---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-QSB

(Mark One)

[X] QUARTERLY REPORTUNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended**October 31,
2006**

OR

[   ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE 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 Trail Sarasota, 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 [X] No [   ]

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 December 5, 2006, 60,824,404 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-QSB

For the Quarterly Period Ended October 31, 2006

INDEX

|PART I  | Financial Information                                       |   
|------- | ----------------------------------------------------------- | --
|Item 1. | Financial Statements                                        | 1 
|Item 2. | Managements Discussion and Analysis or Plan of Operation   | 22
|Item 3. | Controls and Procedures                                     | 28
|        |                                                             |   
|PART II | Other Information                                           |   
|Item 1. | Legal Proceedings                                           | 30
|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 30
|Item 3. | Defaults Upon Senior Securities                             | 30
|Item 4. | Submission of Matters to a Vote of Security Holders         | 30
|Item 5. | Other Information                                           | 30
|Item 6. | Exhibits                                                    | 30

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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 obtain additional financing on terms
      favorable to us, if at all, if our operating revenues fail to
    increase;                                                                                                                                
| |        |                                                                                                                                                                                                                                                                      
| | (iv)   | our ability to attract and retain key
personnel;                                                                                                                                                                                                                     
| |        |                                                                                                                                                                                                                                                                      
| | (v)    | 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;
| |        |                                                                                                                                                                                                                                                                      
| | (vi)   | the significant fluctuation of the market price of our
      common shares;                                                                                                                                                                                          
| |        |                                                                                                                                                                                                                                                                      
| | (vii)  | costly difficulties we may face in the assimilation of
      the operations, technologies and products of companies that we may acquire
      in the future;                                                                                                         
| |        |                                                                                                                                                                                                                                                                      
| | (viii) | the adequacy of our insurance coverage to cover all loses
      or liabilities that may be incurred in our operations;                                                                                                                                               
| |        |                                                                                                                                                                                                                                                                      
| | (ix)   | our dividend policy;                                                                                                                                                                                                                                                 
| |        |                                                                                                                                                                                                                                                                      
| | (x)    | the impact on our financial position, liquidity and
      results of operations if we underestimate the default risk of sub-prime
      borrowers;                                                                                                                   
| |        |                                                                                                                                                                                                                                                                      
| | (xi)   | general economic conditions;                                                                                                                                                                                                                                         
| |        |                                                                                                                                                                                                                                                                      
| | (xii)  | general competition;                                                                                                                                                                                                                                                 
| |        |                                                                                                                                                                                                                                                                      
| | (xiii) | our ability to comply with federal and state government
      regulations;                                                                                                                                                                                           
| |        |                                                                                                                                                                                                                                                                      
| | (xiv)  | our ability to obtain adequate remedies in the event that
      our intellectual property rights are violated; and                                                                                                                                                   
| |        |                                                                                                                                                                                                                                                                      
| | (xv)   | 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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1  FINANCIAL PART INFORMATION

Item 1. Financial Statements

|CARBIZ INC.                      
|---------------------------------
|Consolidated Balance Sheets      
|Unaudited                        
|(expressed in
      U.S. dollars)

|                                                                                  |   | As at            |   |   | As at            |  
|--------------------------------------------------------------------------------- | - | ---------------- | - | - | ---------------- | -
|                                                                                  |   | October 31, 2006 |   |   | January 31, 2006 |  
|ASSETS                                                                            |   |                  |   |   |                  |  
|CURRENT                                                                           |   |                  |   |   |                  |  
|Cash and cash equivalents                                                         | $ | 79,615           |   | $ | 119,735          |  
|Accounts
      receivable (Note 4)                                                |   | 55,399           |   |   | 96,627           |  
|Current portion of notes
      receivable (Note 4)                                |   | 351,707          |   |   | 523,101          |  
|Inventory                                                                         |   | 64,321           |   |   | 47,554           |  
|Prepaids and other assets                                                         |   | 185,365          |   |   | 58,681           |  
|Deferred costs                                                                    |   | 15,410           |   |   | 35,722           |  
|                                                                                  |   | 751,817          |   |   | 881,420          |  
|NOTES RECEIVABLE                                                                  |   | 65,754           |   |   | 103,818          |  
|DEFERRED COSTS                                                                    |   | 6,185            |   |   | 17,015           |  
|PROPERTY AND EQUIPMENT                                                            |   | 201,012          |   |   | 340,063          |  
|                                                                                  | $ | 1,024,768        |   | $ | 1,342,316        |  
|LIABILITIES                                                                       |   |                  |   |   |                  |  
|CURRENT                                                                           |   |                  |   |   |                  |  
|Accounts
      payable and accrued liabilities                                    | $ | 1,276,367        |   | $ | 1,285,202        |  
|Loan payable (Note 8)                                                             |   | -                |   |   | 131,210          |  
|Current
      portion of capital leases                                           |   | 7,486            |   |   | 8,033            |  
|Current portion of
      long-term debt                                           |   | 139,032          |   |   | 154,608          |  
|Convertible debenture                                                             |   | -                |   |   | 1,378,484        |  
|Warrant derivative
      liability                                                |   | 2,509,602        |   |   | -                |  
|Deferred revenue                                                                  |   | 141,696          |   |   | 240,624          |  
|                                                                                  |   | 4,074,183        |   |   | 3,198,161        |  
|DEFERRED REVENUE                                                                  |   | 41,231           |   |   | 113,434          |  
|CAPITAL LEASES                                                                    |   | 12,707           |   |   | 18,387           |  
|LONG-TERM DEBT                                                                    |   | 87,828           |   |   | 174,163          |  
|                                                                                  |   | 4,215,949        |   |   | 3,504,145        |  
|MINORITY INTEREST (Note 8)                                                        |   | 219,195          |   |   | 241,333          |  
|STOCKHOLDERS' DEFICIENCY                                                          |   |                  |   |   |                  |  
|COMMON SHARES                                                                     |   | 16,274,119       |   |   | 14,197,260       |  
|Unlimited shares
      authorized, 60,824,404 and 41,090,514 common shares        |   |                  |   |   |                  |  
|issued and outstanding as at October 31 and January 31, 2006 ,
      respectively |   |                  |   |   |                  |  
|WARRANTS                                                                          |   | -                |   |   | 20,499           |  
|ADDITIONAL PAID-IN CAPITAL                                                        |   | 6,215,841        |   |   | 5,843,709        |  
|OTHER COMPREHENSIVE LOSS                                                          |   | (385,197         | ) |   | (385,197         | )
|ACCUMULATED DEFICIT                                                               |   | (25,515,139      | ) |   | (22,079,433      | )
|                                                                                  |   | (3,410,376       | ) |   | (2,403,162       | )
|                                                                                  | $ | 1,024,768        |   | $ | 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 nine months ended |  
|-------------------------------------- | - | -------------------------- | - | - | ------------------------- | -
|                                       |   | October 31                 |   |   | October 31                |  
|                                       |   | 2006                       |   |   | 2005                      |  
|                                       |   |                            |   |   | (As restated -            |  
|                                       |   |                            |   |   | see Note 1(a))            |  
|SALES                                  |   |                            |   |   |                           |  
|Software and Consulting
      Services | $ | 609,371                    |   | $ | 591,129                   |  
|Used Car Sales and Financing           |   | 194,870                    |   |   | 438,360                   |  
|                                       |   | 804,241                    |   |   | 1,029,489                 |  
|COST OF SALES                          |   |                            |   |   |                           |  
|Software and Consulting
      Services |   | 235,006                    |   |   | 183,499                   |  
|Used Car Sales and Financing           |   | 146,479                    |   |   | 352,017                   |  
|                                       |   | 381,485                    |   |   | 535,516                   |  
|GROSS PROFIT                           |   | 422,756                    |   |   | 493,973                   |  
|                                       |   |                            |   |   |                           |  
|Personnel Expenses                     |   | 262,696                    |   |   | 229,080                   |  
|Selling Expenses                       |   | 73,679                     |   |   | 93,775                    |  
|Other Operating Expenses               |   | 515,738                    |   |   | 433,486                   |  
|                                       |   | 852,113                    |   |   | 756,341                   |  
|OPERATING INCOME (LOSS)                |   | (429,357                   | ) |   | (262,368                  | )
|                                       |   |                            |   |   |                           |  
|INTEREST AND OTHER EXPENSES            |   | (47,767                    | ) |   | (68,397                   | )
|                                       |   |                            |   |   |                           |  
|LOSS ON DERIVATIVE INSTRUMENTS         |   | (2,817,530                 | ) |   | -                         |  
|                                       |   |                            |   |   |                           |  
|MINORITY INTEREST (Note 8)             |   | (1,302                     | ) |   | (6,445                    | )
|NET INCOME (LOSS) FROM                 |   |                            |   |   |                           |  
|CONTINUING OPERATIONS                  |   | (3,295,956                 | ) |   | (337,210                  | )
|NET INCOME (LOSS) FROM                 |   |                            |   |   |                           |  
|DISCONTINUED OPERATIONS OF TAXMAX      |   |                            |   |   |                           |  
|INCLUDING GAIN ON DISPOSAL OF $421,425 |   | -                          |   |   | (7,566                    | )
|                                       |   |                            |   |   |                           |  
|NET INCOME (LOSS)                      |   | (3,295,956                 | ) |   | (344,776                  | )
|NET INCOME (LOSS) PER SHARE FROM       |   |                            |   |   |                           |  
|CONTINUING OPERATIONS                  |   |                            |   |   |                           |  
|NET INCOME (LOSS) PER SHARE FROM       |   |                            |   |   |                           |  
|DISCONTINUED OPERATIONS                |   |                            |   |   |                           |  
|                                       |   |                            |   |   |                           |  
|NET INCOME (LOSS) PER SHARE            |   |                            |   |   |                           |  
|                                       |   |                            |   |   |                           |  
|                                       |   |                            |   |   |                           |  
|WEIGHTED AVERAGE NUMBER OF COMMON      |   |                            |   |   |                           |  
|SHARES OUTSTANDING                     |   |                            |   |   |                           |  

