to reverse. Valuation allowances are established when necessary
      to reduce future income tax assets to the amount expected to be realized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Revenue recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Companys revenue is derived from the sale of licenses,
      services and commissions, the sale of products to dealers in the
      automobile industry and the sale of used automobiles. The Company
      recognizes revenue in accordance with Statement of Position (SOP) 97-2,
      Software Revenue Recognition, issued by the American Institute of
      Certified Public Accountants (AICPA) in October 1997, as amended by SOP
      98-9 issued in December 1998, for all software or software related
      revenue. For all non-software or non-software related revenue, the Company
      recognizes revenue in accordance with SEC Staff Accounting Bulletin
      (SAB) 104, Revenue Recognition, which was preceded by SAB 101,
      Revenue Recognition in Financial Statements. For contracts involving
      multiple deliverables, where the deliverables are governed by more than
      one authoritative accounting standard, the Company generally applies the
      Financial Accounting Standards Board (FASB) Emerging Issues Task Force
      (EITF) Issue No. 00-21, Revenue Arrangements with Multiple
      Deliverables to determine whether deliverables should be accounted for
      separately.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

7

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|2. | SUMMARY OF ACCOUNTING POLICIES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Revenue recognition (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | (d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Deferred revenue represents unearned income where payments
      are received in advance of revenue recognition. Where revenue is deferred,
      all direct and incremental costs incurred to earn the revenue are also
      deferred.                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Selling expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Selling expenses include payroll, employee benefits, equity
      compensation, and other headcount-related costs as well as expenses
      related to advertising, promotions, tradeshows, seminars, and other
      programs. Advertising costs are expensed as incurred. Advertising expense
      was $29,106 in the six months ended July 31, 2006, and $69,700 in the six
      months ended July 31, 2005.                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Foreign currency translation                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Subsequent to November 1, 2004, the Companys monetary
      assets and liabilities are translated to U.S. dollars at the exchange rate
      at the balance sheet date, while equity and non-monetary assets and
      liabilities are translated at their historical rates. Revenue, costs and
      expenses are translated at average rates prevailing during the periods.
      Translation adjustments are reported as a component of net loss for the
      year.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Earnings per share are based on the weighted average number
      of common shares outstanding (basic) adjusted, to the extent they are
      dilutive, for outstanding stock options and stock purchase warrants
      (diluted). The calculation of diluted earnings per share excludes any
      potential conversion of warrants or options that would increase earnings
      per share or decrease loss per share.                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Leases                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   | Leases entered into by the Company as lessee that transfer
      substantially all the benefits and risks of ownership to the Company are
      recorded as capital leases and are included in capital assets and
      long-term debt. All other leases are classified as operating leases under
      which leasing costs are recorded as expenses in the period in which they
      are incurred.                                                                    

8

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|2. | SUMMARY OF ACCOUNTING POLICIES (continued)
|-- | ------------------------------------------

Stock-based compensation

Effective, February 1, 2006, the
Company adopted Statement of Financial Accounting Standards (SFAS), No.
123(R), Share-Based Payment, (SFAS 123R). This statement is a revision of
SFAS 123 and supersedes Accounting Principle Board Opinion No. 25, Accounting
for Stock Issued to Employees, (APB Opinion 25). SFAS 123R requires all stock
options to be recognized in the financial statements based on their fair values.
The Company adopted SFAS 123R using the modified prospective method, which
requires application of the standard to all options granted, modified,
repurchased or cancelled on or after February 1, 2006, and to all options
granted that were unvested as of February 1, 2006.

No stock options were granted during
the three months ended July 31, 2006 and 2005. The most recent options granted
by the Company were during the year ended January 31, 2005, all of which were
fully vested prior to February 1, 2006.

In accordance with the modified
prospective method of implementation, prior period financial statements have not
been restated to reflect the impact of SFAS 123R. During the six months ended
July 31, 2006, the Company did not recognize any stock-based compensation
expense as a result of the adoption of SFAS 123R. Total stock-based compensation
expense for the six months ended July 31, 2006 was $ nil.

Through January 31, 2006, the Company
applied the intrinsic value recognition and measurement principles of APB
Opinion 25 and related Interpretations in accounting for its stock-based
employee compensation plans. Prior to the adoption of SFAS 123R, the Company did
not have any tax benefits resulting from the exercise of stock options as
operating cash flows in the Consolidated Condensed Statements of Cash Flows.

If the accounting provisions of SFAS
No. 123R had been applied in the first six months of 2005, the Company's net
income and net income per share would have been reduced to the pro forma amounts
indicated in the following table:

For the six months endedJuly
      31, 2005Net income (loss) - as reported
    $
    (122,327
    )Stock-based compensation expense recordedPro-forma stock-based compensation expense
    
    (23,614
    )Net income (loss)
      - pro-forma
    $
    (145,941
    )Basic and diluted loss per share:As reported
    $
    (0.00
    )Pro-forma
    $
    (0.00
    )


The Company did not grant any
additional options during the six months ended July 31, 2006 and 2005. During
the six months ended July 31, 2006, 62,900 shares were exercised for $5,668 and
during the six months ended July 31, 2005, 88,500 shares were exercised for
$11,397. The last options granted in December 2004 (the December 2004 options)
vested in 120 days and a portion of their fair value was estimated as $23,614
during the six months ended July 31, 2005. The fair value of the December 2004
Options was estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions:

| |                               |  | 2005 | 
| | ----------------------------- |  | ---- | 
| |                               |  |      | 
| | Expected dividend             |  | 0%   | 
| | Expected volatility           |  | 90%  | 
| | Risk-free interest rate       |  | 3.5% | 
| | Expected option life in years |  | 5    | 

9

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|2. | SUMMARY OF ACCOUNTING POLICIES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Stock-based compensation (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The weighted average fair value of stock options, calculated using the
      Black-Scholes option pricing model, granted during the year ended January
      31, 2005 and vested during the six months ended July 31, 2005 was $0.13
      per option. The Black-Scholes option-pricing model was developed for use
      in estimating the fair value of options that have no vesting restrictions.
      In addition, option-pricing models require the input of highly subjective
      assumptions. Changes in the subjective input assumptions can materially
      affect the fair value estimates.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Guarantees                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | In November 2002, FASB issued FASB Interpretation No. 45 (FIN 45),
      Guarantors Accounting and Disclosure Requirements for Guarantees,
      Including Indirect Guarantees and Indebtedness of Others, an
      interpretation of FASB Statement Nos. 5, 57 and 107, and rescission of
      FASB Interpretation No. 34, Disclosure of Indirect Guarantees of
      Indebtedness of Others. FIN 45 elaborates on the disclosures to be made
      by the guarantor in its interim and annual financial statements about its
      obligations under certain guarantees that it has issued. It also requires
      that a guarantor recognize, at the inception of a guarantee, a liability
      for the fair value of the obligation undertaken in issuing the guarantee.
      The provisions related to recognizing a liability at inception of the
      guarantee for the fair value of the guarantors obligations does not apply
      to product warranties or to guarantees accounted for as derivatives. The
      Company has not issued any guarantees.        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Derivatives                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | The Companys net earnings and cash flows may be negatively impacted
      by fluctuating foreign exchange rates. To effectively manage this risk,
      the Company may enter into foreign currency swaps. The Company applies the
      recommendations of SFAS No. 133 Accounting for Derivative Instruments and
      Hedging Activities and the corresponding amendments under SFAS Nos. 138
      and 149. Pursuant to these accounting standards, for a derivative
      designated as an accounting hedge, the effective portions of the changes
      in the fair value of the derivative are recorded in other comprehensive
      income (loss) and are recognized in net earnings (loss) when the hedged
      item affects net earnings (loss). Ineffective portions of changes in the
      fair value of the hedge are recognized in net earnings (loss). If the
      derivative used is not designated as an accounting hedge relationship or
      if it becomes ineffective, changes in fair value of the derivative are
      recognized in net earnings (loss).
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | During the six months ended July 31, 2006 and 2005, the Company did
      not enter into any derivative instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Use of estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | In preparing the Companys financial statements in accordance with
      GAAP, management is required to make estimates and assumptions that affect
      the reported amount of assets, liabilities, and the disclosure of
      contingent liabilities at the date of the financial statements and the
      reported amounts of revenues and expenses during the reporting period.
      Actual results could differ from those estimates. Estimates are used when
      accounting for items and matters such as the allowance for doubtful
      accounts, deferred revenue and related costs and contingencies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | Earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   | On September 30, 2004, the EITF reached a consensus on Issue No. 04-8,
      The Effect of Contingently Convertible Debt on Diluted Earnings Per
      Share (EITF 04-8), which addresses when the dilutive effect of
      contingently convertible debt instruments should be included in diluted
      earnings (loss) per share. EITF 04-8 requires that contingently
      convertible debt instruments be included in the computation of diluted
      earnings (loss) per share regardless of whether the market price trigger
      has been met. EITF 04-8 also requires that prior period diluted earnings
      (loss) per share amounts presented for comparative purposes be restated.
      EITF 04-8 is effective for reporting periods ending after December 15,
      2004. As the Company is in a loss position, the adoption of EITF 04-8 did
      not have an impact on the Companys loss per share.                                                                                                                                                        