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 nine months ended |  
|-------------------------------------------------------------- | - | ------------------------- | -
|                                                               |   | October 31                |  
|                                                               |   | 2006                      |  
|NET INFLOW (OUTFLOW) OF CASH RELATED                           |   |                           |  
|TO THE FOLLOWING ACTIVITIES                                    |   |                           |  
|                                                               |   |                           |  
|OPERATING                                                      |   |                           |  
|Net income (loss) for the year                                 | $ | (3,435,706                | )
|Items not
      affecting cash                                 |   |                           |  
|Depreciation of property and equipment                         |   | 60,559                    |  
|Minority interest                                              |   | 22,138                    |  
|Loss on
      disposal of assets                               |   | 71,926                    |  
|Amortization of debt financing costs (Note 5)                  |   | -                         |  
|Loss on
      derivative financial instruments                 |   | 2,817,530                 |  
|Issuance of common shares for interest expense                 |   | 105,700                   |  
|Issuance of
      common shares for consulting expense         |   | 150,000                   |  
|Net changes in
      non-cash operating assets and liabilities |   |                           |  
|Accounts
      receivable                                      |   | 250,685                   |  
|Prepaids and other assets                                      |   | (126,684                  | )
|Inventory                                                      |   | (16,767                   | )
|Deferred costs                                                 |   | 31,142                    |  
|Accounts
      payable and accrued liabilities                 |   | (8,835                    | )
|Deferred
      revenue                                         |   | (171,130                  | )
|                                                               |   | (249,442                  | )
|                                                               |   |                           |  
|INVESTING                                                      |   |                           |  
|Acquisition of property and
      equipment                    |   | (10,098                   | )
|FINANCING                                                      |   |                           |  
|Repayment of
      capital leases                              |   | (6,227                    | )
|Proceeds from borrowing                                        |   | -                         |  
|Repayment of
      long-term debt                              |   | (101,911                  | )
|Investment from Joint Venture                                  |   | -                         |  
|Retirement of
      matured debentures                         |   | -                         |  
|Issuance of convertible
      debenture                        |   | -                         |  
|Issuance of share capital                                      |   | 283,370                   |  
|                                                               |   | 175,232                   |  
|EFFECT OF EXCHANGE RATE CHANGES ON CASH                        |   |                           |  
|AND CASH EQUIVALENTS                                           |   | 44,188                    |  
|                                                               |   |                           |  
|INCREASE (DECREASE) IN CASH AND                                |   |                           |  
|CASH
      EQUIVALENTS                                         |   | (40,120                   | )
|CASH AND CASH EQUIVALENTS,                                     |   |                           |  
|BEGINNING OF PERIOD                                            |   | 119,735                   |  
|CASH AND CASH EQUIVALENTS,                                     |   |                           |  
|END OF PERIOD                                                  | $ | 79,615                    |  
|(1) See Note 7                                                 |   |                           |  

The 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. As of October 3, 2006, the Companys common shares were quoted
      on the United States Over-the-Counter Bulletin Board and were delisted
      from the Toronto Venture Exchange (TSX).                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | In the opinion of management, all adjustments, consisting
      of normal recurring adjustments, have been made in the October 31, 2006
      and 2005 financial statements, which are necessary for a fair financial
      statement presentation. The results for the nine months ended October 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 that 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. These 2004 Debentures were converted on
      October 3, 2006  see Note 5.                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | As a result of this restatement, for the nine months
      ended October 31, 2004, interest and other expenses has decreased from
      $712,213 to $154,885 and net loss decreased from $1,080,947 to
      $467,103.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   | 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 (excluding derivative liability)
      of $812,764 as at October 31, 2006. This deficiency grows to $3,322,366
      when you include the derivative liability of $2,509,602. 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,                                                                                                       

4

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|1. | ORGANIZATION AND BUSINESS (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | (b)      Going concern
      assumption (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | there can be no assurance that the Company will achieve
      profitable operations or that financing efforts will be
  successful.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | 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 of 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

---

|2. | SUMMARY OF ACCOUNTING POLICIES
  (continued)                                                                                                                    
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                 
|   | Accounts receivable (continued)                                                                                                                                 
|   |                                                                                                                                                                 
|   | A comparison of the following classifications of notes
      receivable related to auto sales at October 31, 2006 and January 31, 2006
      is presented below:

| |                                            |   | October 31, 2006 |  |  | January 31, 2006 | 
| | ------------------------------------------ | - | ---------------- |  |  | ---------------- | 
| |                                            |   | Amount           |  |  | Number           | 
| | Active accounts                            | $ | 467,289          |  |  | 188              | 
| | Accounts held in repossession              | $ | 11,756           |  |  | 4                | 
| |                                            |   |                  |  |  |                  | 
| |                                            |   | October 31, 2006 |  |  | October 31, 2005 | 
| |                                            |   | Amount           |  |  | Number           | 
| | Accounts charged off during 9 month period | $ | 187,705          |  |  | 163              | 

Inventory

Inventory consists of used automobiles
and 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-balance                              
| | ----------------------- | --------------------------------------------------------------------
| | Computer equipment      | -          30%
      declining-balance                              
| | Leasehold 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

---

|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

---

|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 $45,514 in the nine months ended October 31, 2006, and $74,859 in the nine
months ended October 31, 2005.

Foreign currency translation

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. Revenues, 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

---

|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 nine months
      ended October 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 nine months ended October
      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 nine months ended October 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 123R had been
      applied in the first nine 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 nine months ended             
| | ------------------------------------------ | --------------------------------------
| |                                            | October 31, 2005                      
| |                                            |                                       
| | Net income (loss) - as reported            | $                   (467,103)         
| | Stock-based compensation expense recorded  | -                                     
| | Pro-forma stock-based compensation expense | (23,614)                              
| | Net income (loss)
      - pro-forma        | $                  
      (490,717)   
| |                                            |                                       
| | Basic and diluted loss per share:          |                                       
| | As reported                                | $                       
       (0.01)
| | Pro-forma                                  | $                       
       (0.01)

The Company did not grant any
additional options during the nine months ended October 31, 2006 and 2005.
During the nine months ended October 31, 2006, 392,676 shares were exercised for
$43,370 and during the nine months ended October 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 nine months ended October 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:

9

---

|2. | SUMMARY OF ACCOUNTING POLICIES
  (continued)
|-- | --------------------------------------------
|   |                                             
|   | Stock-based compensation
  (continued)      

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

|   | 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 nine months ended
      October 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.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Warrant derivative liability                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | The Company accounts for warrants issued in connection
      with financing arrangements in accordance with Emerging Issues Task Force
      (EITF) Issue No. 00-19, Accounting for Derivative Financial
      Instruments, Indexed to, and Potentially Settled in, a Companys Own Stock
      (EITF 00-19). Pursuant to EITF 00-19, an evaluation of specifically
      identified conditions is made to determine whether the fair value of
      warrants issued is required to be classified as a derivative liability.
      The fair value of warrants classified as derivative liabilities is
      adjusted for changes in fair value at each reporting period, and the
      corresponding non-cash gain or loss is recorded in current period
      earnings. See Note 5(c) and 6(c).                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|3. | EFFECT OF RECENT ACCOUNTING
  PRONOUNCEMENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Fair value measurement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | In September 2006, the Financial Accounting Standards
      Board (FASB) issued FAS 157 (SFAS), Fair Value Measurements. This
      standard defines fair value, establishes a framework for measuring fair
      value in generally accepted accounting principles, and expands disclosures
      about fair value measurements. This statement is effective for financial
      statements issued for fiscal years beginning after November 15, 2007.
      Earlier application is encouraged. The adoption of this accounting
      pronouncement is not expected to have a material effect on the
      consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                            

10

---

|3. | EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
      (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Uncertainty in income taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | In July 2006, the FASB issued Interpretation No. 48 (Fin
      48), Accounting for Uncertainty in Income Taxes. This interpretation
      requires recognition and measurement of uncertain income tax positions
      using a more-likely-than-not approach. The provisions of FIN 48 are
      effective for fiscal years beginning after December 15, 2006. The adoption
      of this accounting pronouncement is not expected to have a material effect
      on the consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Servicing of financial assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | In March 2006, the FASB issued FAS No. 156 (SFAS 156),
      Accounting for Servicing of Financial Assets  an amendment of FASB
      Statement No. 140. This standard clarifies when to separately account for
      servicing rights, requires servicing reights to be separately recognized
      initially at fair value, and provides the option of subsequently
      accounting for servicing rights at either fair value or under the
      amortization method. The standard is effective for fiscal years beginning
      after September 15, 2006 but can be adopted early as long as financial
      statements for the fiscal year in which early adoption is elected,
      including interim statements, have not yet been issued. The adoption of
      this accounting pronouncement is not expected to have a material effect on
      the consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Hybrid financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | In February 2006, the FASB issued FAS No. 155 (SFAS
        155), Accounting for Certain Hybrid Financial Instruments
         an amendment of FASB Statements No. 133 and 140. This statement
        permits fair value remeasurement for any hybrid financial instrument that
        contains an embedded derivative that would otherwise have to be accounted
        for separately. SFAS 155 also requires companies to identify interests
        in securitized financial assets that are freestanding derivatives or contain
        embedded derivaties that would have to be accounted for separately, clarifies
        which interest and principal-only components are subject to FASB Statement
        No. 133, and amends Statement No. 140 to revise the conditions of a qualifying
        special purpose entity due to the new requirement to identify whether
        interests in securitized financial assets are freestanding derivatives
        or contain embedded derivatives. SFAS 155 is effective for all financial
        instruments acquired or issued after the beginning of an entity's first
        fiscal year that begins after September 15, 2006, but can be adopted early
        as long as financial statements for the fiscal year in which early adoption
        is elected, including interim statements, have not yet been issued. The
        adoption of this accounting pronouncement is not expected to have a material
        effect on the consolidated financial statements.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

11

---

|4. | ACCOUNTS RECEIVABLE AND NOTES
  RECEIVABLE
|-- | ------------------------------------------

| |                                             |   | October 31, |  |   | January 31, | 
| | ------------------------------------------- | - | ----------- |  | - | ----------- | 
| |                                             |   | 2006        |  |   | 2006        | 
| | Trade receivables from product              | $ | 67,736      |  | $ | 111,717     | 
| | Less: Allowance
      for doubtful accounts |   | 12,337      |  |   | 15,090      | 
| |                                             | $ | 55,399      |  | $ | 96,627      | 
| | Notes receivable from vehicle sales         | $ | 479,045     |  | $ | 722,038     | 
| | Less: Allowance for doubtful accounts       |   | 61,584      |  |   | 95,119      | 
| |                                             |   | 417,461     |  |   | 626,919     | 
| | Long-term portion of notes receivable       |   | 65,754      |  |   | 103,818     | 
| | Current portion of
      notes receivable   | $ | 351,707     |  | $ | 523,101     | 

During the nine-month periods ended
October 31, 2006, and 2005, the Company earned $60,852 and $73,928 of financing
income on notes receivable. This amount has been included with revenue in these
financial statements.