10

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|3. | EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Accounting changes and error corrections                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | In May 2005, FASB issued SFAS No. 154, "Accounting Changes and Error
      Corrections - a replacement of APB No. 20 and SFAS No. 3". The
      pronouncement requires that all voluntary changes in accounting principle
      be reported by retrospectively applying the principle to all prior periods
      that are presented in the financial statements. The statement is effective
      for fiscal years beginning after December 15, 2005. The Company's
      financial position, results of operations or cash flows will only be
      impacted by SFAS No. 154 if it implements changes in accounting principles
      that are addressed by the standard or corrects accounting errors in future
      periods.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|4. | ACCOUNTS RECEIVABLE AND NOTES RECEIVABLE                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

| |                                             |   | July 31, |  |   | January 31, | 
| | ------------------------------------------- | - | -------- |  | - | ----------- | 
| |                                             |   | 2006     |  |   | 2006        | 
| |                                             |   |          |  |   |             | 
| | Trade receivables from product              | $ | 88,220   |  | $ | 111,717     | 
| | Less: Allowance
      for doubtful accounts |   | 20,327   |  |   | 15,090      | 
| |                                             | $ | 67,893   |  | $ | 96,627      | 
| |                                             |   |          |  |   |             | 
| | Notes receivable from vehicle sales         | $ | 477,595  |  | $ | 722,038     | 
| | Less: Allowance
      for doubtful accounts |   | 66,057   |  |   | 95,119      | 
| |                                             |   | 411,538  |  |   | 626,919     | 
| |                                             |   |          |  |   |             | 
| | Long-term portion of notes receivable       |   | 51,753   |  |   | 103,818     | 
| | Current portion of
      notes receivable   | $ | 359,785  |  | $ | 523,101     | 

During the six-month periods ended July
31, 2006, and 2005, the Company earned $42,250 and $50,815 of financing income
on notes receivable. This amount has been included with revenue in these
financial statements.

Activity in the allowance for doubtful
accounts is as follows:

| |  |               |  |   | Balance at |  |   |            |  |   |                 |  |   | Balance   | 
| |  | ------------- |  | - | ---------- |  | - | ---------- |  | - | --------------- |  | - | --------- | 
| |  | Period Ended  |  |   | Beginning  |  |   | Charged to |  |   | Write-offs      |  |   | at End of | 
| |  | July
      31 |  |   | Period     |  |   | Expenses   |  |   | and
      Other |  |   | Period    | 
| |  |               |  |   |            |  |   |            |  |   |                 |  |   |           | 
| |  | 2006          |  | $ | 110,209    |  | $ | 121,070    |  | $ | 144,895         |  | $ | 86,384    | 
| |  | 2005          |  | $ | 51,936     |  | $ | 131,185    |  | $ | 81,098          |  | $ | 102,023   | 





|**5.** | **CONVERTIBLE DEBENTURES**
|------ | --------------------------

On October 12, 2004
(the Closing Date), the Company completed a convertible debenture financing
(the 2004 Debentures) forgross proceeds of $1,312,927, less costs of
$89,079.The proceeds were primarily used to pursue an
Over-the-Counter Bulletin Board (OTC-BB) quotation in the U.S. and to expand
the Companys CAC operations. Upon the quotation of the Companys common shares
on the OTC-BB and concurrent delisting from the TSX Venture Exchange (the
Conversion Date) by April 10, 2005, the principal and interest amount of the
debentures would have been automatically converted into a minimum of 7,336,500
units (a Unit). Each Unit would have consisted of one common share and one
Class A purchase warrant and one-half of one Class B purchase warrant. Each
whole Class A purchase warrant would have been exercisable into one common share
at a price of $0.23 CDN per share and each whole class B purchase warrant would
have been exercisable into one common share at a price of $0.30 CDN per share.
Both Class A and B warrants issued would have been exercisable for a period of
five years following the Closing Date. The 2004 Debentures are unsecured, bear
interest at 5% per annum, beginning on May 1, 2005. Prior to May 1, 2005, the
2004 Debentures were non-interest bearing.

11

---

|5. | CONVERTIBLE DEBENTURES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Carbiz engaged an agent for this debenture
      financing. In addition to a commission which has been included in the cost
      of issuance, on the Conversion Date, the Agent shall receive warrants (the
      Agent Warrants) equal to an aggregate of 10 % of the number of Units to
      be issued on the Conversion Date. Each warrant shall be exercisable into
      one common share upon payment of $0.22 CDN and one Class A Warrant upon
      payment of $0.23 CDN for a period of five years following the Closing
      Date. Also, the Agent shall receive a 2 percent cash fee on the exercise
      of Warrants exercised within 12 months of the Conversion Date. The Agent
      Warrants and cash fee that may be incurred should the Company complete
      OTC-BB trading have not been recorded in these financial
      statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | As the Company was unable to achieve OTC-BB
      quotation by April 10, 2005, the Company is required to issue to the
      subscribers, Class A purchase warrants and Class B purchase warrants equal
      in number to 2% of the number of each of the Class A purchase warrants and
      Class B purchase warrants to be issued upon conversion of the 2004
      Debenture plus an additional 1% for each subsequent 30 day period (the
      Additional Warrants). The aggregate of the Additional Warrants are
      limited to 6% of the Class A purchase warrants and the Class B purchase
      warrants to be issued upon conversion of the 2004 Debentures.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The 2004 Debentures contains a beneficial conversion feature
      represented by the excess of the fair value of common shares and warrants
      issuable on conversion of the 2004 Debentures, measured on the commitment
      date, over the amount of the proceeds to be allocated to the common shares
      upon conversion. The portion of the proceeds from the issuance of the 2004
      Debentures allocated to the beneficial conversion feature is $650,565.
      Because the 2004 Debentures become convertible only upon the Companys
      quotation of its shares on the OTC-BB, the contingent beneficial
      conversion feature is not recognized in earnings until the contingency is
      resolved.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The costs of issuance for the 2004 Debentures were amortized over the
      one-year period and were fully amortized as of October 31, 2005. The
      expense recorded during the six months ended July 31, 2006 is $Nil and
      $44,050 for the same period last year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | On October 12, 2005, the Company completed a
      convertible debenture financing (the 2005 Debenture) forgross
      proceeds of $690,318. The proceeds were primarily used
      to repay $673,000 of maturing debentures and $14,658 of accrued interest
      on those debentures. These 2005 Debentures contain similar terms to the
      2004 Debentures. Upon the quotation of the Companys common shares on the
      OTC-BB and concurrent delisting from the TSX Venture Exchange, the
      principal and interest amount of the 2005 Debentures will be automatically
      converted into a minimum of 5,393,953 units (a Unit). Each Unit would
      consist of one common share and one Class A purchase warrant and one-half
      of one Class B purchase warrant. Each whole Class A purchase warrant would
      have been exercisable into one common share at a price of $0.15 CDN per
      share and each whole class B purchase warrant would have been exercisable
      into one common share at a price of $0.15 CDN per share. Both Class A and
      B warrants issued would be exercisable for a period of five years
      following the Closing Date. The 2005 Debentures are unsecured and bear
      interest at 5% per annum. Because the 2005 Debentures matured before the
      Companys quotation of its common shares on the OTC-BB, the calculated
      Beneficial Conversion Feature and the Additional Warrants were never
      recognized or required to be issued.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | The 2005 Debentures contain a beneficial conversion feature
      represented by the excess of the fair value of common shares and warrants
      issuable on conversion of the 2005 Debentures, measured on the commitment
      date, over the amount of the proceeds to be allocated to the common shares
      upon conversion. The portion of the proceeds from the issuance of the 2005
      Debentures allocated to the beneficial conversion feature was $259,629.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Also on October 6, 2005, the Company agreed to an extension of terms
      for those holders of 2005 Debentures to mature on that date that did not
      elect to be paid in cash. The extension granted additional six months for
      the maturity date, until April 6, 2006. The extension also modified the
      number of units to be issued upon conversion from 3,521,520 to 5,118,213
      and modified the exercise price for Class A and Class B purchase warrants
      to $0.15 CDN per share. This change was considered to be significant, and
      the Company accounted for the issuance as an extinguishment of the
      maturing 2004 Debentures. No gain or loss was recognized on the                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