Activity in the allowance for doubtful
accounts for trade receiveables and notes for auto sales is as follows:

Period Ended
    
    Beginning
    
    Charged to
    
    Write-offs
    
    at End ofOctober 31
    
    Period
    
    Expenses
    
    and
      Other
    
    Period2006
    
    $ 110,209
    
    $ 159,406
    
    $ 195,694
    
    $ 73,9212005
    
    $ 51,936
    
    $ 190,251
    
    $ 131,978
    
    $ 110,209


|5. | CONVERTIBLE DEBENTURES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | (a) Debenture offerings                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | On October 12, 2004 (the Closing Date), the
        Company completed a convertible debenture financing (the 2004 Debentures)
        for gross 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 (each 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 were unsecured and bore interest
        at 5% per annum, beginning on May 1, 2005. Prior to May 1, 2005, the 2004
        Debentures were non-interest bearing.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | 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 cash
        fee that may be incurred on the exercise of warrants has not been recorded
        in these financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

12

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|5. | CONVERTIBLE DEBENTURES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | 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 Debentures 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 contain 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 nine months ended October 31,
      2006 is $nil and $60,201 for the same period last year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | On October 12, 2005, the Company completed a convertible
        debenture financing (the 2005 Debentures) for gross 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 (each 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 an
      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 extinguishment of the 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 new 2005 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 both the newly issued
      2005 Debentures and amended 2005 Debentures become convertible only upon
      the Companys quotation of its common shares on the
  OTC-BB,                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

13

---

|5. | CONVERTIBLE DEBENTURES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | 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 (each 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
        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 extended the maturity date
      for an additional six months 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 which 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 946,085 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | (b) Debenture conversion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | On September 1, 2006, the Companys registration
      statement on Form SB-2 (File No. 333-129408) was declared effective by the
      U.S. Securities and Exchange Commission (the SEC). Effective October 3,
      2006, the approximately $1,406,529 of debenture financing which closed on
      April 6, 2006 (described above) and accumulated interest of $76,805
      converted into 13,842,027 common shares, 14,472,753 Class A Common Share
      Purchase Warrants and 7,236,355 Class B Common Share Purchase Warrants
      (the Conversion).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The 13,842,027 common shares related to 13,124,494
      debenture principal shares and 717,533 debenture interest shares. The
      14,472,753 Class A Common Share Purchase Warrants related to 13,124,494
      debenture principal shares, 717,533 debenture interest shares, and 630,723
      penalty interest warrants. The 7,236,372 Class B Common Share Purchase
      Warrants related to 6,562,247 debenture principal shares, 358,766
      debenture interest shares, and 315,342 penalty interest warrants. The
      number of shares and warrants finally issued
varied                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

14

---

|5. | CONVERTIBLE DEBENTURES (continued)                                                                                                                                                                                                                          
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                             
|   | slightly from the amounts detailed in the 2004 Debentures
      and the two subsequent refinancings thereto due to a variance between the
      estimated amounts accrued prior to the debenture conversion and the final
      calculations at conversion. 
|   |                                                                                                                                                                                                                                                             
|   | Each class A common share purchase warrant and each class
      B common share purchase warrant is exercisable for one common share
      expiring from October 6, 2009 through April 6, 2011, as summarized below,
      and an exercise price of CDN$0.12.

Summary of warrant by expiration dates:

| |                         | Class A  |  | Class B |  | Total      | 
| | ----------------------- | ---------- |  | --------- |  | ---------- | 
| |                         | Warrants   |  | Warrants  |  | Warrants   | 
| |                         |            |  |           |  |            | 
| | Expires October 6, 2009 | 6,893,056  |  | 3,446,511 |  | 10,339,567 | 
| | Expires October 6, 2010 | 7,370,178  |  | 3,685,086 |  | 11,055,264 | 
| | Expires April 6, 2011   | 209,519    |  | 104,758   |  | 314,277    | 
| |                         |            |  |           |  |            | 
| | Total                   | 14,472,753 |  | 7,236,355 |  | 21,709,108 | 

In addition, 33,723 shares valued at
$3,608 and cash of $2,548 was paid for interest from September 1, 2006, the date
the Form SB-2 was declared effective with the SEC, through October 3, 2006, the
date the debentures converted.

(c) Derivative liabilities

Evaluation of criteria under EITF Issue
No. 00-19, Accounting for Derivative Financial Instrument Indexed to, and
Potentially Settle in, a Companys Own Stock, resulted in the determination
that the Companys outstanding warrants should be classified as a derivative
liability. In accordance with EITF 00-19, warrants which are determined to be
classified as derivative liabilities are marked to market each reporting period,
with a corresponding non-cash gain or loss reflected in the current period.

Using a Black Scholes model valuation
with the following assumptions for each series by expiration date, expected
volatility of 91.70%, 94.77% and 99.14% respectively; risk free interest rate of
4.11%; and a remaining contractual life of 2.93 years, 3.93 years and 4.43 years
respectively, the aggregate fair value of these warrant derivative liabilities
at October 31, 2006 was $2,136,189.

The Black-Scholes model was developed
for use in estimating the fair value of financial instruments. Such models
require the input of highly subjective assumptions. Changes in the subjective
input assumptions can materially affect the fair value estimates.

Summary of warrant values as of October
31, 2006:

Warrants
    
    
    
    
    
    AmountExpires October 6, 2009
    
    10,339,567
    
    
    
    
    $
    920,955Expires October 6, 2010
    
    11,055,264
    
    
    
    
    $
    1,181,643Expires April 6, 2011
    
    314,276
    
    
    
    
    $
    33,591Totals
    
    21,709,108
    
    
    
    
    $
    2,136,189


15

---

|5. | CONVERTIBLE DEBENTURES (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | (d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Evaluation of criteria under EITF Issue No. 00-27,
      Application of Issue No. 98-5 to Certain Convertible Instruments
      resulted in the determination using the guidance of Issue 15 therein that
      the Debentures contained a beneficial conversion feature represented by
      the excess of the fair value of common shares and warrants issuable on
      conversion of the 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
      Debentures allocated to the common shares upon conversion was $1,406,529
      (when converted to US$ at date of conversion). The portion of the proceeds
      from the issuance of the 2006 Debentures allocated to the beneficial
      conversion features was $351,633 (when converted to US$ at date of
      conversion). This calculated beneficial conversion feature of $351,633 was
      charged to Loss on Derivative Instruments and credited to
      Additional-Paid-In Capital.                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | (e)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | As outlined above, the Company had engaged an agent for
      the Debenture financing. Accordingly, the Company also issued as of
      October 3, 2006 438,100 common share purchase warrants, with each warrant
      exercisable for one common share until October 3, 2011 at an exercise
      price of CDN$0.23, and 438,100 common share purchase warrants, with each
      warrant exercisable for one common share until October 3, 2011 at an
      exercise price of CDN$0.22 to the agent involved in the Debenture
      financing. Using a Black-Scholes model valuation assuming an expected
      dividend yield of zero, expected stock price volatility of 102%, risk free
      interest rate of 4.11% and a remaining contractual life of 4.93 years, the
      aggregate fair value of the warrant derivative liability at October 31,
      2006 was $95,831.                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | Such amount was charged to Loss on Derivative
      Instruments and credited to Warrant Derivative Liability on the October
      31, 2006 balance sheet.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|6. | RECENT ISSUANCES OF STOCK AND WARRANTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | On September 5, 2006, the Company competed a non-brokered
      private placement of 2,400,000 units at a price of $0.10 per unit for
      gross proceeds to the Company 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 offering, related party debt in the amount of
      $156,546.44 held by two directors of the Company was also converted into
      1,565,464 units with the same terms as the units issued in the private
      placement. Accordingly, 3,965,464 shares were issued and the 3,965,464 of
      two year common stock warrants were valued using a Black-Scholes model
      valuation assuming an expected dividend yield of zero, expected stock
      price volatility of 106%, risk free interest rate of 4.11% and a remaining
      contractual life of 1.83 years, the aggregate fair value of the warrant
      derivative liability at October 31, 2006 was determined to be $277,582.
      This amount was charged to Loss on Derivative Instruments and credited
      to Warrant Derivative Liability on the October 31, 2006 balance
      sheet.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | On September 5, 2006, the Company issued 1,500,000 common
      shares to an investor relations consultant in consideration for a six
      month consulting agreement. The Company valued the shares at $0.10 and
      expensed the amount over the six months of the contract using as guidance
      EITF Issue No. 96-18, Accounting for Equity Instruments That Are Issued
      to Other Than Employees for Acquiring, or in Conjunction with Selling,
      Goods or Services. The value of the consultant shares was based on the
      value the Company received for private placement shares referred to above
      in Note 6(a). Accordingly, the three and nine month periods ended October
      31, 2006 include $50,000 within Other Operating
Expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

16

---

|6. | RECENT ISSUANCES OF STOCK AND WARRANTS
      (continued)                  
|-- | --------------------------------------------------------------------------
|   |                                                                           
|   | (c) Summary of warrant liability at October 31,
      2006                
|   |                                                                           
|   | As of October 31, 2006 the Company had warrant liability
      as follows:

Conversion Warrants expiring October 6,
      2009
    $
    920,955Conversion Warrants expiring October 6, 2010
    
    1,181,643Conversion Warrants expiring April 6, 2011
    
    33,591Private Placement Warrants expiring September 5, 2008
    
    277,582Agent Warrants expiring October 6, 2011
    
    95,831Total
    $
    2,509,602


|   | This warrant liability will be adjusted quarterly based
      on a Black-Scholes value model and any changes in fair value will be
      recorded at income/cost of derivative financial instruments.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                      
|7. | CASH FLOW INFORMATION                                                                                                                                                                                
|   |                                                                                                                                                                                                      
|   | (a) Supplemental
information                                                                                                                                                                         

| |                                                |   | Nine months ended | 
| | ---------------------------------------------- | - | ----------------- | 
| |                                                |   | October 31, 2006  | 
| | Cash paid during the period
      for Interest | $ | 29,227            | 

(b) Supplemental non-cash
information

During the nine months ended October
31, 2006, the Company converted certain convertible debentures (see Note 5)
which were treated as a conversion of debt and issuance of common shares in the
amount of $1,406,529 and as such have not been included in the statement of cash
flows. Interest of $76,805 for the Debenture conversion and interest of $28,895
for related party debt were exchanged for common shares totaling $105,700.

| |                                                                           |   | October 31, |  |  | October 31, | 
| | ------------------------------------------------------------------------- | - | ----------- |  |  | ----------- | 
| |                                                                           |   | 2006        |  |  | 2005        | 
| |                                                                           |   |             |  |  |             | 
| | NON-CASH ACTIVITY                                                         |   |             |  |  |             | 
| |                                                                           |   |             |  |  |             | 
| | Common shares issued in
      connection with a consulting agreement      | $ | 150,000     |  |  | -           | 
| |                                                                           |   |             |  |  |             | 
| | Common shares issued for
      related party loan payable                 | $ | 131,210     |  |  | -           | 
| |                                                                           |   |             |  |  |             | 
| | Debenture converted into
      common stock                               | $ | 1,406,529   |  |  | -           | 
| |                                                                           |   |             |  |  |             | 
| | Common stock issued for
      satisfaction of debenture accrued interest  | $ | 80,414      |  |  | -           | 
| |                                                                           |   |             |  |  |             | 
| | Common stock issued for
      satisfaction of related party loan interest | $ | 25,286      |  |  | -           | 
| |                                                                           |   |             |  |  |             | 
| | Fair value of derivative
      liabilities                                | $ | 2,509,602   |  |  | -           | 

17

---

|8. | 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 sheet. A summary
      of 100% of the joint venture revenues and expenses and assets are listed
      below:

| |                        |   | October 31, 2006 |   |   | October 31, 2005 |  
| | ---------------------- | - | ---------------- | - | - | ---------------- | -
| | Sales                  | $ | 244,305          |   | $ | 157,696          |  
| | Cost of sales          |   | 201,090          |   |   | 100,428          |  
| | Gross Profit           |   | 43,215           |   |   | 57,268           |  
| | Operating Expenses (1) |   | 86,656           |   |   | 69,924           |  
| | Operating Loss         | $ | (43,441          | ) | $ | (12,656          | )
| | Depreciation           |   | (835             | ) |   | (464             | )
| | Net Loss               | $ | (44,276          | ) | $ | (13,120          | )
| |                        |   |                  |   |   |                  |  
| | Total Assets           | $ | 465,198          |   | $ | 494,128          |  

(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. The balance outstanding at January 31, 2006
      of $131,210 was included in current liabilities. On September 5, 2006, the
      $131,210 principal balance, plus $25,336 of accrued interest was converted
      into common shares as discussed in Note 6(a).
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|9. | 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.                                                                                                                                                                                                                                                                                                                                                                                                                      