12

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|5. | CONVERTIBLE DEBENTURES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | extinguishment of 2004 Debentures. Because the 2004 Debenterus were
      considered repaid by the extinguishment before the quotation of the
      Companys common shares on the OTC-BB, the calculated
      beneficial conversion feature and the Additional Warrants were never
      recognized or required to be issued. The Company determined the value of
      the new2005 Debentures at October 6, 2005 to be $655,029.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The amended 2005 Debentures are also considered to contain a
      beneficial conversion feature represented by the excess of the fair value
      of common shares and warrants issuable on conversion of the 2005
      Debentures, measured on the commitment date, over the amount of the
      proceeds to be allocated to the common shares upon conversion. The portion
      of the proceeds from the issuance of the 2005 Debentures allocated to the
      beneficial conversion feature is $246,357. Because the both the newly
      issued 2005 Debentures and amended 2005 Ddebentures become convertible
      only upon the Companys quotation of its common shares on the OTC-BB, the
      contingent beneficial conversion feature for each will not be recognized
      in earnings until the contingency is resolved.                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | On April 6, 2006, the Company completed a convertible debenture
      financing (the 2006 Debentures) for gross proceeds of $20,000. The
      proceeds were primarily used to repay $20,000 of maturing debentures and
      $934 of accrued interest on those debentures. These 2006 Debentures
      contain similar terms to the 2004 Debentures and the 2005 Debentures. Upon
      the quotation of the Companys common shares on the OTC-BB and concurrent
      delisting from the TSX Venture Exchange, the principal and interest amount
      of the debentures will be automatically converted into a minimum of
      192,233 units (a Unit). Each Unit would consist of one common share and
      one Class A purchase warrant and one-half on one Class B purchase warrant.
      Each whole Class A purchase warrant would be exercisable into one common
      share at a price of $0.12 CDN per share and each whole class B purchase
      warrant would be exercisable into one common share at a price of $0.12 CDN
      per share. Both Class A and B purchase warrants issued would be
      exercisable for a period of five years following April 6, 2006. The 2006
      Debentures are unsecured and bear interest at 5% per annum.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The 2006 Debentures contain a beneficial conversion feature
      represented by the excess of the fair value of common shares and warrants
      issuable on conversion of the 2006 Debentures measured on the commitment
      date, over the amount of proceeds to be allocated to the common shares
      upon conversion. The portion of the proceeds from the issuance of the 2006
      Debentures allocated to the beneficial conversion feature is $5,180.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Also on April 6, 2006, the Company agreed to an extension of terms for
      those holders of 2005 Debentures maturing on that date that did not elect
      to be paid in cash. The extension granted an additional six months to the
      maturity date until October 6, 2006. The extension also modified the
      number of units to be issued upon conversion from 10,358,379 to 12,947,983
      and modified the exercise price for Class A and Class B purchase warrants
      to $0.12 CDN per share. This change was considered to be significant, and
      the Company accounted for the issuance as an extinguishment of the
      maturing 2005 Debentures. No gain or loss was recognized on the
      extinguishment of the 2005 Debentures. Because the 2005 Debenturess were
      considered repaid by the extinguishment before the Companys quotation of
      its common shares on the OTC-BB, the calculated beneficial conversion
      feature and Additional Warrants were never recognized or required to be
      issued. The Company determined the value of the 2006 Debenture at April 6,
      2005 to be $1,395,585.                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The amended 2006 Debentures are also considered to contain a
      beneficial conversion feature represented by the excess of the fair value
      of common shares and warrants issuable upon conversion of the 2006
      Debentures, measured on the commitment date, over the amount of proceeds
      from the issuance of the 2006 Debentures allocated to the beneficial
      conversion feature is $348,896. Because both the newly issued 2006
      Debentures and amended 2005 Debentures become convertible only upon the
      quotation of the Companys common shares on the OTC-BB, the contingent
      beneficial conversion feature will not be recognized in earnings until the
      contingency is resolved.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | The provision for Additional Warrants on the amended 2004 Debentures,
      the 2005 Debentures and the 2006 Debentures would result in the issuance
      of 1,182,620 additional warrants upon conversion. Because these debentures
      become convertible only upon the Companys quotation of its common shares
      on the OTC-BB, the additional warrants will not be recognized in earnings
      until the contingency is resolved.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

13

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|6. | CASH FLOW INFORMATION       
|-- | ----------------------------
|   |                             
|   | (a) Supplemental Information

| |                                             |   | Six months ended    | 
| | ------------------------------------------- | - | ------------------- | 
| |                                             |   | July
      31, 2006 | 
| | Interest paid                               | $ | 88,219              | 
| |                                             |   |                     | 
| | (b) Supplemental non-cash
      information |   |                     | 

During the six months ended July 31,
2006, the Company extended certain convertible debentures (see Note 5) which
were treated as an extinguishment and re-issuance of debt in the amount of
$1,396,305 and as such have not been included in the statement of cash
flows.

|7. | RELATED PARTY TRANSACTIONS
|-- | --------------------------

On February 28, 2005, the Company
entered into a joint venture agreement (JV1) with a member of the Company's
Board of Directors. The purpose of this joint venture is to add five additional
CAC centers in the state of Florida over five years. Under the agreement, the
Company will contribute its intellectual property and permanent, non-exclusive
license agreements in exchange for a 50% share of the joint venture. The
director/joint venture partner contributed $500,000 for the remaining 50% share.
In April 2005, JV1 signed a five-year lease for the premises of the first
center, at a price of $31,200 annually.

The Company accounts for the joint
venture using FASB Interpretation No. 46, Consolidation of Variable Interest
Entities.The primary objectives of this interpretation are to provide
guidance on the identification of entities for which control is achieved through
means other than through voting rights (variable interest entities) and how to
determine when and which business enterprise (the primary beneficiary) should
consolidate the variable interest entity. Because the joint venture is operated
as a CAC location and is fully integrated under the daily control and management
of the Company, the Company is, under this guidance, the primary beneficiary.
Accordingly operational revenue and expenses, and all assets and liabilities are
fully consolidated. The 50% share of the joint venture not owned by the Company
is presented on the Minority Interest line item on the Consolidated Balance
Sheets. A Summary of 100% of the joint venture revenues and expenses and assets
are listed below:

July
        31, 2006
      
      
      July
        31, 2005Sales
      $
      120,574
      
      $
      18,800Cost of sales
      
      103,581
      
      
      12,682Gross Profit
      
      16,993
      
      
      6,118Operating Expenses (1)
      
      63,409
      
      
      31,990Operating Loss
      $
      (46,416
      )
      $
      (25,872
      )Depreciation
      
      (464
      )
      
      (138
      )Net Loss
      $
      (46,880
      )
      $
      (26,010
      )Total Assets
      $
      450,781
      
      $
      481,114(1) Excluding depreciation and amortization.