18

---

|9.  | FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
      (continued)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | 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
      October 31, 2006 and January 31, 2006, the Company had Canadian dollar
      assets of CDN$2,610 and CDN$2,018 respectively, and the Company had
      Canadian dollar liabilities of CDN$3,805,588 at October 31, 2006 and
      CDN$2,266,643 at January 31, 2006. During the nine-month periods ended
      October 31, 2006 and 2005, the Company recorded a foreign exchange loss of
      $23,935 in 2006 and $74,912 in 2005. See Note 2  Foreign currency
      translation for the Companys policy on foreign currency
    translation.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10. | 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
      11.                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

19

---

|10. | SEGMENTED INFORMATION FOR CONTINUING OPERATIONS
      (continued)
|--- | -----------------------------------------------------------------

| | Three months
      ended October 31 |   |             |   |   |        |  |   |              |   |   |          |  
| | ----------------------------------- | - | ----------- | - | - | ------ |  | - | ------------ | - | - | -------- | -
| |                                     |   |             |   |   | 2006   |  |   |              |  
| |                                     |   | Carbiz Auto |   |   |        |  |   | Software and |   |   |          |  
| |                                     |   | Credit      |   |   | JV1    |  |   | Other        |   |   | Total    |  
| | Sales                               | $ | 121,326     |   | $ | 73,543 |  | $ | 609,371      |   | $ | 804,241  |  
| | Cost of Sales                       |   | 99,158      |   |   | 47,321 |  |   | 235,006      |   |   | 381,485  |  
| | Gross Profit                        |   | 22,168      |   |   | 26,222 |  |   | 374,365      |   |   | 422,756  |  
| | Operating Expenses
      (1)        |   | 71,842      |   |   | 23,247 |  |   | 739,765      |   |   | 834,854  |  
| | Income (Loss) From Segments         | $ | (49,674     | ) | $ | 2,976  |  | $ | (365,400     | ) |   | (412,098 | )
| | Depreciation & Amortization         |   |             |   |   |        |  |   |              |   |   | (17,259  | )
| | Total Operating Income (Loss)       |   |             |   |   |        |  |   |              |   | $ | (429,357 | )

| |                               |   |             |   |   | 2005    |  |   |              |  
| | ----------------------------- | - | ----------- | - | - | ------- |  | - | ------------ | -
| |                               |   | Carbiz Auto |   |   |         |  |   | Software and |  
| |                               |   | Credit      |   |   | JV1     |  |   | Other        |  
| | Sales                         | $ | 305,622     |   | $ | 132,738 |  | $ | 591,129      |  
| | Cost of Sales                 |   | 264,271     |   |   | 87,746  |  |   | 183,499      |  
| | Gross Profit                  |   | 41,351      |   |   | 44,992  |  |   | 407,630      |  
| | Operating Expenses
      (1)  |   | 145,961     |   |   | 37,934  |  |   | 532,757      |  
| | Income (Loss) From Segments   | $ | (104,610    | ) | $ | 7,058   |  | $ | (125,127     | )
| | Depreciation & Amortization   |   |             |   |   |         |  |   |              |  
| | Total Operating Income (Loss) |   |             |   |   |         |  |   |              |  

| | Nine months
      ended October 31 |   |             |   |   |         |   |   |              |   |   |            |  
| | ---------------------------------- | - | ----------- | - | - | ------- | - | - | ------------ | - | - | ---------- | -
| |                                    |   |             |   |   | 2006    |   |   |              |  
| |                                    |   | Carbiz Auto |   |   |         |   |   | Software and |   |   |            |  
| |                                    |   | Credit      |   |   | JV1     |   |   | Other        |   |   | Total      |  
| | Sales                              | $ | 451,743     |   | $ | 194,117 |   | $ | 1,806,397    |   | $ | 2,452,258  |  
| | Cost of Sales                      |   | 459,125     |   |   | 150,902 |   |   | 698,020      |   |   | 1,308,047  |  
| | Gross Profit                       |   | (7,382      | ) |   | 43,215  |   |   | 1,108,377    |   |   | 1,144,211  |  
| | Operating Expenses
      (1)       |   | 161,394     |   |   | 86,656  |   |   | 1,852,885    |   |   | 2,100,935  |  
| | Income (Loss) From Segments        | $ | (168,776    | ) | $ | (43,440 | ) | $ | (744,508     | ) |   | (956,724   | )
| | Depreciation & Amortization        |   |             |   |   |         |   |   |              |   |   | (60,559    | )
| | Total Operating Income (Loss)      |   |             |   |   |         |   |   |              |   | $ | (1,017,283 | )
| | Total Assets                       | $ | (444,484    | ) | $ | 465,198 |   | $ | 904,055      |   | $ | 924,768    |  

| |                               |   |             |   |   | 2005    |   |   |              |  
| | ----------------------------- | - | ----------- | - | - | ------- | - | - | ------------ | -
| |                               |   | Carbiz Auto |   |   |         |   |   | Software and |  
| |                               |   | Credit      |   |   | JV1     |   |   | Other        |  
| | Sales                         | $ | 1,005,642   |   | $ | 151,538 |   | $ | 1,791,994    |  
| | Cost of Sales                 |   | 773,664     |   |   | 100,428 |   |   | 614,172      |  
| | Gross Profit                  |   | 231,978     |   |   | 51,110  |   |   | 1,177,822    |  
| | Operating Expenses
      (1)  |   | 423,745     |   |   | 69,924  |   |   | 1,274,691    |  
| | Income (Loss) From Segments   | $ | (191,767    | ) | $ | (18,814 | ) | $ | (96,869      | )
| | Depreciation & Amortization   |   |             |   |   |         |   |   |              |  
| | Total Operating Income (Loss) |   |             |   |   |         |   |   |              |  
| |                               |   |             |   |   |         |   |   |              |  
| | Total Assets                  | $ | 646,179     |   | $ | 206,219 |   | $ | 576,295      |  

(1) Excluding depreciation and
amortization.

20

---

|11. | 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 nine months ended October 31, 2005.                                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|12. | SUBSEQUENT EVENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | During November 2006, the Company borrowed $55,000 and in
      early December 2006 an additional $75,000, on a short term basis from a
      company owned by a significant stockholder.                                                                                                                                                                                                                                                                                                               

21

---

Item 2. Managements Discussion and Analysis or Plan of
Operation

Overview

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

- Software product and support sales and business model consulting
  services through initial software license fees and subsequent support
  agreements, which provide monthly maintenance fees as well as through a
  combination of one-time consulting fees and monthly business analysis
  services;
- Tax return processing used for down payments on automobile purchases
  (TaxMax) which was sold during May 2006; and
- Direct auto sales and related financing (Carbiz Auto Credit centers) through our self provided on- site specialty finance business, which
  includes company-owned locations as well as locations owned by our joint
  venture.

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 Independent Dealer Accounting (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 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.

22

---

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. Our TaxMax
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 principles 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.

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

|                                                   |   | 2006       |   |  | % of    |   |   | 2005      |   |  | % of    |  
|-------------------------------------------------- | - | ---------- | - |  | ------- | - | - | --------- | - |  | ------- | -
|                                                   |   |            |   |  | Revenue |   |   |           |   |  | Revenue |  
|Revenue                                            | $ | 804,241    |   |  | 100.0   |   | $ | 1,029,489 |   |  | 100.0   |  
|Cost of sales                                      | $ | 381,485    |   |  | 47.4    |   | $ | 535,516   |   |  | 52.0    |  
|Gross profit                                       | $ | 422,756    |   |  | 52.6    |   | $ | 493,973   |   |  | 48.0    |  
|Operating expenses                                 | $ | 852,113    |   |  | 106.0   |   | $ | 756,341   |   |  | 73.5    |  
|Operating income (loss)                            | $ | (439,357   | ) |  | (54.6   | ) | $ | (262,368  | ) |  | (25.5   | )
|Interest expense                                   | $ | (47,767    | ) |  | 5.9     |   | $ | (68,397   | ) |  | 6.6     |  
|Loss on derivative instruments                     | $ | (2,817,530 | ) |  | 350.3   |   | $ | -         |   |  |         |  
|Minority interest income (loss)                    | $ | (1,302     | ) |  | 0.2     |   | $ | (6,445    | ) |  | 0.6     |  
|Net income (loss) from continuing
      operations | $ | (3,295,956 | ) |  | (409.8  | ) | $ | (337,210  | ) |  | (32.8   | )
|Net income (loss) from discontinued operations     | $ | -          |   |  |         |   | $ | (7,566    | ) |  | (0.7    | )
|NET INCOME (LOSS)                                  | $ | (3,295,956 | ) |  | (409.8  | ) | $ | (344,778  | ) |  | (33.5   | )
|Income (loss) per common share (1)                 | $ | (0.07      | ) |  |         |   | $ | (0.01     | ) |  |         |  
|Total assets                                       | $ | 1,024,768  |   |  |         |   | $ | 1,470,708 |   |  |         |  
|Long-term liabilities                              | $ | 141,766    |   |  |         |   | $ | 381,232   |   |  |         |  

(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 October 31, 2006, our revenues from continuing
operations decreased by $225,248 compared to our three-month revenue during the
previous period ended October 31, 2005. This decrease

23

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was due to a decrease of $243,491 in sales by our Carbiz Auto
Credit operating unit during the three months ended October 31, 2006 when
compared to the same period ended October 31, 2005. Carbiz Auto Credit generated
sales of $196,869, including $121,326 from our company-owned locations and
$75,543 from our joint venture location during the three months ended October
31, 2006.

Cost of Sales

Our cost of sales expense decreased by $154,031 for the three months ended
October 31, 2006, compared to same period ended October 31, 2005. Carbiz Auto
Credit operations cost of sales decreased by $205,538, including a decrease in
costs of $165,113 from our Company-owned locations and a decrease of $40,425
from our joint venture location during the three months ended October 31, 2006,
and all other parts of the operation increased cost of sales by $51,507 during
the three months ended October 31, 2006. We anticipate that our cost of sales
expense will increase as we open additional Carbiz Auto Credit centers in the
future.

Expenses

For the three months ended Octoer 31, 2006, our operating expenses increased by
$95,772 compared to the same period ended October 31, 2005. The Carbiz Auto
Credit operating expenses decreased by $88,806, including a decrease of $74,119
from our Company-owned locations and a decrease of $14,687 from our joint
venture location during the three months ended October 31, 2006, while operating
expenses for other segments increased by $184,578 during the three months ended
October 31, 2006, primarily due to expenses related to preparation of our Form
SB-2 registration statement, which was declared effective on September 1,
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 $22,430 for the three months ended October 31, 2006 as compared to
the same period ended October 31, 2005.

Interest Expense

Our interest expense decreased by $20,630 for the three months ended October 31,
2006, compared to the same period ended October 31, 2005, as we continue to pay
down our longer term debt, with principal payments being made monthly.

Loss on Derivative Instruments

For the three months ended October 31, 2006, we incurred non-cash expenses of
$2,817,530 as a result of the conversion of our 5% debentures including $304,092
in direct expense of the conversion of the debentures and $2,513,438 in expenses
of the warrants issued upon the debenture conversion.

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 October 31, 2006 increased by
  $18,242 over the prior period ended October 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 2006 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
has been 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.

24

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Carbiz Auto Credit

The fastest growing segment of our business continues to be our Carbiz Auto
Credit specialty consumer finance business. We operate 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 reinforce the effectiveness of our system for operations, marketing,
underwriting and collections.

The decrease in sales activity during the three months ended October 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. Additional costs
related to the Form SB-2 registration statement process resulted in the
temporary cash shortage.

Nine Months ended October 31, 2006 compared to the Nine
Months ended October 31, 2005

|                                                   |   | 2006       |   |  | % of    |   |   | 2005      |   |  | % of    |  
|-------------------------------------------------- | - | ---------- | - |  | ------- | - | - | --------- | - |  | ------- | -
|                                                   |   |            |   |  | Revenue |   |   |           |   |  | Revenue |  
|Revenue                                            | $ | 2,452,258  |   |  | 100.0   |   | $ | 2,949,174 |   |  | 100.0   |  
|Cost of sales                                      | $ | 1,308,047  |   |  | 53.3    |   | $ | 1,488,264 |   |  | 50.5    |  
|Gross profit                                       | $ | 1,144,211  |   |  | 46.7    |   | $ | 1,460,910 |   |  | 49.5    |  
|Operating expenses                                 | $ | 2,161,494  |   |  | 88.1    |   | $ | 1,879,148 |   |  | 63.7    |  
|Operating income (loss)                            | $ | (1,017,283 | ) |  | (41.5   | ) | $ | (418,238  | ) |  | (14.2   | )
|Interest expense                                   | $ | (179,814   | ) |  | 7.3     |   | $ | (154,885  | ) |  | 5.3     |  
|Loss on derivative instruments                     | $ | (2,817,530 | ) |  | 114.9   |   | $ | -         |   |  |         |  
|Minority interest income (loss)                    | $ | 22,138     |   |  | 0.9     |   | $ | 6,560     |   |  | 0.2     |  
|Net income (loss) from continuing
      operations | $ | (3,992,489 | ) |  | (160.0  | ) | $ | (566,563  | ) |  | (19.2   | )
|Net income (loss) from discontinued operations     | $ | 556,783    |   |  | 22.7    |   | $ | 99,460    |   |  | 3.4     |  
|NET INCOME (LOSS)                                  | $ | (3,435,706 | ) |  | (140.1  | ) | $ | (467,103  | ) |  | (15.8   | )
|Income (loss) per common share (1)                 | $ | (0.07      | ) |  |         |   | $ | (0.01     | ) |  |         |  
|Total assets                                       | $ | 1,024,768  |   |  |         |   | $ | 1,470,708 |   |  |         |  
|Long-term liabilities                              | $ | 141,766    |   |  |         |   | $ | 381,232   |   |  |         |  