In July 2005, the Company entered into
a $150,000 short-term loan agreement with a company owned by a significant
stockholder. The loan proceeds were received in three $50,000 installments
received in July, August, and September 2005. Interest on the loan is at a rate
of 17.7% per annum. Repayment of the loan and interest commenced on October 1,
2005 and was suspended after the second payment, although interest continues to
accrue and the balance is expected to be fully repaid during 2007. The balances
outstanding at July 31, 2006 and January 31, 2006 were $132,718 and $131,210,
respectively, and were included in current liabilities.

14

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|8. | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The carrying amount of financial instruments including cash and cash
      equivalents, capital leases, accounts receivable and accounts payable and
      accrued liabilities approximates fair value because of the limited term of
      these instruments. The carrying value of the long-term debt approximates
      fair value because the interest rate is tied to the daily U.S. prime rate.
      The carrying value of the Companys outstanding convertible debentures
      approximates fair value because the terms of the debentures were
      negotiated shortly before year-end.                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Company is exposed to the following risks related to its financial
      assets and liabilities:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Interest rate risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Company currently has notes payable that incur interest based on
      the U.S. prime lending rate. The Company is therefore exposed to interest
      rate risk through fluctuations in the U.S. prime lending rate. The Company
      does not use derivative instruments to reduce its exposure to interest
      rate risk.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Credit risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Credit risk arises from the possibility that the Companys customers
      may experience financial difficulty and be unable to fulfill their
      financial obligations. The risk is mitigated through proactive credit
      screening, a stringent collection policy, and the ability to restrict user
      access on certain products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Foreign currency risk                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Company conducts most of its business in the United States of
      America. The Companys exposure to foreign currency risk arises from
      purchases denominated in Canadian dollars. The Company does not use
      derivative instruments to reduce its exposure to foreign currency risk. At
      July 31, 2006 and January 31, 2006, the Company had Canadian dollar assets
      of $60,035 Cdn and $2,018 Cdn respectively, and the Company had Canadian
      dollar liabilities of $1,794,455 Cdn at July 31, 2006 and $2,266,643 Cdn
      at January 31, 2006. During the six-month period ended July 31, 2006 and
      2005, the Company recorded foreign exchange loss of $8,040 in 2006 and a
      foreign exchange loss of $20,958 in 2005. See Note 2  Foreign currency
      translation for the Companys policy on foreign currency translation.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|9. | SEGMENTED INFORMATION FOR CONTINUING OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Company operates and manages its business in three segments, which
      are its used car sales and financing segment (Carbiz Auto Credit or
      CAC), its used car sales and financing joint venture (JV1), and
      various software and consulting services offered to independent car
      dealerships (Software and Other Products). Approximately 99% of the
      Companys revenue is generated in the United States. In addition almost
      all of the Companys assets are located in the U.S. A fourth business
      segment, TaxMax, a tax preparation service, was sold on May 16, 2006. The
      Company has eliminated TaxMax from the segment information. See Note 10.                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | CAC purchases automobiles through auctions and sells them to end users
      at two car lots located in the State of Florida. When required, the
      Company will also finance these sales with loans that are generally 80
      weeks in length. CAC operates a third car lot located in the State of
      Florida under a joint venture, Carbiz Auto Credit JV1, LLC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Software and Other Products consists of new sales and recurring
      monthly revenues for software products, and new sales and recurring
      monthly revenues of consulting products, and other related revenue from
      credit bureau fees, supply sales and forms programming.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

15

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|9. | SEGMENTED INFORMATION FOR CONTINUING OPERATIONS (continued)
|-- | -----------------------------------------------------------

| | Three months
      ended July 31            | 2006
| | ------------------------------------------- | ----
| |                                             |     
| |                                             |     
| | Sales                                       | $   
| | Cost of Sales                               |     
| | Gross Profit                                |     
| | Operating Expenses
      (1)                |     
| | Income (Loss) From Segments                 | $   
| | Depreciation & Amortization                 |     
| | Total Operating Income (Loss)               |     
| |                                             |     
| |                                             | 2005
| |                                             |     
| |                                             |     
| | Sales                                       | $   
| | Cost of Sales                               |     
| | Gross Profit                                |     
| | Operating Expenses (1)                      |     
| | Income (Loss)
      From Segments           | $   
| | Depreciation & Amortization                 |     
| | Total Operating Income (Loss)               |     
| |                                             |     
| | Six months
      ended July 31              | 2006
| |                                             |     
| |                                             |     
| | Sales                                       | $   
| | Cost of Sales                               |     
| | Gross Profit                                |     
| | Operating Expenses
      (1)                |     
| | Income (Loss) From Segments                 | $   
| | Depreciation & Amortization                 |     
| | Total Operating Income (Loss)               |     
| |                                             |     
| | Total Assets                                | $   
| |                                             | 2005
| |                                             |     
| |                                             |     
| | Sales                                       | $   
| | Cost of Sales                               |     
| | Gross Profit                                |     
| | Operating Expenses
      (1)                |     
| | Income (Loss) From Segments                 | $   
| | Depreciation & Amortization                 |     
| | Total Operating Income (Loss)               |     
| |                                             |     
| | Total Assets                                | $   
| | (1) Excluding depreciation and amortization |     

16

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|10. | DISCONTINUED OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | On May 16, 2006 the Company completed the sale of its TaxMax business
      to Tax Refund Services, Inc. located in Tampa, Florida. The proceeds of
      $442,000 received from the sale will be primarily used to expand CAC
      operations. The book value of the assets sold was $20,575, therefore, the
      Company realized a gain of $421,425 on the disposition. No reserves for
      disposition were deemed appropriate prior to the sale.                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | In accordance with SFAS No. 144, Accounting for the Impairment or
      Disposal of Long-Lived Assets (SFAS 144), the financial results of the
      TaxMax business have been presented as discontinued operations on the
      financial statements for all periods presented. The TaxMax segment had
      revenue of $253,004 for the period beginning February 1, 2006 through May
      16, 2006. The operating income for this period was $135,358 plus a gain on
      disposal of $421,425.                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The former segment had revenue of $375,984 and operating income of
      $107,026 for the six months ended July 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|11. | SUBSEQUENT EVENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Companys registration statement on Form SB-2 was declared
      effective by the SEC on September 1, 2006. The Company is currently under
      review by the National Association of Securities Dealers, a routine
      requirement for quotation on OTC-BB. Because the Companys outstanding
      debentures become convertible only upon the Companys quotation of its
      common shares on the OTC-BB, an event beyond the control of the debenture
      holders, the additional warrants will not be recognized in earnings until
      the contingency is resolved.

17

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|Item 2.  | **Managements Discussion and
      Analysis or Plan of Operation**
|-------- | -------------------------------------------------------------------
|         |                                                                    
|Overview

| | Our revenue has been derived from three sources,
      which include:
| | ---------------------------------------------------------------------
| |                                                                      
| |                                                                     
| |                                                                      
| |                                                                     
| |                                                                      
| |                                                                     

Historically, we have been a
software company that has also offered tax return processing services for, and
business model consulting services to, the North American automobile industry.
In May 2004, we decided to enter the direct automobile sales market utilizing
our own software and business model consulting products by opening our first
credit center in Palmetto, Florida, which is a used car dealership that offers
financing on-site to customers with poor credit. Rather than continuing to focus
our resources only on our software, tax processing and consulting businesses, it
is our intent to expand and further diversify our business operations by opening
additional credit centers in the future. We opened our second credit center in
St. Petersburg, Florida in November 2004, and we opened our third credit center,
a joint venture location, in Tampa, Florida in May 2006. We anticipate opening
additional credit centers in the future, with some of these credit centers being
wholly-owned by us and others utilizing the joint venture structure discussed
elsewhere in this report. Further, on May 16, 2006, we sold our TaxMax business
to Tax Refund Services Inc. of Tampa, Florida. As a part of such asset sale, we
agreed to enter into a non-competition agreement and, therefore, we do not
intend to provide tax return processing services in the future.

In terms of our existing software
and consulting businesses, we believe that our IDA software and the related
consulting will drive our software revenue and consulting services growth in the
near term. To date, it has been installed in 20 dealerships, and we have a
backlog of seven installations which are expected to be fully operational by the
end of the fourth quarter of this fiscal year. We believe that there is an
industry-wide movement towards the adoption of standardized accounting
procedures and financial reporting within the independent dealer population,
which consists of non-franchise automotive dealers, as a result of efforts by
NIADA (National Independent Automobile Dealer Association) and NABD (National
Alliance of Buy Here-Pay Here Dealers). We have worked closely with both of
these associations during the development of our IDA software, and have received
the Approved Vendor for Standardized Accounting designation from NIADA, a
designation that indicates to the dealer community that IDA operates properly in
producing appropriate audit trails, transaction processing, and financial
reporting as defined by NIADA. Although NIADA approval is not required for a
company to market its products to independent automobile dealers, we believe
that the NIADA Approved Vendor designation will provide additional market
acceptance of IDA as a specific accounting solution for independent dealers
throughout North America.

Critical Accounting Policies

Revenue Recognition

Our revenue is derived from the
  sale of licenses, services and commissions, the sale of products to dealers
  in the automobile industry and sale of used vehicles. We recognize revenue in
  accordance with Statement of Position 97-2, Software Revenue Recognition,
  issued by the American Institute of Certified Public Accountants in October
  1997 as amended by Statement of Position 98-9 issued in December 1998 for all
  software or software related revenue. For all non-software or non-software related
  revenue, we recognize revenue in accordance with SEC Staff Accounting Bulletin
  104, Revenue Recognition, which was preceded by Staff Accounting
  Bulletin 101, Revenue Recognition in Financial Statements. For contracts
  involving multiple deliverables, where the deliverables are governed by more
  than one authoritative accounting standard, we generally apply the Financial

18

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Accounting Standards Board Emerging Issues Task Force Issue No.
00-21, Revenue Arrangements with Multiple Deliverables to determine whether
deliverables should be accounted for separately.

We derive our revenue through the
licensing of software products and providing related services, including
installation, training and support, our TaxMax products, and our Carbiz Auto
Credit Buy Here-Pay Here business. Our revenue from licenses is recognized upon
the execution of a license agreement, when the licensed product has been
delivered, fees are fixed or determinable, collection is probable and when all
significant obligations have been fulfilled. Related services revenue is
recognized when a signed contract has been executed, the services have been
delivered, and obligations have been fulfilled. OurTaxMax revenue is made up of
two parts. The first part is the dealer sign-up fee. These fees are paid between
October and December. The second part is the tax preparation fees earned between
January and April. As a majority of the tax preparation fees are earned
subsequent to the year end, a portion of the sign up fees and related expenses
are deferred and recognized as the tax preparation services are rendered. We
also sell and finance used automobiles. The sale of automobiles is recognized
once the customer takes delivery and title has passed to the customer. In the
case of financing of sold automobiles, the interest is recognized over the term
of the loan, which is generally 80 weeks, based on the principal outstanding at
the time.

Use of Estimates

We prepare our financial
statements in accordance with generally accepted accounting principals in the
United States. The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires us to make
estimates and assumptions that affect the reported amounts 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 reporting period. Estimates are based upon historical experience and
various other assumptions that are believed to be reasonable under the
circumstances. These estimates are evaluated on an on-going basis and are used
when accounting for items and matters such as the allowance for doubtful
accounts, deferred revenue and related costs and contingencies. Actual results
may differ from these estimates under different assumptions.

Stock-Based Compensation

We account for stock-based
compensation in accordance with Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. Pursuant to this accounting
standard, we record deferred compensation for share options granted to employees
at the date of grant based on the difference between the exercise price of the
options and the market value of the underlying shares at that date. Deferred
compensation is amortized to compensation expense over the vesting period of the
underlying options. No compensation expense is recorded for stock options that
are granted to employees and directors when the exercise price is equal to the
fair market value of the shares at the time of the grant.

19

---

Three Months ended July 31, 2006 compared to the Three
Months ended July 31, 2005

|                                                     |   | 2006     |   |  | % of    |   |   | 2005      |   |  | % of    |  
|---------------------------------------------------- | - | -------- | - |  | ------- | - | - | --------- | - |  | ------- | -
|                                                     |   |          |   |  | Revenue |   |   |           |   |  | Revenue |  
|Revenue                                              | $ | 890,259  |   |  | 100.0   |   | $ | 1,016,524 |   |  | 100.0   |  
|Cost of sales                                        | $ | 489,337  |   |  | 55.0    |   | $ | 521,666   |   |  | 51.3    |  
|Gross profit                                         | $ | 400,922  |   |  | 45.0    |   | $ | 494,858   |   |  | 48.7    |  
|Operating expenses                                   | $ | 634,068  |   |  | 71.2    |   | $ | 638,905   |   |  | 62.9    |  
|Operating income (loss)                              | $ | (233,146 | ) |  | (26.2   | ) | $ | (144,047  | ) |  | (14.2   | )
|Interest expense                                     | $ | (96,609  | ) |  | 10.9    |   | $ | (45,223   | ) |  | 4.4     |  
|Minority interest income (loss)                      | $ | 13,243   |   |  | 1.5     |   | $ | 10,470    |   |  | 1.0     |  
|Net income (loss) from continuing operations         | $ | (316,512 | ) |  | (35.6   | ) | $ | (178,800  | ) |  | (17.6   | )
|Net income (loss) from discontinued
      operations | $ | 411,591  |   |  | 46.2    |   | $ | (9,478    | ) |  | (0.9    | )
|NET INCOME (LOSS)                                    | $ | 95,079   |   |  | 10.7    |   | $ | (188,278  | ) |  | (18.5   | )
|Income (loss) per common share (1)                   | $ | (0.00    | ) |  |         |   | $ | (0.01     | ) |  |         |  
|Total assets                                         | $ | 899,156  |   |  |         |   | $ | 1,569,363 |   |  |         |  
|Long-term liabilities                                | $ | 192,855  |   |  |         |   | $ | 428,822   |   |  |         |  

(1) Diluted loss per share does not differ from basic loss per
share for any of the above-noted periods as the conversion or exercise of any
potentially dilutive securities would be anti-dilutive.

Revenue

In the three months ended July
31, 2006, our revenues from continuing operations decreased by $126,265 compared
to our three-month revenue during the previous period ended July 31, 2005. This
decrease was primarily due to a decrease of $168,821 in sales by our Carbiz Auto
Credit operating unit during the first three months of 2006 when compared to the
first three months of 2005. Carbiz Auto Credit generated sales of $250,825,
including $193,198 from our Company-owned locations and $57,627 from our joint
venture location during the three months ended July 31, 2006.

Cost of Sales

Our cost of sales expense
decreased by $32,329 for the three months ended July 31, 2006, compared to same
period ended July 31, 2005. Carbiz Auto Credit operations cost of sales
decreased by $81,847, including a decrease in costs of $124,281 from our
Company-owned locations and an increase of $42,434 from our joint venture
location during the three months ended July 31, 2006, and all other parts of the
operation increased cost of sales by $119,518 during the three months ended July
31, 2006. We anticipate that our cost of sales expense will continue to increase
as we open additional Carbiz Auto Credit centers in the future.