(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 nine months ended October 31, 2006, our revenues decreased by $496,916
compared to our nine-month revenue during the previous period ended October 31,
2005. This was primarily due to a decrease of $511,320 in sales by our Carbiz
Auto Credit operating unit during the first nine months of 2006 when compared to
the first nine months of 2005. Carbiz Auto Credit generated sales of $645,860,
including $451,743 from our Company-owned locations and $194,117 from our joint
venture location, during the first nine 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 are announcing the support for a specific
product will be ending at a future date. During this time, we expect a majority
of our users will be replacing the discontinued product with our 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 $180,217 for the nine months ended
October 31, 2006, compared to the same period ended October 31, 2005. Carbiz
Auto Credit operations cost of sales decreased by $264,065, including a decrease
in costs of $314,539 from our Company-owned locations and an additional $50,474
from our

25

---

joint venture location during the nine months ended October 31,
2006, and all other parts of the operation increased cost of sales by $83,848
during the nine months ended October 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 nine months ended October 31, 2006, our operating expenses increased by
$282,346 compared to the same period ended October 31, 2005. The Carbiz Auto
Credit operating expenses were $248,050, including $161,394 from our
Company-owned locations and $86,656 from our joint venture location during the
nine months ended October 31, 2006, while operating expenses for other segments
increased by $527,965 during the nine months ended October 31, 2006. This
primarily resulted from a loss on foreign currency exchange of $63,199 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 nine months ended October 31, 2006
compared to the same nine 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 $50,229 for the nine months ended October 31, 2006 as compared to
the same period ended October 31, 2006.

Interest Expense

Our interest expense decreased by $24,929 for the nine months ended October 31,
2006, compared to the same period ended October 31, 2005, as 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 nine months ended October 31, 2006 increased over
  the prior period ended October 31, 2005 by $14,403.

Total software sales during the nine months ended October 31, 2006 decreased
from the prior period by $11,016, with recurring monthly support revenue showing
improvement over the prior period by an increase of $27,159. Sales of new
software installations increased from the prior period by $16,143.

The adoption of our current Carbiz Windows-based programs by existing DOS users
continued to show an upward trend during the nine months ended October 31, 2006,
with approximately 10% of users on previous generation DOS programs upgrading to
current programs. This is an increase from the prior period due to the
announcement that effective at the end of this calendar year, we will no longer
support one of our DOS-based programs. We believe that our existing user base is
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 nine months
ended October 31, 2006, with several completed installations included in the
sales totals. The monthly recurring support revenue for IDA in the nine months
ended October 31, 2006 grew to $21,046, with additional installations to be
completed during the fourth quarter of the 2007 fiscal year. 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 nine months ended October 31, 2006
showed an increase from the prior period of $16,478, while recurring monthly
consulting revenue increased by $9,339 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.

26

---

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 nine months ended October 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 nine months ended October 31,
2006, the total Carbiz Auto Credit loan portfolio was $722,038 and $479,045,
respectively. The allowance for doubtful accounts at the same dates was $95,119
and $61,584, respectively. The allowance for doubtful accounts is established
through the allocation of 100% of any repossessions in process plus
approximately 10% 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 October 31, 2006, we had $119,735 and $79,615,
respectively, in cash and cash equivalents. During thenine months ended
October 31, 2006, we decreased our accounts payable and accrued liabilities by
$8,835, which totaled $1,276,367 at October 31, 2006. During the nine months
ended October 31, 2006, we made debt repayments and capital lease payments
totaling $239,348 which includes $156,546 repaid through issuance of our
securities as described below. 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
October 17, 2006, the Company issued 129,776 common shares pursuant to the
exercise of options issued to our employees at an exercise price of CDN$.10
resulting in proceeds of $11,576 (when converted to US$ at date of conversion).

Effective
October 3, 2006, the approximately $1.3 million in debentures related to our
debenture financing which closed on April 6, 2006 converted into 13,842,027
common shares, 14,472,753 class A common share purchase warrants and 7,236,355
class B common share purchase warrants (the Conversion). Each class A common
share purchase warrant and each class B common share purchase warrant is
exercisable for one common share expiring from October 6, 2009 through April 6,
2011 at an exercise price of Cdn$0.12 per common share. The Conversion occurred
as a result of the quotation of our shares on the U.S. Over-The-Counter Bulletin
Board and the delisting of our shares from the TSX Venture Exchange.

On
September 5, 2006, we completed a non-brokered private placement of 2,400,000
units at a price of $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 held by two of our directors was also converted into 1,565,464 units
with the same terms as the units issued in the private placement completed on
Sepember 5, 2006.

27

---

On
August 31, 2006, the Company issued 200,000 common shares pursuant to the
exercise of an option issued to one of our consultants at an exercise price of
CDN$.145 resulting in proceeds of $26,126 (when converted to US$ at date of
conversion).

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

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
    
    
    One to Three
    
    
    Three to Five
    
    
    Greater thanYear
    
    
    Years
    
    
    Years
    
    
    Five
      Years
    
    
    TotalOperating Leases
    $
    192,456
    
    $
    334,384
    
    $
    20,789
    
    $
    -
    
    $
    547,628Capital Leases
    
    7,486
    
    
    12,707
    
    
    -
    
    
    -
    
    
    20,193Long-Term Debt
    
    139,032
    
    
    87,828
    
    
    -
    
    
    -
    
    
    226,860Interest
    
    14,388
    
    
    3,645
    
    
    -
    
    
    -
    
    
    18,033$
    353,361
    
    $
    438,564
    
    $
    20,789
    
    $
    -
    
    $
    812,714


Should our operating revenues fail to increase to provide sufficient cash flow
to fund operations, we may require additional financing. Based on nine month
results and an assumption of meeting business projections for the remainder of
the fiscal year, our current cash flow from operations and our cash on hand are
sufficient to fund our operations untilJanuary 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 October 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 our 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, and accumulated and communicated to management, including the Chief
Executive Officer and Chief Financial officer, to allow timely decisions
regarding required disclosures.

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

28

---

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.

29

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PART II  OTHER INFORMATION

Item 1. Legal Proceedings

None.

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

On
October 17, 2006, the Company issued 129,776 common shares pursuant to the
exercise of options issued to our employees. The securities issued pursuant to
the exercise of the options were issued in reliance upon the exemption from
registration provided under Section 4(2) of the Securities Act of 1933, as
amended, as the issuance did not involve any public offering.

Item 3. Defaults Upon Senior Securities

None.

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

None

Item 5. Other Information

None.

Item 6. Exhibits

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)
|--- | ------------------------------------------------------------------------------------------------------------------------------------

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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: December 15, 2006 | /s/
      Carl Ritter        
|                        | Carl Ritter                  
|                        | Chief Executive Officer      
|                        | (principal executive officer)

31

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