Expenses

For the three months ended July
31, 2006, our operating expenses decreased by $8,027 compared to the same period
ended July 31, 2005. The Carbiz Auto Credit operating expenses decreased by
$60,449, including a decrease of $62,340 from our Company-owned locations and
and increase of $1,891 from our joint venture location during the three months
ended July 31, 2006, while operating expenses for other segments increased by
$68,476 during the three months ended July 31, 2006.

We have not been investing
significant amounts in fixed assets over the past two years. This fact is
reflected in the decrease in depreciation and amortization expenses by $12,864
for the three months ended July 31, 2006 as compared to the same period ended
July 31, 2005.

Interest Expense

Our interest expense increased by
$51,386 for the three months ended July 31, 2006, compared to the same period
ended July 31, 2005. We continue to pay down our longer term debt, with
principal payments being made monthly.

20

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Software Sales, Support and Consulting

This segment of our business
consists of new sales and recurring monthly revenue for software products and
new sales, new sales and recurring monthly revenue of consulting products, and
other related products including revenue from credit bureau fees, supply sales,
and forms programming. Our total software, consulting and other sales during the
three months ended July 31, 2006 increased by $42,556 over the prior period
ended July 31, 2005.

TaxMax

TaxMax was our tax preparation
and refund division. The seasonal nature of our TaxMax business meant that the
significant impact of return preparation operations was recognized during the
first quarter.

As a result of a continued
decline in TaxMax revenue over a three-year period and a desire to focus both
management and cash resources on the higher growth areas of our business,
subsequent to the fiscal year end management decided to enter into an agreement
to sell the TaxMax business. The sale was the result of an unsolicited offer and
was completed during May 2006 to Tax Refund Services, Inc. of Tampa, FL. The
$442,000 cash generated from the sale of TaxMax will be used primarily for
further expansion of the Carbiz Auto Credit business. The net income from the
sale of TaxMax as well as the net income generated from the discontinued
operations are now shown as such on the Statement of Operations.

Carbiz Auto Credit

The fastest growing segment of
our business continues to be our Carbiz Auto Credit specialty consumer finance
business. Carbiz operates three facilities in Florida called Carbiz Auto
Credit, that originate, underwrite, fund and collect auto loans to customers
with credit difficulties. The scalable business model leverages our industry
expertise and proprietary underwriting and collection processes.

We believe that the results from
our Palmetto and St. Petersburg corporate locations and Tampa joint venture
location for the year ended January 31, 2006 have indicated a strong consumer
demand for the finance product in that market, as well as reinforcing the
effectiveness of our system for operations, marketing, underwriting and
collections.

The decrease in sales activity
during the three months ended July 31, 2006 was the result of a decrease in
inventory levels at all three locations due to a decrease in cash available for
the purchase of inventory combined with the seasonal spike in wholesale car
prices during tax season. Additional costs related to the Form SB-2 registration
statement process resulted in the temporary cash shortage. With cash generated
from the sale of TaxMax, the inventory level at all locations returned to a more
normal level during the last 45 days of the three months ended July 31,
2006.

Six Months ended July 31, 2006 compared to the Six Months
ended July 31, 2005

|                                                     |   | 2006      |   |  | % of    |   |   | 2005      |   |  | % of    |  
|---------------------------------------------------- | - | --------- | - |  | ------- | - | - | --------- | - |  | ------- | -
|                                                     |   |           |   |  | Revenue |   |   |           |   |  | Revenue |  
|Revenue                                              | $ | 1,648,017 |   |  | 100.0   |   | $ | 1,919,685 |   |  | 100.0   |  
|Cost of sales                                        | $ | 926,562   |   |  | 56.2    |   | $ | 952,748   |   |  | 49.6    |  
|Gross profit                                         | $ | 721,455   |   |  | 43.8    |   | $ | 966,937   |   |  | 50.4    |  
|Operating expenses                                   | $ | 1,309,381 |   |  | 79.5    |   | $ | 1,122,807 |   |  | 58.5    |  
|Operating income (loss)                              | $ | (587,926  | ) |  | (35.7   | ) | $ | (155,870  | ) |  | (8.1    | )
|Interest expense                                     | $ | (132,047  | ) |  | 8.0     |   | $ | (86,488   | ) |  | 4.5     |  
|Minority interest income (loss)                      | $ | 23,440    |   |  | 1.4     |   | $ | 13,005    |   |  | 0.7     |  
|Net income (loss) from continuing operations         | $ | (696,533  | ) |  | (42.3   | ) | $ | (229,353  | ) |  | (11.9   | )
|Net income (loss) from discontinued
      operations | $ | 556,783   |   |  | 33.8    |   | $ | 107,026   |   |  | 5.6     |  
|NET INCOME (LOSS)                                    | $ | (139,750  | ) |  | (8.5    | ) | $ | (122,327  | ) |  | (6.4    | )
|Income (loss) per common share (1)                   | $ | (0.00     | ) |  |         |   | $ | (0.00     | ) |  |         |  
|Total assets                                         | $ | 899,156   |   |  |         |   | $ | 1,569,363 |   |  |         |  
|Long-term liabilities                                | $ | 192,855   |   |  |         |   | $ | 428,822   |   |  |         |  

(1) Diluted loss per share does not differ from basic loss per
share for any of the above-noted periods as the conversion or exercise of any
potentially dilutive securities would be anti-dilutive.

21

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Revenue

In the six months ended July 31,
2006, our revenues decreased by $271,668 compared to our six-month revenue
during the previous period ended July 31, 2005. This decrease was primarily due
to a decrease of $267,829 in sales by our Carbiz Auto Credit operating unit
during the first six months of 2006 when compared to the first six months of
2005. Carbiz Auto Credit generated sales of $450,991, including $330,417 from
our Company-owned locations and $120,574 from our joint venture location during
the first six months of 2006. We continue to eliminate non-performing products,
such as several older pre-Windows software products including our GoldKey Buy
Here-Pay Here program and our TurboCAT F&I program, which may impact
recurring monthly support revenue negatively in the short-term due to some
attrition among that specific user population as we enter a period of time
during which we announce the support for a specific product will end at a future
date. During that time, we expect a majority of our users will be replacing the
discontinued product with higher priced, higher margin products, which would
result in a positive impact on future revenues. The decision to stop support for
a specific product is made on the basis of the size of the remaining user
population, the recurring revenue generated by that product, and the cost and
difficulty of maintaining a technical support staff for the product.

Cost of Sales

Our cost of sales expense
decreased by $26,186 for the six months ended July 31, 2006, compared to the
same period ended July 31, 2005. Carbiz Auto Credit operations cost of sales
decreased by $58,527, including a decrease in costs of $149,426 from our
Company-owned locations and an additional $90,899 from our joint venture
location during the six months ended July 31, 2006, and all other parts of the
operation increased cost of sales by $32,341 during the six months ended July
31, 2006. We anticipate that our cost of sales expense will continue to increase
as we open additional Carbiz Auto Credit centers in the future.

Expenses

For the six months ended July 31,
2006, our operating expenses increased by $214,373 compared to the same period
ended July 31, 2005. The Carbiz Auto Credit operating expenses were $152,961,
including $89,552 from our Company-owned locations and $63,409 from our joint
venture location during the six months ended July 31, 2006, while operating
expenses for other segments increased by $371,186 during the six months ended
July 31, 2006. This primarily resulted from a loss on foreign currency exchange
of $30,034 and an increase in audit and legal expenses related to the conversion
from Canadian GAAP accounting standards to US GAAP accounting standards and the
preparation of the Form SB-2 registration statement for the six months ended
July 31, 2006 compared to the same six months of the prior year.

We have not been investing
significant amounts in fixed assets over the past two years. This fact is
reflected in the decrease in depreciation and amortization expenses by $27,799
for the six months ended July 31, 2006 as compared to the same period ended July
31, 2006.

Interest Expense

Our interest expense decreased by
$45,559 for the six months ended July 31, 2006, compared to the same period
ended July 31, 2005. We continue to pay down our longer term debt, with
principal payments being made monthly.

Software Sales, Support and Consulting

This segment of our business
consists of new sales and recurring monthly revenue for software products and
new sales, new sales and recurring monthly revenue of consulting products, and
other related products including revenue from credit bureau fees, supply sales,
and forms programming. Our total software, consulting and other sales during the
six months ended July 31, 2006 decreased over the prior period ended July 31,
2005 by $3,839.

Total software sales during the
six months ended July 31, 2006 increased from the prior period by $5,472, with
recurring monthly support revenue showing improvement over the prior period by
an increase of $7,446. Sales of new software installations, however, decreased
from the prior period by $1,974.

The adoption of our current
Carbiz Windows-based programs by existing DOS users continued to show an upward
trend during the six months ended July 31, 2006, with approximately 8% of users
on previous generation DOS programs upgrading to current programs. We believe
this demonstrated that our existing user base is

22

---

remaining stable while new, incremental software sales should
continue to add customers for consulting services. We believe the overall trend
also indicates continuing growth of recurring revenue.

The results of our IDA
installations had some positive impact on the six months ended July 31, 2006,
with several completed installations included in the sales totals. The monthly
recurring support revenue for IDA in the six months ended July 31, 2006, grew to
$12,150, with additional installations to be completed during the third quarter
of fiscal 2007. Dealer interest in IDA continues to increase, which along with a
shift in emphasis to higher value monthly support functions, we believe should
result in continued growth in installations and recurring revenue.

Our new sales of consulting
services for the six months ended July 31, 2006 showed an increase from the
prior period of $1,650, while recurring monthly consulting revenue decreased by
$9,192 from the prior period.

Software sales provide
opportunities for us to introduce our consulting services to business clients.
While our software products facilitate data accumulation and reporting, our
consulting services help to interpret the data and provide advice, as well as
industry benchmarks, to help dealers improve results. Our consulting focuses on
implementing a data tracking product that automates some data analysis, creates
a recurring revenue stream and facilitates additional consulting services.

We offer two levels of consulting
services targeted mainly to the dealer who provides self-funded, on-site auto
financing (Buy Here-Pay Here). The standard package includes unlimited manager
training, unlimited 800 number technical support, a monthly benchmarking
report of composite data from dealerships using our system, and one training
conference per year. The premier package also includes a weekly faxed
performance report based on download and analysis of the clients data. Our
consultants provide telephone consultation to discuss the report and provide
guidance on areas where improvements could be made. We also may provide
customized trend analysis on specialized issues. Also included in the premier
package are three on-site visits each year by our consultant. Each visit
includes a top-to-bottom audit of sales, operations, procedures, marketing
activities, inventories, computer systems and financial results.

TaxMax

The TaxMax segment had revenue of
$253,004 for the period beginning February 1, 2006 through May 16, 2006. The
operating income for this period was $135,358 plus a gain on disposal of
$421,425. The former segment had revenue of $375,984 and operating income of
$107,026 for the six months ended July 31, 2005. Details of the sale of our
TaxMax segment are presented in the review of the three-month financial results
above.

Carbiz Auto Credit

As of the year ended January 31,
2006 and the six months ended July 31, 2006, the total Carbiz Auto Credit loan
portfolio was $722,038 and $477,595, respectively. The allowance for doubtful
accounts at the same dates was $95,119 and $66,057, respectively. The allowance
for doubtful accounts is established through the allocation of 100% of any
repossessions in process plus 8% of the remaining portfolio balance. All loans
are made at an interest rate of 14.95% APR, with no loans made without complete
documentation and verification of employment and references. While our
underwriting procedures do not take credit score into account, a credit bureau
report is obtained for each customer. While the range of scores varies widely,
the average credit score of our customers is approximately 500.

Liquidity and Capital Resources

As of January 31, 2006 and July
31, 2006, we had $119,735 and $29,858, respectively, in cash and cash
equivalents. During the six months ended July 31, 2006, we decreased our
accounts payable and accrued liabilities by $101,532, which totaled $1,183,670
at July 31, 2006. During the six months ended July 31, 2006, we made debt
repayments and capital lease payments totaling $78,010. We have continued to
rely on private placements to meet our cash flow requirements. Operationally, we
have not generated the necessary revenue to cover our operating expenses.

On September 5, 2006, we
completed a non-brokered private placement of 2,400,000 units at a price of
US$0.10 per unit for gross proceeds to us of $240,000. Each unit is comprised of
one common share and one common share purchase warrant exercisable into one
common share at an exercise price of $0.15 for a period of two years.
Concurrently with this private placement, debt in the amount of $156,546.44 held
by two of our directors was

23

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also converted into 1,565,464 Units with the same terms as the
units issued in the private placement completed on Sepember 5, 2006.

On May 16, 2006, we completed the
sale of our TaxMax business to Tax Refund Services, Inc. located in Tampa,
Florida. The proceeds of $442,000 received from the sale will be primarily used
to expand the Carbiz Auto Credit operations.

On April 6, 2006, we completed a
non-brokered private placement of a 5% convertible debenture issued to Jon
Kochevar for gross proceeds of Cdn$23,238. Prior to the maturity date, the
debenture converts automatically upon the quotation of our common shares on the
Over-The-Counter Bulletin Board and the delisting of our common shares for
trading on the TSX Venture Exchange. The debenture converts into units, with
each unit comprised of one common share, one class A common share purchase
warrant and one-half of one class B common share purchase warrant, at a price of
$0.12 per unit. Each class A common share purchase warrant may be exercised
through April 6, 2011 for one common share at an exercise price of Cdn$0.12 per
common share. Each whole class B common share purchase warrant may be exercised
through April 6, 2011 for one common share at an exercise price of Cdn$0.12 per
common share. The maturity date for the debenture is October 6, 2006, and
interest immediately accrues on the debenture. All of the proceeds from this
private placement were used to repay the principal and accrued interest on a
debenture that matured on April 6, 2006, because such debenture holder would not
extend the maturity date of his debenture until October 6, 2006.

On October 6, 2005, we completed
a non-brokered private placement of 5% convertible debentures for gross proceeds
of Cdn$809,119 issued to certain of our executive officers and directors. Prior
to the maturity date, the debentures convert automatically upon the quotation of
our common shares for trading on the Over-The-Counter Bulletin Board and the
delisting of our common shares for trading on the TSX Venture Exchange. The
debentures convert into units, with each unit comprised of one common share, one
class A common share purchase warrant and one-half of one class B common share
purchase warrant, at a price of Cdn$0.15 per unit. Each class A common share
purchase warrant may be exercised through October 6, 2010 for one common share
at an exercise price of Cdn$0.15 per common share. Each whole class B common
share purchase warrant may be exercised through October 6, 2010 for one common
share at an exercise price of Cdn$0.15 per common share. The maturity date for
the debentures was April 6, 2006, and interest immediately accrued on the
debentures. All of the proceeds from this private placement were used to repay
the principal and accrued interest on certain other debentures that matured on
October 6, 2005, because the debenture holders would not extend the maturity
date of those debentures until April 6, 2006.

As a result of not achieving
quotation of our common shares on the Over-The-Counter Bulletin Board by April
6, 2006, we negotiated with our debenture holders for an extension of the
maturity date until October 6, 2006 in order to allow us additional time to
achieve quotation of our common shares for trading on the Over-The-Counter
Bulletin Board and delist our common shares from trading on the TSX Venture
Exchange. In exchange for the extension of the maturity date, we offered to
lower the conversion rate of the debentures to Cdn$0.12 per unit and the
exercise price for each of the class A common share purchase warrants and the
class B common share purchase warrants to Cdn$0.12. Only one of our debenture
holders sought to be paid the principal and interest on his debenture, which was
Cdn$25,150, while the remaining debenture holders agreed to the extension of the
maturity date.

On February 28, 2005, we
completed a revolving loan agreement with Carbiz Auto Credit JV1, LLC, our joint
venture company, with no fixed maximum principal amount and no fixed repayment
term at an annual interest rate of the U.S. prime rate plus 1.5% .

On July 29, 2005, we completed a
non-brokered private placement of a $150,000 principal amount promissory note
that bears interest at a rate of 17.7% with Medipac (US) International Inc.,
which is a wholly-owned subsidiary of Medipac International Inc. which is an
entity controlled by Ross Quigley, who is one of our directors, and Theodore
Popel, who is also one of our directors. This note calls for payments of $15,000
including principal and interest to begin on October 1, 2005 and will mature on
August 1, 2006.

We used all of these funds
primarily to finance our operating loss and expand our Carbiz Auto credit
operations.

24

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Payments due from us over the
next five fiscal years for operating and capital leases, and short and long-term
debt are as follows:

Less Than
      
      
      One to
      
      
      Three to
      
      
      Greater thanOne
        Year
      
      
      Three
        Years
      
      
      Five
        Years
      
      
      Five
        Years
      
      
      TotalOperating Leases
    $
      190,710
    
    $
      360,515
    
    $
      38,123
    
    $
      -
    
    $
      589,248Capital Leases
    
      7,664
    
    
      14,645
    
    
      -
    
    
      -
    
    
      22,309Long-Term Debt
    
      138,402
    
    
      116,470
    
    
      -
    
    
      -
    
    
      254,872Interest
    
      18,489
    
    
      5,258
    
    
      -
    
    
      -
    
    
      23,747$
      355,265
    
    $
      496,888
    
    $
      38,123
    
    $
      -
    
    $
      890,276


Should our operating revenues
fail to increase to provide sufficient cash flow to fund operations we may
require additional financing. Based on first quarter results and an assumption
of meeting business projections for the remainder of the fiscal year and
achieving quotation of our common shares on the Over-The-Counter Bulletin Board
and a delisting on the TSX Venture Exchange on or before October 6, 2006, our
current cash flow from operations and our cash on hand are sufficient to fund
our operations until January 2007. Actual results that vary from projections may
require the need for additional cash during that period. Our ability to arrange
such financing in the future will depend in part upon the prevailing capital
market conditions as well as our business performance. There can be no assurance
that we will be successful in our efforts to arrange additional financing, if
needed, on terms satisfactory to us or at all. The failure to obtain adequate
financing could result in a substantial curtailment of our operations. If
additional financing is raised by the issuance of securities, control of Carbiz
may change and/or our shareholders may suffer significant dilution.

Off-Balance Sheet Arrangements

As of July 31, 2006, we do not have any off-balance sheet
arrangements.

Item 3. Controls and Procedures

Disclosure Controls

Under the supervision and with
the participation of our management, including our Chief Executive Officer and
Chief Financial Officer, we evaluated the effectiveness of the design and
operation of its disclosure controls and procedures (as defined in Rule
13a-15(e) of the Securities Exchange Act of 1934, as amended (the Exchange
Act)) as of the end of the period covered by this report (the Evaluation
Date). Based upon that evaluation, the Chief Executive Officer and Chief
Financial officer concluded that, as of the Evaluation Date, our disclosure
controls and procedures were operating effectively to ensure that information
required to be disclosed by us in reports that we file or submit under the
Exchange Act, is recorded, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission.

Internal Control Over Financial Reporting

Our management is responsible for
establishing and maintaining adequate internal control over financial reporting
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. No changes in our internal
control over financial reporting occurred during our most recent fiscal quarter
that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.

Notwithstanding the foregoing,
because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that our disclosure controls and
procedures will detect or uncover every situation involving the failure of
persons within our company and our subsidiaries to disclose material information
otherwise required to be set forth in our periodic reports. Our disclosure
controls and procedures are designed to provide reasonable assurance of
achieving their objective of ensuring that information required to be disclosed
in the reports that we file or submit under the Exchange Act is communicated to
management, including the Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosure.

25

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PART II  OTHER INFORMATION

Item 1. Legal Proceedings

None.

Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

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

Our Annual & Special Meeting of Shareholders was held at
the Holiday Inn Lakewood Ranch at 6231 Lake Osprey Drive, Sarasota, Florida on
July 20, 2006 at 5:00 p.m. Our shareholders voted on four items, with results as
indicated:

|(1) | The election of seven directors to serve until the
      next annual meeting of shareholders:
|--- | ---------------------------------------------------------------------------------------------
|    |                                                                                              
|    | Director                                                                                     
|    |                                                                                              
|    | Carl Ritter                                                                                  
|    | Ross Quigley                                                                                 
|    | Richard Lye                                                                                  
|    | Theodore Popel                                                                               
|    | Stanton Heintz                                                                               
|    | Christopher Bradbury                                                                         
|    | Wallace Weylie                                                                               

|(2) | The appointment of Christopher, Smith, Leonard, Bristow, Stanell,
      P.A., Certified Public Accountants to provide an audit of our January 31,
      2006 financial statements.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|    | No. of Shares                        | No. of Shares |                    | No. of          
|--- | ------------------------------------ | ------------- | ------------------ | ----------------
|    | Voted For                            | Voted Against | No. of Abstentions | Broker Non-Votes
|    | 11,916,263                           | -             | -                  | -               
|    |                                      |               |                    |                 
|(3) | To re-approve our stock option plan. |               |                   
|    |                                      |               |                    |                 
|    | No. of Shares                        | No. of Shares |                    | No. of          
|    | Voted For                            | Voted Against | No. of Abstentions | Broker Non-Votes
|    | 9,471,861                            | 40,491        | 2,403,911          | -               

26

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|Item 5.                                                                                                   | **Other
      Information**
|--------------------------------------------------------------------------------------------------------- | ---------------------------
|                                                                                                          |                            
|None.                                                                                                    
|                                                                                                         
|Item 6. Exhibits                                                                                         
|                                                                                                         
|The following exhibits are filed (or incorporated
      by reference herein) as part of this Form 10-QSB:

|Exhibit |                                                                                  
|------- | ---------------------------------------------------------------------------------
|Number  | Description                                                                      
|3.1(1)  | Articles of Incorporation dated
      March 31, 1998                             
|3.2(1)  | Articles of Amendment dated April 15, 1998                                       
|3.3(1)  | Articles of Amendment dated April
      22, 1998                                 
|3.4(1)  | Articles of Amendment dated September 1, 1999                                    
|3.5(1)  | Articles of Amendment dated October
      30, 2002                               
|3.6(1)  | Articles of Amendment dated July 15, 2003                                        
|3.7(1)  | Bylaw No. 1                                                                      
|3.8(1)  | Bylaw No. 2                                                                      
|31.1    | Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a)        
|31.2    | Certification of Chief
      Financial Officer pursuant to Rule 13a-14(a)        
|32.1    | Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350
|32.2    | Certification of Chief
      Financial Officer pursuant to 18 U.S.C. Section 1350

|(1) Incorporated by reference to the Companys registration
      statement on Form SB-2 filed November 11, 2005 (File No 333- 129408)
|--------------------------------------------------------------------------------------------------------------------------------------

27

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SIGNATURES

In accordance with the requirements of the Exchange Act, the
  registrant has caused this report to be signed on its behalf by the undersigned,
  thereunto duly authorized.

|                         |     | CARBIZ INC.                  
|------------------------ | --- | -----------------------------
|                         |     |                              
|Date: September 14, 2006 | By: | /s/ Carl Ritter              
|                         |     | Carl Ritter                  
|                         |     | Chief Executive Officer      
|                         |     | (principal executive officer)

28

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